<PAGE>
As filed with the Securities and Exchange Commission on September 1, 2000
Registration No. 333-34590
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT No. 3 To
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
Comdisco, Inc.
(Exact Name of Registrant as Specified in its Charter)
--------------
Delaware 36-2687938
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6111 North River Road
Rosemont, Illinois 60018
(847) 698-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
JEREMIAH M. FITZGERALD, Esq.
Vice President and Chief Legal Officer
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
(847) 698-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
LOLA M. HALE, Esq. ROBERT J. DONATUCCI, Esq.
MICHAEL J. BOLAND, Esq. Brown & Wood LLP
McBride Baker & Coles One World Trade Center, 58th Floor
500 West Madison, 40th Floor New York, New York 10048
Chicago, Illinois 60661 (212) 839-5300
(312) 715-5700
--------------
Approximate date of commencement of proposed sale to the public: as soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to such Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a U.S. and Canadian offering of the Comdisco Ventures
group stock of the registrant and one to be used in a concurrent international
offering of the Comdisco Ventures group stock. The international prospectus
will be identical to the U.S. prospectus except that it will have a different
front cover page, underwriting section and back cover page. The U.S. prospectus
is included herein and is followed by the alternate front cover page,
underwriting section and back cover page to be used in the international
prospectus, each of which has been labeled "Alternative Page for International
Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This preliminary prospectus +
+is not an offer to sell these securities and it is not soliciting an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Dated September 1, 2000
PROSPECTUS
10,000,000 Shares
Comdisco, Inc.
Comdisco Ventures Group Stock
-----------
Comdisco, Inc. is offering Comdisco Ventures group stock, a new series of
our common stock intended to reflect the separate performance of Comdisco
Ventures group, our venture financing business. The U.S. underwriters are
offering 8,500,000 shares in the U.S. and Canada and the international managers
are offering 1,500,000 shares outside the U.S. and Canada.
We anticipate that the price to the public will be between $14.00 and
$16.00 per share. This is Comdisco, Inc.'s first public offering of Comdisco
Ventures group stock and, currently, no public market exists for these shares.
We have applied to list our Comdisco Ventures group stock on the Nasdaq
National Market, under the symbol "CDOV."
Investing in Comdisco Ventures group stock involves risks. See "Risk
Factors," beginning on page 31.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................. $ $
Underwriting discount............................ $ $
Proceeds, before expenses, to Comdisco........... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 1,275,000
shares of Comdisco Ventures group stock at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional 225,000 shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of Comdisco Ventures group stock will be ready for delivery on
or about , 2000.
-----------
Merrill Lynch & Co.
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Consolidating Statements ................................................ 16
Risk Factors............................................................. 31
Special Note Regarding Forward-Looking Statements........................ 44
Use of Proceeds.......................................................... 48
Dividend Policy.......................................................... 48
Capitalization........................................................... 49
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Comdisco, Inc. ........................................ 50
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Comdisco Ventures Group................................ 65
Business of Comdisco Ventures Group...................................... 75
Description of Comdisco Capital Stock.................................... 94
Relationship Between Comdisco Ventures Group and Comdisco Group.......... 114
Material U.S. Federal Income Tax Considerations.......................... 121
Underwriting............................................................. 124
Legal Matters............................................................ 129
Experts.................................................................. 129
Where You Can Find More Information...................................... 129
Incorporation of Information Comdisco Files With the SEC................. 130
Comdisco Ventures Group and Comdisco, Inc. Financial Statements.......... F-1
</TABLE>
-----------------
We have not, and the underwriters have not, authorized any other person
to provide you with information different than the information contained or
incorporated by reference in this prospectus. We are not, and the underwriters
are not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations
and prospects may have changed since that date.
This prospectus contains trademarks and tradenames of other companies.
1
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that is important to
you in making an investment decision. To better understand the offering, you
should read this entire prospectus carefully, as well as those additional
documents to which we refer you. See "Where You Can Find More Information," on
page 129. All references to "we," "our," or "us" in this prospectus are to
Comdisco, Inc. All references to fiscal years are to Comdisco's fiscal years
ended September 30, unless otherwise indicated.
Introduction to our Tracking Stock Structure
On April 20, 2000 our stockholders approved our tracking stock proposal.
In order to implement the proposal, we filed our restated charter with the
Secretary of State of Delaware on May 4, 2000. Our restated charter, among
other things:
. increased the total authorized shares of our common stock from
750,000,000 to 1,800,000,000;
. authorized our board of directors to issue common stock in multiple
series;
. designated the initial two series of common stock as Comdisco group
stock and Comdisco Ventures group stock;
. re-classified each outstanding share of our then existing common
stock as one share of Comdisco group stock; and
. initially authorized 750,000,000 shares of Comdisco group stock and
750,000,000 shares of Comdisco Ventures group stock.
For the purposes of establishing a tracking stock, Comdisco, Inc. has
separated its venture financing business--which we call Comdisco Ventures
group--from the rest of its businesses--which we call Comdisco group. Comdisco,
Inc. intends its Comdisco Ventures group stock to track the performance of the
Comdisco Ventures group, and intends its Comdisco group stock to track the
performance of the Comdisco group. Comdisco, Inc. is offering you shares of
Comdisco Ventures group stock, but is not offering you any shares of Comdisco
group stock. When we refer to Comdisco, Inc. in this prospectus, we are
referring to Comdisco, Inc. and its consolidated subsidiaries, which include
the assets and liabilities of both the Comdisco Ventures group and the Comdisco
group. Comdisco, Inc. will continue to own 100% of the assets and liabilities
included in the Comdisco Ventures group after this offering. If you invest in
the Comdisco Ventures group stock, you will be a stockholder of Comdisco, Inc.
Comdisco Ventures group will not be a separate legal entity but rather
will be a part of Comdisco. Accordingly, holders of Comdisco Ventures group
stock will be common stockholders 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, including those of Comdisco group.
Tracking stocks, like Comdisco Ventures group stock and Comdisco group
stock, are more complex than traditional common stock and are not directly
comparable to common stock of companies that have been spun off by their parent
companies. Because of:
. the ability of Comdisco, Inc.'s board of directors or capital stock
committee to reallocate assets and modify policies without
stockholder approval;
. the complex nature of the terms of tracking stocks; and
. some terms, including liquidation and voting rights, that are not
intended to link the market value of the tracking stock with the
performance of the related group's assets;
2
<PAGE>
we cannot assure you that the market price of the Comdisco Ventures group stock
and Comdisco group stock will reflect the performance of the assets contained
in these groups as we intend.
The issuance of Comdisco Ventures group stock, and the allocation of
assets and liabilities and stockholders' equity between Comdisco group and
Comdisco Ventures group 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, and will not affect the rights of the holders of any debt of
Comdisco or its subsidiaries. The assets we attribute to Comdisco Ventures
group will be subject to the liabilities of Comdisco group, whether those
liabilities arise from lawsuits, contracts or indebtedness that we attribute to
Comdisco group. If we are unable to satisfy one group's liabilities out of the
assets we attribute to it, we would be required to satisfy those liabilities
with assets we have attributed to another group. Furthermore, holders of
Comdisco Ventures group 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.
Comdisco, Inc.
Comdisco provides global technology infrastructure solutions to help its
customers maximize their technology's reliability, efficiency and flexibility.
Comdisco, Inc.'s businesses include:
. our technology services businesses, including: continuity services,
managed network services, desktop management solutions and web
hosting and availability services;
. our global leasing and remarketing businesses in areas such as
electronics, communications, laboratory and scientific and
industrial automation equipment;
. Prism Communication Services, Inc., a majority-owned subsidiary we
acquired in March, 1999, through which we provide integrated
communications services; and
. our venture financing division, through which we provide equipment
leasing and other financing to venture capital-backed companies.
Comdisco was founded in 1969 and incorporated in Delaware in 1971. Since
our inception, our markets and the services that we offer, and therefore, the
way we conduct our business, have changed significantly. We expect these
changes to continue. These changes are primarily the result of rapid changes in
technology including declining prices, manufacturer consolidations, the rapid
rise of industries such as telecommunications and the rise of new dominant
technologies like the Internet and their related impact on customers' needs and
requirements. Initially, we were engaged primarily in the procurement and
placement of new and used computer equipment, principally mainframe and related
peripherals. We developed disaster recovery and contingency planning services
in 1980. In the mid-1980's we expanded our 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. In 1987, we formed our venture financing
division which has grown significantly in the last three fiscal years and has
become a significant contributor to our earnings.
On March 24, 1999, we announced a major shift in corporate strategy,
including our intent to focus on high-margin service businesses and shed low-
margin businesses, such as our mainframe residual-based leasing and medical
equipment refurbishing business. In conjunction with our repositioning, we
recorded a one-time pre-tax charge of $150 million, or $96 million on an after
tax basis, which is equal to approximately $0.59 per share, in the quarter
ended March 31, 1999. The components of this pretax charge include $100 million
associated with our plans to exit the mainframe residual-based leasing
business, $20 million to exit the medical equipment refurbishing business and
$30 million associated with a realignment of our service businesses. We
completed the sale of our mainframe computer leasing portfolio and the sale of
the medical equipment refurbishing business in the fiscal
3
<PAGE>
quarter ended June 30, 1999. In addition to these sales, we completed the sale
of substantially all of our vendor lease portfolio in September, 1999.
We recently introduced our web-availability services to provide one-stop
hosting and recovery solutions that meet the availability needs of e-businesses
of all sizes. By building on our significant business continuity experience, we
believe we can deliver cost-effective availability solutions, offering advanced
protection of our customer's data, servers, network and applications.
Our principal executive offices are located at 6111 North River Road,
Rosemont, Illinois 60018. Our telephone number is (847) 698-3000.
When we use the term "Comdisco group," in this prospectus we mean:
. all the assets, liabilities, revenues, expenses and cash flows
attributable to Comdisco, Inc.'s businesses other than its venture
financing business; and
. all shares of Comdisco Ventures group stock reserved for issuance
for the benefit of the Comdisco group or to the holders of Comdisco
group stock, if any.
Comdisco Ventures Group
The business that comprises Comdisco Ventures group was established as a
division of Comdisco in 1987, and has been operated as a division since that
time. It is not a separate legal entity.
We have allocated all of the assets, liabilities, revenues, expenses and
cash flows attributable to Comdisco's venture financing business to Comdisco
Ventures group. We currently intend to include all future venture financing
activities in Comdisco Ventures group; however, Comdisco's board of directors
and management has the discretion to direct new businesses and assets to
Comdisco Ventures group or to Comdisco group or dispose of or transfer the
business or assets of either group. Any such actions are intended to be made in
accordance with the allocation and management policies governing the
relationship between Comdisco Ventures group and Comdisco group adopted by our
board of directors. These allocation and management policies can be modified or
abandoned by the board of directors in its discretion; however, any decision
made in accordance with those policies, and any decision to alter or abandon
those policies, will be made subject to the fiduciary duties owed by Comdisco's
board of directors and management to all Comdisco stockholders.
We will report the assets, liabilities, revenues, expenses and cash flows
attributable to Comdisco Ventures group's operations as separate financial
information, which will allow investors to track the performance of those
assets, liabilities, revenues, expenses and cash flows. However, Comdisco
Ventures group will remain a division of Comdisco, and its assets, liabilities,
revenues, expenses and cash flows are included in the consolidated financial
statements of Comdisco.
Comdisco Ventures group provides venture leases, venture debt and direct
equity financing to venture capital-backed companies. Venture leases are leases
with warrants that compensate Comdisco Ventures group for providing equipment
leases with terms having lower periodic cash costs than leases or loans without
warrants. Similarly, venture debt is a high-risk loan with warrants or a
conversion-to-equity feature with more flexible terms, having lower periodic
cash costs and security conditions, than more traditional debt financing.
Comdisco Ventures group's relationships with established venture capital
firms help it identify what it believes are the best positioned companies in
the most attractive high-growth industries. Comdisco Ventures group offers a
broad range of equity-linked financing products, which complement equity from
venture capital firms and debt from venture-oriented banks and asset-based
lenders.
Comdisco Ventures group provides its customers with financing
"commitments"--agreements to provide up to a stated dollar amount of financing
over a stated period of time. Since its formation,
4
<PAGE>
Comdisco Ventures group has committed over $2.8 billion in venture leases,
venture debt and direct equity financings, including $738 million in fiscal
1999 and $1.2 billion in the first nine months of fiscal 2000.
Historically, two primary sources of capital for start-up companies have
been venture capitalists and venture-oriented banks and asset-based lenders.
While the availability of venture capital has increased along with the volume
of start-up activity, venture capital generally represents the most dilutive
and intrusive type of financing. 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. In addition, while financings from venture-
oriented banks and asset-based lenders generally result in no or minimal
dilution of the ownership of existing equity holders, they typically involve
high monthly cash disbursements, limitations on the use of funds and adherence
to restrictive financial covenants.
Comdisco Ventures group believes these two primary sources of capital do
not fully meet the capital needs of start-up companies in the current economic
environment. Additionally, their disadvantages highlight the need for less
costly and less dilutive financing sources, creating opportunities for
alternative capital providers, like Comdisco Ventures group.
Comdisco Ventures Group's Solution
Comdisco Ventures group believes it provides significant value to
entrepreneurs and their venture capital investors through flexible financing
products and services which allow entrepreneurs to build their companies
quickly, while minimizing the dilution of their equity ownership positions.
Comdisco Ventures group has proven its ability to understand the capital
needs of its customers and to develop and customize attractive financings to
meet those needs. Currently, Comdisco Ventures group's primary financing
products are venture leases, venture debt and direct equity financings. The
warrants or conversion feature of venture leases and venture debt generally
provide Comdisco Ventures group 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 Comdisco Ventures group to offer more flexible financing and security
terms. Direct equity financings involve Comdisco Ventures group's purchase of
convertible preferred stock and common stock from its customers. Comdisco
Ventures group also provides other ancillary financings, including convertible
debt, bridge loans, expansion loans, acquisition financings and landlord
guarantees.
Comdisco Ventures Group's Strategy
Comdisco Ventures group intends to expand its position as a provider of
venture leases and venture debt and to introduce complementary services to
venture capital-backed companies. See "Business of Comdisco Ventures Group--
Comdisco Ventures Group's Strategy" on page 77 and "--Comdisco Ventures Group's
Products" on page 79 for a more detailed description of these products and
services. Its strategy is to continue to leverage its management experience and
resources to capitalize on the growing demand for financing by venture capital-
backed companies. Components of Comdisco Ventures group's strategy include:
. leveraging relationships with established venture capitalists;
. providing capital through products that meet the varied needs of its
venture capital-backed companies;
. maintaining a diversified customer base;
. expanding funding sources;
5
<PAGE>
. capitalizing on the Comdisco affiliation and resources; and
. developing complementary service offerings that respond to the
changing needs of venture capital-backed companies.
Comdisco Ventures group expects to generate future revenues from:
. the sale of common stock holdings in public companies;
. the disposition of current equity holdings in private companies,
through the sale of common stock following initial public offerings
or in connection with a merger, acquisition or other liquidity
event;
. returns it receives from ownership interests in alternative funding
sources, such as limited partnership funds;
. lease payments, interest payments on venture debt and related
proceeds from its customers; and
. fees or equity components received in connection with its service
offerings.
Comdisco Ventures Group Stock
General
Comdisco Ventures group stock is what is sometimes referred to as
"tracking stock." Tracking stock is a type of common stock that is intended to
reflect or "track" the separate performance of a particular business or group
of businesses and does not reflect direct ownership of the tracked assets.
Comdisco Ventures group stock is intended to track the separate performance of
the Comdisco Ventures group business. Comdisco Ventures group itself is not a
separate legal entity. Holders of Comdisco Ventures group stock will be
stockholders of Comdisco, Inc. For this reason, the holders of Comdisco
Ventures group stock will be subject to benefits and risks associated with an
investment in Comdisco, Inc. and its businesses, assets and liabilities.
Shares Reserved for Issuance for the Benefit of the Comdisco Group or to the
Holders of Comdisco Group Stock and the Intended Disposition
Shares Reserved for Issuance for the Benefit of the Comdisco Group.
Comdisco, Inc. has reserved 75,000,000 shares of Comdisco Ventures group stock
for issuance for the benefit of the Comdisco group or to the holders of
Comdisco group stock, a number that, if issued, would represent all of the
earnings and losses of the Comdisco Ventures group prior to the completion of
this offering. We refer to these shares as "shares reserved for issuance for
the benefit of the Comdisco group or to the holders of Comdisco group stock."
Immediately after this offering these reserved shares will represent 88% of the
total of the shares of Comdisco Ventures group stock outstanding and the shares
reserved for issuance for the benefit of the Comdisco Group or to the holders
of Comdisco group stock. If the over-allotment option is exercised in full,
shares of Comdisco Ventures group stock reserved for issuance for the benefit
of the Comdisco group or to the holders of Comdisco group stock will represent
approximately 87% of this total.
At the time of any additional issuance of Comdisco Ventures group stock,
the board of directors of Comdisco, Inc.. will:
. identify the number of shares of Comdisco Ventures group stock to be
issued out of the shares reserved for issuance for the benefit of
the Comdisco group or to the holders of Comdisco group stock with
respect to the Comdisco group's inter-group interest in the
6
<PAGE>
Comdisco Ventures group to be issued, reduce accordingly the number
of shares reserved and allocate the net proceeds of the issued
shares to the Comdisco group; or
. identify the number of shares of Comdisco Ventures group stock to be
issued the net proceeds of which will be allocated to the Comdisco
Ventures group.
Comdisco, Inc. will continue to own 100% of the assets and liabilities
allocated to the Comdisco Ventures group after this offering. For additional
information regarding the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of the Comdisco group or to the holders of Comdisco
group stock, see "Description of Comdisco Capital Stock--Comdisco Ventures
Group Stock--Shares reserved for issuance for the benefit of the Comdisco group
or to the holders of Comdisco group stock" on page 95.
Disposition. Comdisco, Inc. currently intends to dispose of the remaining
shares of Comdisco Ventures group stock reserved for issuance for the benefit
of the Comdisco group or to the holders of Comdisco group stock following this
offering. This disposition would likely include a distribution by means of a
spin-off in the form of a dividend to holders of Comdisco group stock of at
least a portion of the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of Comdisco group
stock, but may also include a split-off in the form of an exchange offer of
Comdisco Ventures group stock so reserved for Comdisco group stock, a further
sale of Comdisco Ventures group stock so reserved or a combination of those
methods. A split-off will result in a gain or loss, based on fair market value,
to stockholders, whereas a spin-off will be reflected at historical cost and,
accordingly, no gain or loss to stockholders will be recorded. The exact method
and timing of this disposition has not yet been determined. There is no
guarantee, however, that any disposition will follow this offering. We expect
to base our decision with regard to the method and timing of the disposition on
market conditions and the target of maximizing value for all Comdisco
stockholders.
The disposition may occur in several stages, following which we expect
that all of the shares of Comdisco Ventures group stock currently reserved for
issuance for the benefit of the Comdisco group or to the holders of Comdisco
group stock would be represented by newly issued shares of Comdisco Ventures
group stock.
Even after this distribution, however,
. all of the assets of the Comdisco Ventures group will still remain
part of, and under control of, Comdisco, Inc., and
. in the event of a liquidation of Comdisco, Inc., holders of Comdisco
Ventures group stock will not have an exclusive claim on the assets
of the Comdisco Ventures group but rather a claim on the assets of
Comdisco, Inc. as a whole.
Selected Rights and Terms of Comdisco Ventures Group Stock
Selected rights and terms of Comdisco Ventures group stock, which are set
forth in full in our restated charter, are summarized below.
Voting rights. On all matters as to which all series of our common stock
vote together as a single class, each share of Comdisco Ventures group stock
will have a number of votes equal to the ratio of the average market value of
one share of Comdisco Ventures group stock to the average market value of one
share of Comdisco group stock over a specified twenty-day trading period prior
to the record date of that vote; provided, however, that
. prior to the thirty-first trading day after the effective date of
our restated charter, each outstanding share of Comdisco Ventures
group stock will have one vote; and
. outstanding Comdisco Ventures group stock will in no event represent
more than 35% of the total voting power of all outstanding shares of
our capital stock.
7
<PAGE>
Dividends. Provided that we have sufficient assets to pay a dividend under
applicable law, Comdisco may declare and pay dividends on Comdisco Ventures
group stock up to an "available dividend amount." This amount is designed to be
equivalent to the amount that would legally be available for dividends on that
stock if Comdisco Ventures group were a stand-alone corporation. We do not,
however, expect to pay dividends on Comdisco Ventures group stock.
Rights on disposition of the assets of Comdisco Ventures group. If
Comdisco, Inc. disposes of all or substantially all of the assets of Comdisco
Ventures group, and the disposition is not an exempt disposition, as described
beginning on page 100, we would be required to choose one of the following
alternatives:
. pay a dividend to the holders of Comdisco Ventures group stock in an
amount equal to the net proceeds of the disposition, net of
corresponding amounts allocated to Comdisco group in respect of the
shares of Comdisco Ventures group stock reserved for issuance for
the benefit of Comdisco group or to the holders of Comdisco group
stock;
. if the disposition involves all of the assets of Comdisco Ventures
group, redeem all outstanding shares of Comdisco Ventures group
stock in exchange for an amount equal to the net proceeds of the
disposition, net of corresponding amounts allocated to Comdisco
group in respect of the shares of Comdisco Ventures group stock
reserved for issuance for the benefit of Comdisco group or to the
holders of Comdisco group stock;
. if the disposition involves substantially all, but not all, of the
assets of Comdisco Ventures group, redeem a number of whole shares
of Comdisco Ventures group stock in exchange for an amount equal to
the net proceeds of the disposition net of corresponding amounts
allocated to Comdisco group in respect of the shares of Comdisco
Ventures group stock reserved for issuance for the benefit of
Comdisco group or to the holders of Comdisco group stock; or
. convert each share of Comdisco Ventures group stock into a number of
shares of Comdisco group stock equal to 115% of the ratio of the
average market value of one share of Comdisco Ventures group stock
to the average market value of one share of Comdisco group stock,
calculated during a specified twenty-day trading period prior to the
disposition.
Conversion of Comdisco Ventures group stock at option of Comdisco.
Comdisco, Inc. will have the right, at any time, to convert shares of Comdisco
Ventures group stock into a number of shares of Comdisco group stock initially
equal to 125% of the ratio of the average market value of one share of Comdisco
Ventures group stock to the average market value of one share of Comdisco group
stock over a specified twenty-day trading period prior to the mailing of the
conversion notice for conversions occurring in the first quarter after we first
issue Comdisco Ventures group stock. The percentage applied to the ratio of
market values will decline ratably each quarter, beginning with the quarter
ended December 31, 2000, over a period of ten quarters to 115%.
The premiums described above that are provided upon any conversion of
Comdisco Ventures group stock are intended for the protection of the holders of
that class of stock in the initial years while the stock is establishing a
trading market since a decision by Comdisco, Inc. to convert that stock may be
made without the consent of the holders of Comdisco Ventures group stock. The
decrease in the premium from 25% to 15% over the first ten calendar quarters
the Comdisco Ventures group stock is outstanding is intended to allow greater
flexibility to Comdisco, Inc. in using these provisions over time by decreasing
the dilutive effect of such a conversion on holders of Comdisco group stock.
Provisions similar to these, with comparable declining premiums, are included
in the terms of tracking stocks of other public companies that have issued
tracking stock. Accordingly, we believe these premiums are necessary in order
for us to be able to successfully market the Comdisco Ventures group stock in
the offering, while balancing the need for Comdisco, Inc. to maintain
flexibility in its capital structure.
8
<PAGE>
Notwithstanding the conversion provisions outlined above, if tax law
changes that would have an adverse effect on the current tax treatment afforded
to Comdisco with respect to Comdisco Ventures group stock were to take place,
we will have the right to convert shares of Comdisco Ventures group stock into
a number of shares of Comdisco group stock equal to 110% of the ratio of their
average market values, regardless of when the adverse tax law change takes
place.
See "Description of Comdisco Capital Stock--Description of Comdisco
Ventures Group Stock--Conversion of Comdisco Ventures group stock at option of
Comdisco," beginning on page 102, for a discussion of these adverse tax law
changes.
Your share upon a dissolution of Comdisco, Inc. If a dissolution of
Comdisco, Inc. occurs, after payment of the debts and other liabilities of
Comdisco, Inc. and the full preferential amounts to which holders of any
preferred stock are entitled, the holders of Comdisco Ventures group stock and
the holders of Comdisco group stock will be entitled to receive the assets of
Comdisco, Inc. remaining for distribution to holders of each class of common
stock on a per share basis in proportion to the liquidation units per share of
that class. Holders of Comdisco Ventures group stock will not have an exclusive
claim on the assets of the Comdisco Ventures group but rather a claim on the
assets of Comdisco, Inc. as a whole.
Each share of Comdisco Ventures group stock will have a number of
liquidation units based upon the relative market values of Comdisco Ventures
group stock and Comdisco group stock over the twenty-trading day period ending
300 days after the filing of our restated charter. Each share of Comdisco group
stock will have one liquidation unit. For more information regarding the
calculation of the liquidation units for shares of Comdisco Ventures group
stock, see "Description of Comdisco Capital Stock--Description of Comdisco
Ventures Group Stock--Liquidation" on page 106.
Policy Statement
In connection with the issuance of Comdisco Ventures group stock,
Comdisco, Inc.'s board of directors has adopted a policy statement, which we
describe in this prospectus under "Relationship Between the Comdisco Ventures
Group and the Comdisco Group," on page 114, to govern the relationship between
Comdisco group and Comdisco Ventures group. Comdisco, Inc.'s board of directors
may amend, modify or rescind the policies set forth in the policy statement
with respect to the allocation of corporate opportunities, financing
arrangements, corporate overhead, taxes, debt, interest and other matters, or
may adopt additional policies, in its sole discretion and without shareholder
approval. Comdisco, Inc.'s board of directors has a fiduciary duty to consider
whether any proposed action is in the best interests of Comdisco, Inc. and all
of its stockholders and will not owe a separate fiduciary duty to holders of
Comdisco Ventures group stock.
Capital Stock Committee
The policy statement of Comdisco, Inc. provides that a capital stock
committee, comprised of three Comdisco, Inc. directors, will exercise some
delegated powers with respect to Comdisco Ventures group and Comdisco group.
These powers initially include the power to interpret, make determinations
under, and oversee the implementation of the policy statement and adopt
additional general policies governing the relationship between Comdisco
Ventures group and Comdisco group. As with Comdisco, Inc.'s board of directors,
the capital stock committee will have a fiduciary duty to consider whether a
proposed action is in the best interests of Comdisco, Inc. and all of its
stockholders and will have no separate fiduciary duty solely to holders of
Comdisco Ventures group stock. For more information regarding the capital stock
committee and its powers, see "Relationship between the Comdisco Ventures Group
and the Comdisco Group--Role of the Comdisco Capital Stock Committee," on page
114.
9
<PAGE>
The Offering
<TABLE>
<S> <C>
Issuer............................. Comdisco, Inc.
Comdisco Ventures group stock
offered:
U.S. and Canadian offering....... 8,500,000 shares
International offering........... 1,500,000 shares
Total.......................... 10,000,000 shares
Comdisco Ventures group stock to be
outstanding after this offering... 10,000,000 shares
Shares of Comdisco Ventures group
stock reserved for the benefit of
Comdisco group or to the holders
of Comdisco group stock upon the
closing of this offering.......... 75,000,000 shares
Total shares of Comdisco Ventures
group stock....................... 85,000,000 shares
Over allotment shares ............. 1,500,000 shares
Use of proceeds.................... The proceeds from this offering, after
expenses, will be used by Comdisco Ventures
group to repay inter-group loans to
Comdisco group. Comdisco group will use
those funds it receives from Comdisco
Ventures group for general corporate
purposes.
Preferred share purchase rights.... As part of Comdisco's stockholder rights
plan, one preferred share purchase right
will be attached to each share of Comdisco
Ventures group stock sold in the offering
and thus the rights are also a part of this
offering. See "Description of Comdisco
Capital Stock--Amended and Restated Rights
Agreement," beginning on page 108 for a
description of the Comdisco Ventures group
stock rights.
</TABLE>
Unless we specifically state otherwise, information in this prospectus
about the number of shares of Comdisco Ventures group stock to be outstanding
upon the closing of this offering:
. includes all 75,000,000 shares reserved for issuance for the benefit
of the Comdisco group or to holders of Comdisco group stock;
. does not include 10,391,250 options granted at $2.5647 per share and
1,275,000 options granted at $7.20 per share, all on May 26, 2000.
. does not include 9,333,750 shares reserved for issuance under our
stock option plans; and
. assumes no exercise of the underwriters' over-allotment option.
10
<PAGE>
Comdisco, Inc.
The following summary historical consolidated financial data should be
read in conjunction with Comdisco, Inc.'s consolidated financial statements and
the related notes, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Comdisco, Inc." beginning on page 50 of
this prospectus. The summary income statement data for fiscal 1999, 1998 and
1997 and the balance sheet data as of September 30, 1999 and 1998 are derived
from Comdisco, Inc.'s audited financial statements. The summary income
statement data for the nine months ended June 30, 2000 and 1999 and the balance
sheet data as of June 30, 2000 and 1999 are derived from Comdisco, Inc.'s
unaudited financial statements. The unaudited summary financial information
reflects all adjustments, consisting of normal recurring accruals, which are,
in the opinion of management, necessary for a fair presentation of the results
of the interim periods. The operating results for the nine months ended June
30, 2000 and 1999 are not necessarily indicative of the results to be expected
for any other interim period or any future fiscal year.
11
<PAGE>
COMDISCO, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(in millions, except share data)
<TABLE>
<CAPTION>
Nine months
ended Year ended
June 30, September 30,
------------- ---------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Leasing.................................. $1,699 $2,043 $2,655 $2,435 $2,116
Sales.................................... 308 690 891 329 269
Technology services...................... 476 376 522 433 354
Other.................................... 360 66 91 46 80
------ ------ ------ ------ ------
Total revenue......................... 2,843 3,175 4,159 3,243 2,819
------ ------ ------ ------ ------
Costs and expenses:
Leasing................................. 1,250 1,532 1,969 1,791 1,534
Sales................................... 243 662 846 275 210
Technology services..................... 424 317 440 362 296
Selling, general & administrative....... 375 219 306 249 244
Interest................................ 259 253 337 326 299
Prism Communication Services............ 135 14 36 -- --
Other................................... -- 150 150 -- 25
------ ------ ------ ------ ------
Total costs and expenses.............. 2,686 3,147 4,084 3,003 2,608
------ ------ ------ ------ ------
Earnings before income taxes.............. 157 28 75 240 211
Income taxes.............................. 56 10 27 87 80
------ ------ ------ ------ ------
Net earnings before preferred dividends... 101 18 48 153 131
Preferred dividends....................... -- -- -- (2) (8)
------ ------ ------ ------ ------
Net earnings to common stockholders....... $ 101 $ 18 $ 48 $ 151 $ 123
====== ====== ====== ====== ======
Net earnings per share:
Basic.................................... $ .66 $ .12 $ .32 $ .99 $ .83
Diluted.................................. $ .62 $ .11 $ .30 $ .93 $ .78
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30,
------------- -------------
2000 1999 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................... $ 259 $ 39 $ 361 $ 63
Receivables, net................................... 1,052 760 722 340
Net leased assets.................................. 5,503 5,464 5,623 5,900
Total assets....................................... 8,551 7,295 7,807 7,063
Total debt......................................... 6,053 5,321 5,571 5,035
Total stockholders' equity......................... 1,244 979 1,060 979
</TABLE>
12
<PAGE>
Pro forma net earnings per share calculations (in millions, except per share
data):
Comdisco group stock
<TABLE>
<CAPTION>
Nine months Year
ended ended
June 30, September 30,
------------ -------------
2000 1999 1999
----- ----- -------------
<S> <C> <C> <C>
Basic shares outstanding........................... 152 152 152
Diluted shares outstanding......................... 162 162 162
Loss before allocation of Comdisco, Inc. interest
in Comdisco Ventures group and before income
taxes............................................. $ (21) $ (18) $ 4
Comdisco, Inc. interest in Comdisco Ventures group
as allocated...................................... 157 41 63
----- ----- -----
Net earnings before income taxes................... 136 23 67
Income taxes....................................... 49 8 24
----- ----- -----
Net earnings....................................... $ 87 $ 15 $ 43
===== ===== =====
Net earnings per share:
Basic............................................. $0.57 $0.10 $0.28
===== ===== =====
Diluted........................................... $0.54 $0.09 $0.27
===== ===== =====
</TABLE>
Comdisco Ventures group stock
<TABLE>
<CAPTION>
Nine months Year
ended ended
June 30, September 30,
----------- -------------
2000 1999 1999
----- ----- -------------
<S> <C> <C> <C>
Basic shares outstanding.............................. 85 85 85
Diluted shares outstanding............................ 88 85 85
Earnings before income taxes.......................... $ 178 $ 46 $ 71
Income taxes.......................................... 71 18 28
----- ----- -----
Net earnings.......................................... $ 107 $ 28 $ 43
===== ===== =====
Net earnings per share:
Basic................................................ $1.26 $0.33 $0.50
===== ===== =====
Diluted.............................................. $1.21 $0.33 $0.50
===== ===== =====
</TABLE>
Explanatory notes:
1. The pro forma net earnings per share calculations assume the following:
. Comdisco Ventures group stock was issued as of October 1, 1998; and
. 10,000,000 shares of Comdisco Ventures group stock were sold in this
offering; and
. 75,000,000 shares of Comdisco Ventures group stock were reserved for
issuance for the benefit of Comdisco group or to the holders of
Comdisco group stock.
2. The 11,666,250 shares of Comdisco Ventures group stock, that were issued
on May 26, 2000 under a management incentive plan in which Comdisco
Ventures group employees participate, are included in the calculation of
Comdisco Ventures group's diluted shares outstanding at June 30, 2000. The
treasury stock method was used to calculate the dilutive effect of these
shares assuming an average market value of $15 per share for the nine
months ended June 30, 2000.
13
<PAGE>
Summary Historical Financial Data of Comdisco Ventures Group
The following summary historical financial data should be read in
conjunction with Comdisco Ventures group's financial statements and the related
notes beginning on page F-29, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Comdisco Ventures Group,"
beginning on page 65. You should also review the audited financial information
of Comdisco, Inc. provided elsewhere in this prospectus, and the unaudited
financial information of Comdisco, Inc. and Comdisco Ventures group provided in
Comdisco's Form 10-Q for the quarter ended June 30, 2000. The summary income
statement data for fiscal 1999, 1998 and 1997, and the balance sheet data as of
September 30, 1999 and 1998, are derived from audited financial statements of
Comdisco Ventures group which are included elsewhere in this prospectus. The
summary income statement data for the nine months ended June 30, 2000 and 1999
and the balance sheet data as of June 30, 2000 and 1999 are derived from
unaudited financial statements of Comdisco Ventures group. The unaudited
summary financial data reflects all adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. The operating results for
the nine months ended June 30, 2000 and 1999 are not necessarily indicative of
the results to be expected for any other interim period or any future fiscal
year.
14
<PAGE>
COMDISCO VENTURES GROUP
SUMMARY HISTORICAL FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30, Years ended September 30,
----------------- -------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Leasing........................... $135,737 $ 83,658 $118,403 $ 85,086 $68,620
Sales............................. 7,676 3,843 6,142 7,136 6,942
Interest income on notes.......... 38,456 12,754 22,580 6,655 3,139
Warrant sales proceeds and capital
gains............................ 267,565 37,000 80,731 14,938 16,435
Other............................. 1,820 507 683 483 195
-------- -------- -------- -------- -------
Total revenue...................... 451,254 137,762 228,539 114,298 95,331
-------- -------- -------- -------- -------
Costs and expenses:
Leasing........................... 102,775 62,271 88,114 60,363 46,355
Sales............................. 4,385 2,693 4,460 3,980 4,423
Selling, general &
administrative................... 63,388 8,806 18,166 5,793 5,436
Interest.......................... 41,304 15,165 23,373 10,835 7,670
Bad debt expense.................. 61,801 2,400 23,200 4,786 6,250
-------- -------- -------- -------- -------
Total costs and expenses........... 273,653 91,335 157,313 85,757 70,134
-------- -------- -------- -------- -------
Earnings before income taxes....... 177,601 46,427 71,226 28,541 25,197
Income taxes....................... 70,818 18,512 28,402 11,381 10,047
-------- -------- -------- -------- -------
Net earnings....................... $106,783 $ 27,915 $ 42,824 $ 17,160 $15,150
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30,
------------------- -----------------
2000 1999 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Equity securities......................... $ 523,094 $111,493 $197,335 $ 16,995
Receivables, net.......................... 642,231 274,504 367,339 66,425
Net leased assets......................... 463,293 266,043 288,347 189,747
Total assets.............................. 1,691,373 668,984 871,852 281,243
Inter-group payable....................... 1,033,040 475,605 559,575 189,281
Division net worth........................ 439,090 143,201 199,649 71,080
</TABLE>
Explanatory note: Earnings per share is not presented because Comdisco
Ventures group has not been a "stand-alone entity" and, as a result, the
presentation of earnings per share is not applicable. If Comdisco, Inc. issues
a separate series of common stock, it will present in its financial statements
the earnings per share for each outstanding series of its common stock. See
page 13 for pro forma net earnings per share calculations.
15
<PAGE>
CONSOLIDATING STATEMENTS
The following schedules present consolidating financial information of
Comdisco, Inc. The financial information reflects the businesses of Comdisco
group and Comdisco Ventures group, including the allocation of expenses between
Comdisco group and Comdisco Ventures group in accordance with our allocation
policies. We have presented this information to illustrate the respective
financial results of Comdisco group and Comdisco Ventures group, including the
impact of inter-group allocated expenses, and how the financial results of
those groups relate to the consolidated financial results of Comdisco, Inc.
This information, which has been prepared in accordance with generally accepted
accounting principles, should be read together with the consolidated financial
statements of Comdisco, Inc. beginning on page F-2 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Comdisco,
Inc." beginning on page 50 and the financial statements of Comdisco Ventures
group beginning on page F-29 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Comdisco Ventures Group"
beginning on page 65.
The consolidating statements of earnings of Comdisco, Inc. for the years
ended September 30, 1999, 1998 and 1997 and the consolidating balance sheets as
of September 30, 1999 have been derived from our audited financial statements
while the consolidating statements of earnings of Comdisco, Inc. for the three
and nine months ended June, 2000 and 1999 and the consolidating balance sheets
at June 30, 2000 have been derived from our unaudited financial statements.
These financial statements of Comdisco, Inc. begin on page F-2. The statements
of earnings of Comdisco Ventures group for the years ended September 30, 1999,
1998 and 1997 and the balance sheets at September 30, 1999 have been derived
from the audited financial statements of Comdisco Ventures group, while the
statements of earnings for the three and nine months ended June 30, 2000 and
1999 and the balance sheet at June 30, 2000 have been derived from Comdisco
Ventures group's unaudited financial statements. These financial statements of
Comdisco Ventures group begin on page F-29.
In the accompanying consolidating statements of earnings, earnings per
share for Comdisco group and for Comdisco Ventures group are not presented
because neither group has been a "stand-alone entity" and, as a result, the
presentation of earnings per share is not applicable. If Comdisco, Inc. issues
a separate series of common stock, it will present in its consolidating
financial statements the earnings per share for each outstanding series of its
common stock. See page 13 for pro forma net earnings per share calculations.
We intend, for so long as the Comdisco Ventures group stock remains
outstanding, to include in our filings under the Securities Exchange Act of
1934, financial statements of the Comdisco Ventures group, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Comdisco Ventures Group," as of the same dates and for the same periods as our
consolidated financial statements. These financial statements will be prepared
in accordance with generally accepted accounting principles, and in the case of
annual financial statements, will be audited. These financial statements are
not required under current law or SEC regulations.
16
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF EARNINGS (UNAUDITED)
(in millions, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Three months ended June 30,
2000 1999
------------------------------ ------------------------------
Consolidated Comdisco Consolidated Comdisco
Comdisco, Comdisco Ventures Comdisco, Comdisco Ventures
Inc. group group Inc. group group
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Leasing:
Operating.............. $ 414 $ 363 $ 51 $ 443 $ 412 $ 31
Direct financing....... 44 44 -- 40 40 --
Sales-type............. 75 75 -- 91 91 --
----- ----- ---- ------ ------ ----
Total leasing......... 533 482 51 574 543 31
----- ----- ---- ------ ------ ----
Sales................... 142 139 3 565 563 2
Technology services..... 173 173 -- 133 133 --
Other................... 105 9 96 30 3 27
----- ----- ---- ------ ------ ----
Total revenue......... 953 803 150 1,302 1,242 60
----- ----- ---- ------ ------ ----
COSTS AND EXPENSES
Leasing:
Operating.............. 332 293 39 358 335 23
Sales-type............. 50 50 -- 53 53 --
----- ----- ---- ------ ------ ----
Total leasing......... 382 343 39 411 388 23
Sales................... 115 113 2 553 552 1
Technology services..... 161 161 -- 112 112 --
Selling, general and
administrative......... 116 78 38 77 70 7
Interest................ 88 71 17 82 75 7
Prism Communication
Services............... 65 65 -- 11 11 --
----- ----- ---- ------ ------ ----
Total costs and
expenses............. 927 831 96 1,246 1,208 38
----- ----- ---- ------ ------ ----
Earnings (loss) before
income taxes........... 26 (28) 54 56 34 22
Income taxes (benefit).. 9 (13) 22 20 11 9
----- ----- ---- ------ ------ ----
Net earnings (loss)..... $ 17 $ (15) $ 32 $ 36 $ 23 $ 13
===== ===== ==== ====== ====== ====
Net earnings per common
share:
Basic.................. $0.11 $ 0.23
===== ======
Diluted................ $0.10 $ 0.22
===== ======
</TABLE>
17
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF EARNINGS (UNAUDITED)
(in millions, except per share data)
<TABLE>
<CAPTION>
Nine months ended June 30, Nine months ended June 30,
2000 1999
------------------------------ ------------------------------
Consolidated Comdisco Consolidated Comdisco
Comdisco, Comdisco Ventures Comdisco, Comdisco Ventures
Inc. group group Inc. group group
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Leasing:
Operating.............. $1,288 $1,154 $134 $1,481 $1,397 $84
Direct financing....... 130 130 -- 120 120 --
Sales-type............. 281 279 2 442 442 --
------ ------ ---- ------ ------ ---
Total leasing......... 1,699 1,563 136 2,043 1,959 84
------ ------ ---- ------ ------ ---
Sales................... 308 300 8 690 686 4
Technology services..... 476 476 -- 376 376 --
Other................... 360 53 307 66 16 50
------ ------ ---- ------ ------ ---
Total revenue......... 2,843 2,392 451 3,175 3,037 138
------ ------ ---- ------ ------ ---
COSTS AND EXPENSES
Leasing:
Operating.............. 1,039 937 102 1,195 1,133 62
Sales-type............. 211 210 1 337 337 --
------ ------ ---- ------ ------ ---
Total leasing......... 1,250 1,147 103 1,532 1,470 62
Sales................... 243 239 4 662 660 2
Technology services..... 424 424 -- 317 317 --
Selling, general and
administrative......... 375 250 125 219 206 13
Interest................ 259 218 41 253 238 15
Prism Communication
Services............... 135 135 -- 14 14 --
Other................... -- -- -- 150 150 --
------ ------ ---- ------ ------ ---
Total costs and
expenses............. 2,686 2,413 273 3,147 3,055 92
------ ------ ---- ------ ------ ---
Earnings (loss) before
income taxes........... 157 (21) 178 28 (18) 46
Income taxes (benefit).. 56 (15) 71 10 (8) 18
------ ------ ---- ------ ------ ---
Net earnings (loss)..... $ 101 $ (6) $107 $ 18 $ (10) $28
====== ====== ==== ====== ====== ===
Net earnings per common
share:
Basic.................. $ 0.66 $ 0.12
------ ------
Diluted................ $ 0.62 $ 0.11
====== ======
</TABLE>
18
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF EARNINGS
(in millions, except per share data)
<TABLE>
<CAPTION>
Year ended September 30, 1999
-----------------------------------------------
Consolidated Comdisco
Comdisco, Reclassification Comdisco Ventures
Inc. & Eliminations group group
------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
REVENUE
Leasing:
Operating.................... $1,938 $-- $1,821 $117
Direct financing............. 174 12 161 1
Sales-type................... 543 -- 543 --
------ ---- ------ ----
Total leasing............... 2,655 12 2,525 118
------ ---- ------ ----
Sales......................... 891 -- 885 6
Technology services........... 522 -- 522 --
Other......................... 91 (32) 18 105
------ ---- ------ ----
Total revenue............... 4,159 (20) 3,950 229
------ ---- ------ ----
COSTS AND EXPENSES
Leasing:
Operating.................... 1,563 -- 1,475 88
Sales-type................... 406 -- 406 --
------ ---- ------ ----
Total leasing............... 1,969 -- 1,881 88
Sales......................... 846 -- 841 5
Technology services........... 440 -- 440 --
Selling, general and
administrative............... 306 (20) 285 41
Interest...................... 337 -- 313 24
Prism Communication Services.. 36 -- 36 --
Other......................... 150 -- 150 --
------ ---- ------ ----
Total costs and expenses.... 4,084 (20) 3,946 158
------ ---- ------ ----
Earnings before income taxes.. 75 -- 4 71
Income taxes (benefit)........ 27 -- (1) 28
------ ---- ------ ----
Net earnings ................. $ 48 $-- $ 5 $ 43
====== ==== ====== ====
Net earnings per common share:
Basic........................ $ 0.32
======
Diluted...................... $ 0.30
======
</TABLE>
19
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF EARNINGS
(in millions, except per share data)
<TABLE>
<CAPTION>
Year ended September 30, 1998
-----------------------------------------------
Consolidated Comdisco
Comdisco, Reclassification Comdisco Ventures
Inc. & Eliminations group group
------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
REVENUE
Leasing:
Operating.................... $1,897 $-- $1,814 $ 83
Direct financing............. 162 7 154 1
Sales-type................... 376 -- 375 1
------ ---- ------ ----
Total leasing............... 2,435 7 2,343 85
------ ---- ------ ----
Sales......................... 329 -- 322 7
Technology services........... 433 -- 433 --
Other......................... 46 (7) 31 22
------ ---- ------ ----
Total revenue............... 3,243 -- 3,129 114
------ ---- ------ ----
COSTS AND EXPENSES
Leasing:
Operating.................... 1,528 -- 1,468 60
Sales-type................... 263 -- 263 --
------ ---- ------ ----
Total leasing............... 1,791 -- 1,731 60
Sales......................... 275 -- 271 4
Technology services........... 362 -- 362 --
Selling, general and
administrative............... 249 -- 239 10
Interest...................... 326 -- 315 11
------ ---- ------ ----
Total costs and expenses.... 3,003 -- 2,918 85
------ ---- ------ ----
Earnings before income taxes.. 240 -- 211 29
Income taxes ................. 87 -- 75 12
------ ---- ------ ----
Net earnings before preferred
dividends.................... 153 -- 136 17
Preferred dividends........... (2) -- (2) --
------ ---- ------ ----
Net earnings ................. $ 151 $-- $ 134 $ 17
====== ==== ====== ====
Net earnings per common share:
Basic........................ $ 0.99
======
Diluted...................... $ 0.93
======
</TABLE>
20
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF EARNINGS
(in millions, except per share data)
<TABLE>
<CAPTION>
Year ended September 30, 1997
-----------------------------------------------
Consolidated Comdisco
Comdisco, Reclassification Comdisco Ventures
Inc. & Eliminations group group
------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
REVENUE
Leasing:
Operating.................... $1,635 $-- $1,574 $ 61
Direct financing............. 145 3 139 3
Sales-type................... 336 -- 332 4
------ ---- ------ ----
Total leasing............... 2,116 3 2,045 68
------ ---- ------ ----
Sales......................... 269 -- 262 7
Technology services........... 354 -- 354 --
Other......................... 80 (3) 63 20
------ ---- ------ ----
Total revenue............... 2,819 -- 2,724 95
------ ---- ------ ----
COSTS AND EXPENSES
Leasing:
Operating.................... 1,297 -- 1,254 43
Sales-type................... 237 -- 234 3
------ ---- ------ ----
Total leasing............... 1,534 -- 1,488 46
Sales......................... 210 -- 206 4
Technology services........... 296 -- 296 --
Selling, general and
administrative............... 244 -- 232 12
Interest...................... 299 -- 291 8
Other......................... 25 -- 25 --
------ ---- ------ ----
Total costs and expenses.... 2,608 -- 2,538 70
------ ---- ------ ----
Earnings before income taxes.. 211 -- 186 25
Income taxes ................. 80 -- 70 10
------ ---- ------ ----
Net earnings before preferred
dividends.................... 131 -- 116 15
Preferred dividends........... (8) -- (8) --
------ ---- ------ ----
Net earnings ................. $ 123 $-- $ 108 $ 15
====== ==== ====== ====
Net earnings per common share:
Basic........................ $ 0.83
======
Diluted...................... $ 0.78
======
</TABLE>
21
<PAGE>
COMDISCO, INC.
CONSOLIDATING BALANCE SHEETS
(in millions, except number of shares and per share data)
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
------------------------------ ------------------------------
(unaudited) (audited)
Consolidated Comdisco Consolidated Comdisco
Comdisco, Comdisco Ventures Comdisco, Comdisco Ventures
Inc. group group Inc. group group
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 259 $ 225 $ 34 $ 361 $ 361 $--
Cash--legally
restricted............. 40 40 -- 46 46 --
Receivables, net........ 1,052 410 642 722 355 367
Inter-group receivable.. -- 1,033 -- -- 559 --
Inventory of equipment.. 130 127 3 115 113 2
Leased assets:
Direct financing and
sales-type........... 2,174 2,169 5 2,107 2,102 5
Operating (net of
accumulated
depreciation)........ 3,329 2,871 458 3,516 3,233 283
------- ------ ------ ------ ------ ----
Net leased assets..... 5,503 5,040 463 5,623 5,335 288
Property, plant and
equipment, net......... 463 462 1 229 228 1
Equity securities....... 606 83 523 252 55 197
Other assets............ 498 473 25 459 442 17
------- ------ ------ ------ ------ ----
$ 8,551 $7,893 $1,691 $7,807 $7,494 $872
======= ====== ====== ====== ====== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable........... $ 1,502 $1,502 $ -- $ 820 $ 820 $--
Term notes payable...... 641 641 -- 550 550 --
Senior debt............. 3,384 3,384 -- 3,686 3,686 --
Inter-group payable..... -- -- 1,033 -- -- 559
Accounts payable........ 155 153 2 263 262 1
Income taxes............ 448 288 160 382 310 72
Other liabilities....... 651 594 57 531 491 40
Discounted lease
rentals................ 526 526 -- 515 515 --
------- ------ ------ ------ ------ ----
7,307 7,088 1,252 6,747 6,634 672
------- ------ ------ ------ ------ ----
Stockholders' equity:
Preferred stock $.10
par value
Authorized 100,000,000
shares............... -- -- -- -- -- --
Comdisco group stock,
$.10 par value
Authorized 750,000,000
shares; issued
224,906,304 shares
(223,464,344 of
common stock, $.10
par value, at
September 30, 1999)... 22 22 -- 22 22 --
Additional paid-in
capital............... 375 375 -- 302 302 --
Accumulated other
comprehensive income
(loss)................ 162 (56) 218 58 (28) 86
Retained earnings...... 1,223 1,002 221 1,134 1,020 114
------- ------ ------ ------ ------ ----
1,782 1,343 439 1,516 1,316 200
Common stock held in
treasury, at cost..... (538) (538) -- (456) (456) --
------- ------ ------ ------ ------ ----
Total stockholders'
equity................ 1,244 805 439 1,060 860 200
------- ------ ------ ------ ------ ----
$ 8,551 $7,893 $1,691 $7,807 $7,494 $872
======= ====== ====== ====== ====== ====
</TABLE>
22
<PAGE>
COMDISCO, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
<TABLE>
<CAPTION>
Nine months ended June 30, Nine months ended June 30,
2000 1999
------------------------------- ------------------------------
Consolidated Comdisco Consolidated Comdisco
Comdisco, Comdisco Ventures Comdisco, Comdisco Ventures
Inc. group group Inc. group group
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS:
Cash flows from
operating activities:
Operating lease and
other leasing
receipts............. $ 1,436 $ 1,296 $ 140 $ 1,527 $1,450 $ 77
Direct financing and
sales-type receipts.. 820 818 2 722 722 --
Leasing costs,
primarily rentals
paid................. (9) (9) -- (14) (14) --
Sales................. 408 401 7 447 442 5
Sales costs........... (106) (106) -- (110) (110) --
Technology services
receipts............. 445 445 -- 357 357 --
Technology services
costs................ (353) (353) -- (271) (271) --
Note receivable
receipts............. 194 3 191 35 -- 35
Other expense......... -- -- -- (16) (16) --
Warrant proceeds...... 304 41 263 36 -- 36
Selling, general and
administrative
expenses............. (299) (257) (42) (220) (214) (6)
Loss on Prism
Communication
Services............. (100) (100) -- (27) (27) --
Interest.............. (231) (231) -- (254) (254) --
Income taxes.......... (33) (33) -- (1) (1) --
------- ------- ----- ------- ------ -----
Net cash provided by
operating
activities.......... 2,476 1,915 561 2,211 2,064 147
------- ------- ----- ------- ------ -----
Cash flows from
investing activities:
Equipment purchased
for leasing.......... (1,949) (1,667) (282) (2,127) (1,980) (147)
Investment in
continuity and
network service
facilities........... (197) (197) -- (103) (103) --
Notes receivable...... (459) (5) (454) (225) -- (225)
Equity investments.... (145) (32) (113) (20) -- (20)
Acquisition of and
investment in Prism
Communication
Services............. (221) (221) -- (65) (65) --
Other investing
activities........... (21) (21) -- -- -- --
------- ------- ----- ------- ------ -----
Net cash used in
investing
activities.......... (2,992) (2,143) (849) (2,540) (2,148) (392)
------- ------- ----- ------- ------ -----
Cash flows from
financing activities:
Discounted lease
proceeds............. 257 257 -- 274 274 --
Net increase
(decrease) in notes
payable.............. 682 682 -- (114) (114) --
Issuance of term notes
and senior notes..... 344 344 -- 1,145 1,145 --
Maturities of term
notes and senior
notes................ (555) (555) (644) (644)
Principal payments on
secured debt......... (246) (246) -- (258) (258) --
Common stock purchased
and placed in
treasury............. (91) (91) -- (58) (58) --
Dividends paid on
common stock......... (11) (11) -- (11) (11) --
Issuance of Prism
Communication
Services common
stock................ 11 11 -- -- -- --
Decrease (increase) in
legally restricted
cash................. 6 6 -- (57) (57) --
Net increase
(decrease) in inter-
group transactions... -- (322) 322 -- (245) 245
Other................. 17 17 -- 28 28 --
------- ------- ----- ------- ------ -----
Net cash provided by
financing
activities.......... 414 92 322 305 60 245
------- ------- ----- ------- ------ -----
Net increase (decrease)
in cash and cash
equivalents........... (102) (136) 34 (24) (24) --
Cash and cash
equivalents at
beginning of period... 361 361 -- 63 63 --
------- ------- ----- ------- ------ -----
Cash and cash
equivalents at end of
period................ $ 259 $ 225 $ 34 $ 39 $ 39 $ --
======= ======= ===== ======= ====== =====
</TABLE>
23
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)--CONTINUED
(in millions)
<TABLE>
<CAPTION>
Nine months ended June 30, Nine months ended June 30,
2000 1999
------------------------------ ------------------------------
Consolidated Comdisco Consolidated Comdisco
Comdisco, Comdisco Ventures Comdisco, Comdisco Ventures
Inc. group group Inc. group group
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF NET
EARNINGS (LOSS) TO NET
CASH PROVIDED BY
OPERATING ACTIVITIES:
Net earnings (loss)..... $ 101 $ (6) $107 $ 18 $ (10) $ 28
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities:
Leasing costs,
primarily
depreciation and
amortization......... 1,241 1,139 102 1,517 1,455 62
Leasing revenue,
primarily principal
portion of direct
financing and sales-
type lease rentals... 690 688 2 195 195 --
Cost of sales......... 137 133 4 584 581 3
Sales revenue......... -- -- -- (306) (306) --
Principal portion of
notes receivable..... 153 -- 153 22 -- 22
Technology service
costs, primarily
depreciation and
amortization......... 90 90 -- 46 46 --
Prism depreciation.... 22 22 -- 2 2 --
Selling, general and
administrative
expenses............. 76 (7) 83 (1) (7) 6
Interest.............. 27 (14) 41 -- (15) 15
Income taxes.......... 23 (48) 71 9 (10) 19
Other expense......... -- -- 150 150 --
Other--net............ (84) (82) (2) (25) (17) (8)
------ ------ ---- ------ ------ ----
Net cash provided by
operating
activities........... $2,476 $1,915 $561 $2,211 $2,064 $147
====== ====== ==== ====== ====== ====
</TABLE>
24
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1999
-------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
------------ -------- --------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts.... $ 2,002 $ 1,884 $ 118
Direct financing and sales-type receipts...... 958 958 --
Leasing costs, primarily rentals paid......... (14) (14) --
Sales......................................... 818 811 7
Sales costs................................... (105) (105) --
Technology services receipts.................. 485 485 --
Technology services costs..................... (390) (390) --
Note receivable receipts...................... 66 -- 66
Other revenue................................. 22 7 15
Warrant proceeds.............................. 55 -- 55
Selling, general and administrative expenses.. (309) (301) (8)
Interest...................................... (338) (338) --
Income taxes.................................. (12) (12) --
------- ------- -----
Net cash provided by operating activities... 3,238 2,985 253
------- ------- -----
Cash flows from investing activities:
Equipment purchased for leasing............... (2,838) (2,632) (206)
Investment in continuity and network service
facilities................................... (151) (151) --
Notes receivable.............................. (324) -- (324)
Equity investments............................ (43) (3) (40)
Acquisition of and investment in Prism
Communication Services....................... (136) (136) --
Other investing activities.................... 12 17 (5)
------- ------- -----
Net cash used in investing activities....... (3,480) (2,905) (575)
------- ------- -----
Cash flows from financing activities:
Discounted lease proceeds..................... 341 341 --
Net decrease in notes payable................. (301) (301) --
Issuance of term notes and senior notes....... 1,842 1,842 --
Maturities of term notes and senior notes..... (924) (924) --
Principal payments on secured debt............ (322) (322) --
Common stock purchased and placed in
treasury..................................... (82) (82) --
Dividends paid on common stock................ (15) (15) --
Increase in legally restricted cash........... (16) (16) --
Net increase (decrease) in inter-group
transactions................................. -- (322) 322
Other......................................... 17 17 --
------- ------- -----
Net cash provided by financing activities... 540 218 322
------- ------- -----
Net increase in cash and cash equivalents....... 298 298 --
Cash and cash equivalents at beginning of
period......................................... 63 63 --
------- ------- -----
Cash and cash equivalents at end of period...... $ 361 $ 361 $ --
======= ======= =====
</TABLE>
25
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS--CONTINUED
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1999
-------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
------------ -------- --------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings.................................... $ 48 $ 5 $ 43
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Leasing costs, primarily depreciation and
amortization................................. 1,954 1,867 87
Leasing revenue, primarily principal portion
of direct financing and sales-type lease
rentals...................................... 327 325 2
Cost of sales................................. 641 637 4
Principal portion of notes receivable......... 44 -- 44
Technology service costs, primarily
depreciation and amortization................ 50 50 --
Prism depreciation............................ 6 6 --
Selling, general, and administrative
expenses..................................... 16 (18) 34
Interest...................................... -- (23) 23
Income taxes (benefit)........................ 15 (13) 28
Other expense................................. 150 150 --
Other--net.................................... (13) (1) (12)
------- ------- -----
Net cash provided by operating activities....... $ 3,238 $ 2,985 $ 253
======= ======= =====
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Reduction of discounted lease rentals in lease
portfolio sale............................... $ 100 $ 100 $ --
======= ======= =====
</TABLE>
26
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1998
-------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
------------ -------- --------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts..... $ 2,013 $ 1,921 $ 92
Direct financing and sales-type receipts....... 905 905 --
Sale of direct financing and sales-type
receivables................................... 125 125 --
Leasing costs, primarily rentals paid.......... (20) (19) (1)
Sales.......................................... 335 329 6
Sales costs.................................... (69) (68) (1)
Technology services receipts................... 408 408 --
Technology services costs...................... (278) (278) --
Note receivable receipts....................... 33 -- 33
Other revenue ................................. 29 22 7
Warrant proceeds............................... 15 -- 15
Selling, general and administrative expenses... (249) (242) (7)
Interest....................................... (326) (326) --
Income taxes................................... (34) (34) --
------- ------- -----
Net cash provided by operating activities..... 2,887 2,743 144
------- ------- -----
Cash flows from investing activities:
Equipment purchased for leasing................ (3,026) (2,912) (114)
Investment in continuity and network service
facilities.................................... (87) (87) --
Notes receivable............................... (57) -- (57)
Equity investments............................. (8) -- (8)
Acquisition of and investment in Prism
Communication Services........................ (8) (8) --
Other investing activities..................... 6 4 2
------- ------- -----
Net cash used in investing activities......... (3,180) (3,003) (177)
------- ------- -----
Cash flows from financing activities:
Discounted lease proceeds...................... 279 279 --
Net increase in notes payable.................. 97 97 --
Issuance of term notes and senior notes........ 1,017 1,017 --
Maturities of term notes and senior notes...... (617) (617) --
Principal payments on secured debt............. (425) (425) --
Common stock purchased and placed in treasury.. (88) (88) --
Preferred stock purchased...................... (89) (89) --
Dividends paid on common stock................. (15) (15) --
Dividends paid on preferred stock.............. (2) (2) --
Shared Investment Program...................... 109 109 --
Decrease in legally restricted cash............ 15 15 --
Net increase (decrease) in inter-group
transactions.................................. -- (33) 33
Other......................................... 38 38 --
------- ------- -----
Net cash provided by financing activities..... 319 286 33
------- ------- -----
Net increase in cash and cash equivalents....... 26 26 --
Cash and cash equivalents at beginning of
period......................................... 37 37 --
------- ------- -----
Cash and cash equivalents at end of period...... $ 63 $ 63 $ --
======= ======= =====
</TABLE>
27
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS--CONTINUED
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1998
------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
------------ -------- --------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings.................................... $ 153 $ 136 $ 17
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Leasing costs, primarily depreciation and
amortization................................. 1,771 1,712 59
Leasing revenue, primarily principal portion
of direct financing and sales-type lease
rentals...................................... 452 446 6
Sale of direct financing and sales-type
receivables.................................. 125 125 --
Cost of sales................................. 193 190 3
Principal portion of notes receivable......... 26 -- 26
Technology service costs, primarily
depreciation and amortization................ 84 84 --
Selling, general, and administrative
expenses..................................... -- (4) 4
Interest...................................... -- (11) 11
Income taxes.................................. 45 34 11
Other--net.................................... 38 31 7
------ ------ ----
Net cash provided by operating activities....... $2,887 $2,743 $144
====== ====== ====
</TABLE>
28
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1997
-------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc, group group
------------ -------- --------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
Cash flows from operating activities:
Operating lease and other leasing receipts.... $ 1,739 $ 1,659 $ 80
Direct financing and sales-type receipts...... 861 861 --
Sale of direct financing and sales-type
receivables.................................. 81 81 --
Leasing costs, primarily rentals paid......... (32) (32) --
Sales......................................... 264 258 6
Sales costs................................... (84) (84) --
Technology services receipts.................. 343 343 --
Technology services costs..................... (204) (204) --
Note receivable receipts...................... 16 -- 16
Other revenue ................................ 39 36 3
Warrant proceeds.............................. 16 -- 16
Selling, general and administrative expenses.. (225) (220) (5)
Litigation settlement......................... 25 25 --
Interest...................................... (291) (291) --
Income taxes.................................. (44) (44) --
------- ------- -----
Net cash provided by operating activities.... 2,504 2,388 116
------- ------- -----
Cash flows from investing activities:
Equipment purchased for leasing............... (2,940) (2,848) (92)
Investment in continuity and network service
facilities................................... (61) (61) --
Notes receivable.............................. (28) 6 (34)
Equity investments............................ (6) (2) (4)
Other investing activities.................... (13) (29) 16
------- ------- -----
Net cash used in investing activities........ (3,048) (2,934) (114)
------- ------- -----
Cash flows from financing activities:
Discounted lease proceeds..................... 430 430 --
Net decrease in notes payable................. (103) (103) --
Issuance of term notes and senior notes....... 1,151 1,151 --
Maturities of term notes and senior notes..... (378) (378) --
Principal payments on secured debt............ (469) (469) --
Common stock purchased and placed in
treasury..................................... (45) (45) --
Dividends paid on common stock................ (14) (14) --
Dividends paid on preferred stock............. (8) (8) --
Increase in legally restricted cash........... (18) (18) --
Net increase (decrease) in inter-group
transactions................................. -- 2 (2)
Other......................................... 6 6 --
------- ------- -----
Net cash provided (used) by financing
activities.................................. 552 554 (2)
------- ------- -----
Net increase in cash and cash equivalents....... 8 8 --
Cash and cash equivalents at beginning of
period......................................... 29 29 --
------- ------- -----
Cash and cash equivalents at end of period...... $ 37 $ 37 $ --
======= ======= =====
</TABLE>
29
<PAGE>
CONSOLIDATING STATEMENTS OF CASH FLOWS--CONTINUED
(in millions)
<TABLE>
<CAPTION>
Year ended September 30, 1997
------------------------------
Consolidated Comdisco
Comdisco, Comdisco Ventures
Inc. group group
------------ -------- --------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings.................................... $ 131 $ 116 $ 15
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Leasing costs, primarily depreciation and
amortization................................. 1,502 1,456 46
Leasing revenue, primarily principal portion
of direct financing and sales-type lease
rentals...................................... 471 460 11
Sale of direct financing and sales-type
receviables.................................. 81 81 --
Cost of sales................................. 126 122 4
Principal portion of notes receivable......... 13 -- 13
Technology service costs, primarily
depreciation and amortization................ 92 92 --
Selling, general, and administrative
expenses..................................... 19 13 6
Interest...................................... 8 -- 8
Income taxes ................................. 36 26 10
Other--net.................................... 25 22 3
------ ------ ----
Net cash provided by operating activities....... $2,504 $2,388 $116
====== ====== ====
</TABLE>
30
<PAGE>
RISK FACTORS
You should carefully consider the risks described below, as well as the
other information included in this prospectus, before making a decision to buy
Comdisco Ventures group stock. Comdisco Ventures group's business, financial
condition or results of operations could be materially adversely affected by
any of these risks.
Because Comdisco Ventures group stock is intended to track the
performance of the Comdisco Ventures group, the risks described under "--Risks
Related to the Business of Comdisco Ventures Group" could affect the trading
price of the Comdisco Ventures group stock. However, because the Comdisco
Ventures group stock is a series of common stock of Comdisco, Inc. and not of a
separate company, you should also consider the risk factors relating to a
capital structure with two or more series of common stock below and to the
business of Comdisco, Inc. For a discussion of these risks, see:
. "--Risks Relating to a Capital Structure with Two or More Separate
Series of Common Stock", beginning on page 36;
. "Business--Forward Looking Information" in Comdisco, Inc.'s Annual
Report on Form 10-K for the year ended September 30, 1999, as
amended by Form 10-K/A, which is incorporated in this prospectus
by reference; and
. "Risk Factors" in Comdisco, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, which is incorporated in this
prospectus by reference.
Risks Relating to the Business of Comdisco Ventures Group
Comdisco Ventures group's customers typically consist of venture capital-backed
companies. Providing financings to these companies involves a high degree of
business and financial risk, which can result in substantial losses, and
accordingly, an investment in Comdisco Ventures group should be considered
speculative
Comdisco Ventures group's customers typically are venture capital-backed
companies in a start-up development stage, often have yet to generate revenues
and most likely need substantial additional capital to expand, compete or even
meet current obligations. Because they have no credit history, these companies
generally are unable to obtain financing from traditional banks and leasing
companies without agreeing to high interest rates and restrictive covenants.
Moreover, these entities may be more vulnerable to changes in economic
conditions, particularly changes that would further adversely affect their
ability to raise necessary capital from traditional sources. If changes in
economic conditions--a rise in interest rates, for example--make it more
difficult and costly for these companies to raise the capital they require,
their businesses would be adversely affected. Additionally, these customers may
have substantial variations in operating results from period to period, face
intense competition, and experience failures or substantial declines in value
at any stage. All of these factors will affect Comdisco Ventures group's
customers' ability to meet their obligations to Comdisco Ventures group, and
will affect the fair market value of any of their equity securities or
obligations held by Comdisco Ventures group. At the time that Comdisco Ventures
group provides financing, a customer may lack one or more key attributes (e.g.,
proven technology, marketable product, complete management team, or strategic
alliances) necessary for success, and may never achieve these attributes. In
some cases, returns on financings will be long term in nature and may require
many years from the date of initial financing before they can be achieved, if
at all.
Market conditions, along with contractual and regulatory restrictions, may
affect Comdisco Ventures group's ability to dispose of its equity positions in
the most economically advantageous manner
Comdisco Ventures group generates a significant part of its revenues and
profits when its customers achieve a liquidity event, like an initial public
offering or a merger with, or an acquisition by, a public company, which gives
Comdisco Ventures group the opportunity to sell the equity securities it holds
in those customers. The recent economic environment accelerated the ability of
Internet-based and other high-technology companies to position themselves for a
public offering, merger, acquisition or other
31
<PAGE>
liquidity event. These favorable economic conditions have changed and will
change and are beyond our control. Historically, Comdisco Ventures group's
general policy has been to sell its equity positions in an orderly manner as
soon as reasonably possible after a liquidity event. This general policy allows
Comdisco Ventures group to generate cash for reinvestment in new transactions;
Comdisco Ventures group believes it is preferable to make new advances to
start-ups rather than hold the securities of public companies. In most cases,
securities law restrictions on transfer and contractual lock-up provisions
restrict Comdisco Ventures group's ability to sell its equity positions for
several months after a liquidity event. Consequently, Comdisco Ventures group's
general policy and these restrictions mean that Comdisco Ventures group may be
unable to realize the highest possible price for its equity positions. Comdisco
Ventures group's management consults with its outside asset manager on at least
a quarterly basis and has adjusted its general policy on occasion to respond to
market conditions. However, Comdisco Ventures group's policy, with respect to
disposition of its equity holdings is not intended to, and does not, assure
that Comdisco Ventures group will maximize its return on any particular
holding.
Comdisco Ventures group's financings in Internet-related and other high
technology industries could expose Comdisco Ventures group to financial risk if
those industries suffer an economic downturn
Comdisco Ventures group has provided a majority of its outstanding
financing commitments to Internet-related and other high technology companies.
The public market for high-technology and other emerging growth companies is
extremely volatile. This volatility may adversely affect both the ability of
Comdisco Ventures group to dispose of those equity securities and the value of
those equity securities prior to the dates on which they are disposed.
The market price of Comdisco Ventures group stock may fluctuate or decline
because the value of some of Comdisco Ventures group's assets fluctuates
A significant portion of Comdisco Ventures group assets may include the
equity securities of both publicly traded and non-publicly traded companies.
The market price and valuations of the securities that Comdisco Ventures group
holds in these companies may fluctuate significantly due to market conditions
and other conditions over which Comdisco Ventures group has no control.
Fluctuations in the market price and valuations of the securities that Comdisco
Ventures group holds may result in fluctuations in the market price of Comdisco
Ventures group stock.
Fluctuations in future periods may be greater than those experienced in
past periods as a result of Comdisco Ventures group's focus on Internet-
related, communications and other high-technology companies. The market prices
of equity securities of companies in these industries can fluctuate
significantly. We expect the market price of Comdisco Ventures group stock to
be particularly susceptible to such volatility, because Comdisco Ventures group
may be valued in the future in part on the basis of the interests it holds in
public and private Internet-related, communications and other high-technology
companies. Therefore, fluctuations in the valuations of any of Comdisco
Ventures group's customers may cause the market price of Comdisco Ventures
group stock to fluctuate. During the first half of 2000, the prices of many
high technology stocks recorded historical lows and have been highly volatile.
Also, the rate of initial public offerings has slowed considerably during the
spring of 2000. In addition, for those customers whose securities are not
publicly traded, the realizable value of Comdisco Ventures group's interests
may prove to be lower than the carrying value reflected in Comdisco Ventures
group's financial statements.
The value of the warrants that Comdisco Ventures group generally receives
in connection with its venture leases and venture debt is dependent on the
value of the equity securities for which the warrants can be exercised. The
value of those securities is dependent primarily on the success of the
underlying company's business strategy, as well as general economic and equity
market conditions. The prospects for achieving consistent profitability in the
case of many companies to which Comdisco Ventures group provides financing are
speculative. The warrants and equity securities for which the warrants can be
exercised generally will be restricted securities that cannot readily be sold
for some period of time. If the value of the equity securities underlying a
warrant does not increase above the exercise price during the life of the
warrant, Comdisco Ventures group would permit the warrant to expire unexercised
and the warrant would then have no value.
32
<PAGE>
The market price of Comdisco Ventures group stock may fluctuate or decline due
to an inability to predict future earnings and substantial variation in
earnings from quarter-to-quarter and year-to-year
A substantial portion of Comdisco Ventures group's income comes from the
sale of the equity interests that it holds in its customers. Profits are
recognized upon those sales.
The sales of these equity interests are dependent on the sale, merger, or
initial public offering of the customer as well as the sales price of the
equity interest. Comdisco Ventures group has no control over the sale, merger,
initial public offering or market price of its customers. Moreover, whether or
not a sale, merger or initial public offering takes place depends on both
general market conditions as well as the success of Comdisco Ventures group's
customers. Adverse market conditions may prevent or deter sales, mergers and
initial public offerings from taking place. These factors, when combined with
Comdisco Ventures group's practice of disposing of equity interests in an
orderly way as soon as reasonably and legally possible, mean that income and
profits from the sale of equity interests can and will vary substantially from
quarter-to-quarter and year-to-year. This will make it difficult or impossible
to project future performance based on past results.
Fluctuations in earnings and uncertainty about future earnings may result
in a lower and more volatile price for Comdisco Ventures group stock than would
be achieved with predictable, steadily growing earnings.
If Comdisco Ventures group is unable to maintain its relationships with the
venture capital community its ability to identify and evaluate financing
opportunities would be impaired
Comdisco Ventures group has established working relationships with twenty
to thirty venture capital firms. These venture capital firms serve as referral
sources utilized by Comdisco Ventures group to broaden its customer base. There
can be no assurance that these relationships can be maintained or sustained. To
the extent that Comdisco Ventures group is unable to maintain these
relationships, its ability to identify potential customers may be substantially
impaired.
Comdisco Ventures group has no reliable performance history with its venture
debt and direct equity financing products. We cannot assure you that those
products will continue to be accepted by venture capital-backed companies as an
attractive source of capital or that they will continue to provide acceptable
returns on capital to Comdisco Ventures group
While Comdisco Ventures group has provided venture debt and direct equity
financing products since 1995, Comdisco Ventures group has extended over $965
million in venture debt and direct equity financing since January, 1999, which
constitutes 34% of its total financing commitments since inception. We cannot
assure you that this growth will continue. Furthermore, there has not been a
long enough period of time in which to assess the potential loss history of
these products. Finally, Comdisco Ventures group cannot predict how a change in
recent favorable economic conditions would affect the market for, or
performance of, these financing products.
The growth of early-stage companies and investment in these companies could be
slowed significantly, which could materially affect Comdisco Ventures group's
business
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, especially in high-
technology industries. Comdisco Ventures group targets those early-stage
companies that have been able to attract venture capital financing to their
businesses. Any adverse change in the current economic environment could
materially reduce the rate at which new companies are developed and financed by
venture capitalists, and this reduction could have a material adverse effect on
Comdisco Ventures group.
33
<PAGE>
Many of the companies to which Comdisco Ventures group provides financing
are dependent on third parties for liquidity. Venture capitalists have been
able to raise significant funds for investment in Internet-related,
communications and other high-technology companies. Additionally, a number of
public companies have funds available for investments in these industries as
part of their strategic plans. Any significant change in the availability of
these funds would have a material impact on Comdisco Ventures group's customer
base, and, potentially, Comdisco Ventures group's ability to collect on its
venture leases and venture debt, as well as the fair market value of its equity
holdings.
If Comdisco Ventures group cannot raise additional capital on acceptable terms
from alternative funding sources, it may not be able to grow its business
Historically, Comdisco Ventures group has funded its financings out of
cash flow from operations and by borrowing funds from Comdisco. To take
advantage of the current increased market and demand for its venture financing
products, Comdisco Ventures group must substantially increase its funding
levels. To do so, it intends to identify and raise alternative sources of funds
with acceptable economic terms, such as the formation of limited partnership
funds. If Comdisco Ventures group cannot do so, its business would be limited
to whatever growth could be funded by cash flow, additional sales of Comdisco
Ventures group stock to the public or borrowings from Comdisco, which is not
under any current obligation to provide those borrowings. If Comdisco Ventures
group is unable to expand its funding sources, its growth may be limited. See
"Business of Comdisco Ventures Group--Comdisco Ventures Group Strategy--
Expanding Comdisco Ventures group's funding sources," beginning on page 78.
Any adverse changes in the current favorable economic environment may
impact potential investors in any alternative funding source Comdisco Ventures
group may use, and this in turn, may have a material impact on Comdisco
Ventures group's liquidity and access to funds.
Conflicts between Comdisco Ventures group and any alternative funding source it
establishes over the allocation of shared resources and financing decisions
with respect to customers could adversely affect Comdisco Ventures group's
ability to provide its products and maintain its relationships with its
customers
Comdisco Ventures group intends, depending on market conditions, to
expand its funding sources by establishing limited partnership funds and
raising capital from sources in addition to Comdisco. As Comdisco Ventures
group establishes these funds, we anticipate that
. senior management of Comdisco Ventures group would be involved in
the management of these funds; and
. Comdisco Ventures group would provide these funds with support and
other administrative services using Comdisco Ventures group's
employees and resources.
Conflicts may occur between Comdisco Ventures group and these funds over
the allocation of management time, support and administrative resources.
Additionally, Comdisco Ventures group and any fund it establishes may be both
asked to provide financing products to the same customer. Financing decisions
for Comdisco Ventures group and its funds likely will be made by the same
persons. However, decisions with respect to different financing products are
made on different criteria. For example, a decision to provide a customer
venture lease financing by Comdisco Ventures group will involve a different
financial and credit analysis than a decision to provide the same customer
direct equity financing by a fund. A decision by Comdisco Ventures group or a
fund not to provide financing to a customer could adversely affect the other's
relationship with that customer. In some circumstances, financing could also be
provided to a "joint" customer of Comdisco Ventures group or a fund where it
would not have been provided if that joint relationship did not exist. If
Comdisco Ventures group and a fund both provide financing products to the same
customer, actions taken by one of them with respect to the customer could
adversely affect the other's ability to collect amounts due from the customer
or otherwise adversely affect the other's relationship with the customer.
34
<PAGE>
The availability of capital to start-up companies from numerous and diverse
sources could adversely impact Comdisco Ventures group's financial performance
In the current financing marketplace, venture capital firms, venture-
oriented banks and other asset-based lenders, leasing companies and other
capital providers are all available to provide capital to start-up companies.
Many of these financing sources have greater financial and management
resources, brand name recognition or industry contacts than Comdisco Ventures
group. Also, the barriers to entry
for companies wishing to provide capital and other resources to entrepreneurs
and their emerging technology companies are minimal. More recently, both
private and public companies with business models based on providing capital to
Internet-based, communications and other high-technology companies have emerged
as another source of capital for start-up companies. In order to continue to
compete effectively, Comdisco Ventures group may be required to provide
financing under terms which would result in lower returns than it has
historically obtained.
Comdisco Ventures group depends on the relationships established with venture
capitalists by certain important employees, and the loss of any of these
employees may harm Comdisco Ventures group's business
The familiarity of senior management with the venture capital industry
and the relationships they have established with venture capital firms makes
them important to Comdisco Ventures group's future business prospects. The loss
of the services of Comdisco Ventures group's senior management could affect
these relationships and may harm its business.
Comdisco Ventures group's growth places strains on its managerial, operational
and financial resources
Of the over $2.8 billion of financing commitments provided by Comdisco
Ventures group since 1987, over $1.7 billion of the venture lease, venture debt
and equity financing commitments have been made since January 1, 1999. Comdisco
Ventures group's rapid growth has placed, and is expected to continue to place,
a significant strain on its managerial, operational and financial resources.
Furthermore, if we are successful in expanding Comdisco Ventures group's
funding sources through the organization and participation in limited
partnership funds and other entities, it is anticipated that those entities
would utilize Comdisco Ventures group's managerial and operational resources.
Further growth of Comdisco Ventures group will increase this strain on Comdisco
Ventures group's managerial, operational and financial resources, which could
inhibit Comdisco Ventures group's ability to implement its business plan.
Comdisco Ventures group's continued success will depend on its ability to
attract, train, retain and motivate high-quality personnel, especially for its
management team. The demand for these kinds of persons in a growing venture
capital market is high, and Comdisco Ventures group cannot assure you that it
will be able to obtain and retain the necessary personnel to meet its needs.
If Comdisco Ventures group's management fails to identify properly and to
select financing opportunities appropriately, it will adversely affect the
business of Comdisco Ventures group
Identifying and participating in attractive financing opportunities is
difficult. Comdisco Ventures group's success depends on the ability of its
management to identify desirable businesses, to propose financings and to
successfully negotiate the terms of those financings. Management will have sole
and absolute discretion in identifying and selecting these companies. There is
generally no publicly available information about potential financing
customers, and Comdisco Ventures group must rely on the diligence of its
employees and business contacts to obtain information in connection with
Comdisco Ventures group's financing decisions. You will not be able to evaluate
the merits of providing financing to any particular company before Comdisco
Ventures group provides financing.
35
<PAGE>
If collateral for Comdisco Ventures group's venture leases and venture debt is
inadequate or unavailable to Comdisco Ventures group if a customer defaults,
Comdisco Ventures group may lose the economic benefits of its financing to that
customer
Comdisco Ventures group's venture leases and venture debt are typically
secured by a lien on the underlying equipment or the customer's assets. This
collateral may not be of adequate value to protect Comdisco Ventures group in
the event of a customer's default, either as a result of the depreciating value
of that collateral over the life of the venture lease or venture debt or, in
the case of some venture leases, because the value of the venture lease
includes items in addition to the equipment collateral (e.g., software) for
which no security is provided. Additionally, more of Comdisco Ventures group's
venture debt financings are being made on a basis subordinated to the
customer's senior creditors or on an unsecured basis. In those cases, Comdisco
Ventures group's right to liquidate the collateral in the event of a default by
a customer will be subject to the superior rights of the customer's senior
creditors. There can be no assurance that the collateral for a venture lease or
for venture debt will be available to satisfy a customer's obligations to
Comdisco Ventures group or, if available, will be sufficient to satisfy those
obligations. See "Business of Comdisco Ventures Group--Comdisco Ventures
Group's Products," beginning on page 79 for a description of these products.
Comdisco may incur significant costs to avoid investment company status and
Comdisco Ventures group may suffer adverse consequences if Comdisco is deemed
an investment company
Investment positions we hold through Comdisco Ventures group may be
considered "investment securities" under the Investment Company Act of 1940.
Generally, any company that owns investment securities with a value exceeding
40% of its total assets (excluding cash items and government securities) is an
"investment company" subject to registration under, and compliance with, the
1940 Act unless a particular exemption or safe harbor applies. While the
current value of investment securities held by Comdisco is less than 16% of
Comdisco's total assets at June 30, 2000, if a dramatic and broad-based
appreciation in the market values of our customers' businesses ensues, it is
possible that at some point in the future, the value of the investment
securities Comdisco holds through Comdisco Ventures group and otherwise may
exceed the 40% threshold. The 1940 Act, however, provides a company that has a
bona fide intent to be primarily engaged in a business other than that of
investing or trading in securities with one year to reduce the value of its
investment securities assets to a level below 40%. If we are ever required to
reduce the value of investment securities we hold we may accomplish this by
selling investment securities or increasing our other assets. As a result, we
may be obligated to dispose of assets sooner than we otherwise would at prices
which could be lower than they otherwise might be. We will also incur tax
liabilities in connection with any asset dispositions. In addition, we may be
forced to forego an opportunity to purchase an investment security that would
be important to our core operating strategy. Accordingly, the investment
security dispositions and asset purchases may harm our business and results of
operations.
Regardless of the 40% test, we could also be deemed an investment company
if we were judged to be, or hold ourselves out as, being primarily engaged in
the business of investing in, reinvestment in, or trading in securities.
If Comdisco were deemed to be in violation of the 1940 Act, we would be
prohibited from engaging in business or selling our securities and could be
subject to civil and criminal actions for doing so. Therefore, classification
as an investment company would harm our business and results of operations.
Risks Relating to a Capital Structure with Two or More Separate Series of
Common Stock
You and the holders of Comdisco group stock will remain stockholders of one
company and, therefore, financial effects from one group could adversely affect
the other
The holders of Comdisco group stock and the holders of Comdisco Ventures
group stock will be stockholders of a single company, Comdisco, Inc. Comdisco
group and Comdisco Ventures group will
36
<PAGE>
not be separate legal entities. Accordingly, as a holder of Comdisco Ventures
group stock, you will be subject to all of the risks of an investment in
Comdisco, Inc. and all of its businesses, assets and liabilities. The market
value of Comdisco Ventures group stock may not reflect the performance of the
Comdisco Ventures group as intended. The issuance of Comdisco Ventures group
stock and the allocation of assets and liabilities and stockholders' equity
between the Comdisco group and the Comdisco Ventures group will not result in a
distribution or spin-off to stockholders of any Comdisco, Inc.'s assets or
liabilities and will not affect ownership of its assets or responsibility for
its liabilities or those of its subsidiaries. The assets attributed to one
group could be subject to the liabilities of the other group, even if those
liabilities arise from lawsuits, contracts or indebtedness that are attributed
to the other group. If the Comdisco group is unable to satisfy its liabilities
out of the assets attributed to it, Comdisco, Inc. will be required to satisfy
those liabilities with assets which have been attributed to the Comdisco
Ventures group.
Financial effects arising from Comdisco group that affect Comdisco,
Inc.'s consolidated results of operations or financial condition could, if
significant, affect the results of operations or financial condition of
Comdisco Ventures group or the market price of Comdisco Ventures group stock.
In addition, if Comdisco, Inc. or any of its subsidiaries were to incur
significant indebtedness on behalf of Comdisco group, including indebtedness
incurred or assumed in connection with an acquisition or investment, it could
affect Comdisco, Inc.'s ability to incur debt on behalf of the Comdisco
Ventures group or increase its costs of borrowing. Net losses of either
Comdisco group or Comdisco Ventures group and dividends and distributions on
shares of Comdisco group stock or Comdisco Ventures group stock will reduce the
funds available to pay dividends or other distributions on Comdisco Ventures
group stock under Delaware law. For all these reasons, you should read
Comdisco, Inc.'s consolidated financial information in addition to the
financial information provided for Comdisco Ventures group.
We cannot assure you that the market price of Comdisco Ventures group stock
will reflect the performance of the Comdisco Ventures group as we intend
Tracking stocks, like Comdisco Ventures group stock, are more complex
than traditional common stocks and are not directly comparable to common stock
of companies that have been spun off by their parent companies. For the
following reasons and the other risks and uncertainties relating to this
capital structure, we cannot assure you that the market price of Comdisco
Ventures group stock will reflect the performance of the Comdisco Ventures
group as we intend.
Comdisco, Inc.'s board of directors may change or make exceptions to
Comdisco, Inc.'s board policy statement without stockholder approval to
the detriment of the Comdisco Ventures group
In connection with the issuance of Comdisco Ventures group stock,
Comdisco, Inc.'s board of directors intends to adopt the board policy statement
that we describe in this prospectus under "Relationship Between the Comdisco
Ventures Group and the Comdisco Group' to govern the relationship between the
Comdisco group and the Comdisco Ventures group. Comdisco, Inc.'s board of
directors may modify or rescind the policies set forth in the board policy
statement with respect to the allocation of corporate opportunities, financing
arrangements, corporate overhead, taxes, debt, interest and other matters, or
may adopt additional policies, in its sole discretion without stockholder
approval. It could also make exceptions with respect to their application
depending on particular facts and circumstances. It is likely that Comdisco,
Inc.'s board of directors would amend these policies or adopt new policies if
it decides to issue additional classes of common stock. A decision to modify or
rescind these policies, or adopt additional policies, could have different
effects on the holders of Comdisco group stock and the holders of Comdisco
Ventures group stock and could adversely affect the holders of Comdisco
Ventures group stock relative to the holders of Comdisco group stock.
37
<PAGE>
The complex nature of the terms of Comdisco Ventures group stock may
adversely affect its market price
The complex nature of the terms of Comdisco Ventures group stock and the
potential difficulties investors may have in understanding these terms may
adversely affect its market price. Examples include:
. the rights of the Comdisco, Inc. board of directors to convert
Comdisco Ventures group stock into Comdisco group stock; and
. the discretion of the Comdisco, Inc. board of directors to make
determinations relating to a variety of matters affecting the
rights of the holders of Comdisco Ventures group stock, such as
dividends and cash management and allocation matters.
In addition, investors may discount the value of Comdisco Ventures group
stock because the Comdisco Ventures group is part of a common enterprise with
the rest of the operations of Comdisco, Inc. rather than a stand-alone entity.
The terms of the Comdisco Ventures group stock as a whole may not
effectively link the market value of Comdisco Ventures group stock with
the separate performance of the Comdisco Ventures group
Some of the terms of the Comdisco Ventures group stock are not intended
to link its market value with the separate performance of the Comdisco Ventures
group. For example, the liquidation rights of the Comdisco Ventures group stock
are fixed soon after the time of issuance and may not bear any relationship to
its market value at the time of any liquidation of Comdisco, Inc. The absence
of other terms, such as the lack of a formula requiring the payment of
dividends based on performance, could make it less likely that Comdisco
Ventures group stock will have a market value effectively linked to the
separate performance of the Comdisco Ventures group.
You will have only limited rights specific to the Comdisco Ventures group stock
The holders of Comdisco Ventures group stock generally will not have
stockholder rights specific to the Comdisco Ventures group. Instead, holders
will have customary stockholder rights relating to Comdisco, Inc. as a whole.
For example, the holders of Comdisco group stock and the holders of Comdisco
Ventures group stock will vote together as a single class to elect the board of
directors of Comdisco, Inc. and approve any sale of all or substantially all of
the assets of Comdisco, Inc. The holders of Comdisco Ventures group stock will
only have the following rights with respect to the Comdisco Ventures group:
. a right to a dividend, repurchase or conversion if the sale of all
or substantially all of the assets of the Comdisco Ventures group
occurs; and
. a right to vote as a separate voting group (1) to increase or
decrease the authorized shares of Comdisco Ventures group stock,
other than to effectuate a permitted conversion or distribution,
(2) to amend the terms of Comdisco Ventures group stock and (3) as
otherwise required under Delaware law, Nasdaq listing rules or
stock exchange rules.
You will not have a board of directors with a separate fiduciary duty to you
Comdisco Ventures group is not a separate legal entity, and has no board
of directors. The board of directors of Comdisco, Inc. owes a fiduciary duty to
Comdisco, Inc. and its stockholders as a whole. Consequently, there will be no
board of directors that will owe any separate duties to the holders of Comdisco
Ventures group stock.
Greater stock ownership held in the form of Comdisco group stock could cause
directors and officers to favor the Comdisco group over the Comdisco Ventures
group
Because the actual value of Comdisco, Inc.'s directors' and officers'
interests in the Comdisco group stock and the Comdisco Ventures group stock is
anticipated to vary significantly, it is possible that
38
<PAGE>
they could favor the Comdisco group over the Comdisco Ventures group due to
their stock and other benefits. However, notwithstanding any disparity in their
economic interests, our directors and officers have a fiduciary duty to all
stockholders of Comdisco, Inc.
Decisions by Comdisco, Inc. directors and officers that affect the market value
of Comdisco Ventures group stock could adversely affect liquidation, voting and
conversion rights of holders of Comdisco Ventures group stock
The number of shares of Comdisco group stock issuable upon the conversion
of Comdisco Ventures group stock, amounts distributable upon a liquidation of
Comdisco, Inc. and the relative voting power per share of each class of stock
will vary depending upon the relative market values of Comdisco group stock and
Comdisco Ventures group stock, subject to the 35% voting power limit on
Comdisco Ventures group stock. The market value of Comdisco Ventures group
stock could be adversely affected by market reaction to decisions by Comdisco,
Inc.'s board of directors or Comdisco, Inc.'s management. These decisions could
involve changes to Comdisco, Inc.'s board policy statement, transfers of assets
between groups, allocations of corporate opportunities between groups or
changes in dividend policies.
Limits exist on the voting rights and power of Comdisco Ventures group stock
and, as a result, the holders of Comdisco group stock will be able to control
majority votes
Holders of Comdisco Ventures group stock will vote together with holders
of Comdisco group stock as a single class, except in limited circumstances
required by Delaware General Corporation Law or New York Stock Exchange or
Nasdaq Stock Market rules. In addition to the approval of the holders of a
majority of the voting power of all shares of all classes of Comdisco common
stocks voting together as a single class, the approval of a majority of the
outstanding shares of Comdisco group stock and Comdisco Ventures group stock,
each voting as a separate class, would be required under Delaware law only 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 in a manner adverse to the holders of those shares of
common stock.
In addition, the aggregate voting power of all of the outstanding shares
of Comdisco Ventures group stock 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
Comdisco Ventures group stock will never represent a majority of the
outstanding voting power of all of the outstanding shares of all series of
Comdisco common stock. Thus, if matters come before the stockholders of
Comdisco which require a majority vote, the holders of Comdisco group 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 either 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 Comdisco Ventures group stock described
above. The effect of this 35% limitation is likely to be more significant if
additional shares of Comdisco Ventures group stock are issued as part of the
disposition of Comdisco group's interest in Comdisco Ventures group.
Our right to convert Comdisco Ventures group stock into Comdisco group stock at
any time without stockholder approval may prevent the holders of Comdisco
Ventures group stock from retaining an investment in a tracking stock under
circumstances in which they would wish to retain their investment
At any time, the board of directors, without stockholder approval but
subject to the fiduciary duties owed by the board to all Comdisco stockholders,
could choose to convert shares of Comdisco Ventures group stock into shares of
Comdisco group stock, including a conversion at a time when either
39
<PAGE>
or both series of our common stock may be considered to be overvalued or
undervalued. Any conversion would preclude holders of Comdisco Ventures group
stock from retaining their investment in a security that is intended to reflect
the separate performance of Comdisco Ventures group. It could also give holders
of shares of Comdisco Ventures group stock a 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 group.
Potential conflicts of interest exist between Comdisco group stock and Comdisco
Ventures group stock that may be difficult to resolve by Comdisco, Inc.'s board
of directors or that may be resolved adversely to holders of Comdisco Ventures
group stock
The existence of separate series of Comdisco, Inc. common stock could
give rise to occasions when the interests of the holders of Comdisco group
stock and the holders of Comdisco Ventures group stock diverge, conflict or
appear to diverge or conflict.
From time to time, Comdisco, Inc.'s board of directors could, in its sole
discretion and without stockholder approval, make operational and financial
decisions or implement policies that could favor the Comdisco group over the
Comdisco Ventures group, adversely affecting the market value of the Comdisco
Ventures group stock. These decisions could include:
. allocation of financing opportunities in the public markets;
. allocation of business opportunities, resources and personnel and
whether and to what extent the groups compete with each other; and
. transfers of funds or assets between groups and other inter-group
transactions.
In each case, the opportunities or resources allocated, or services,
funds or assets transferred, to the Comdisco group may be equally suitable for
the Comdisco Ventures group. Furthermore, any such decision may benefit the
Comdisco group more than the Comdisco Ventures group. For example, the decision
to obtain funds for the Comdisco group may adversely affect the ability of the
Comdisco Ventures group to obtain funds sufficient to implement its growth
strategy or may increase the cost of those funds. In addition, even in
situations when Comdisco Ventures group is able to service its own debt
financing, it will be partly restricted due to limitations imposed by Comdisco,
Inc.'s contractual obligations, including limitations on its ability to secure
any of its assets.
The policy statement adopted by Comdisco, Inc.'s board of directors to
govern the relationship between the Comdisco Ventures group and the Comdisco
group is intended to address many of the operational and financial conflicts
that may arise between the groups. Comdisco, Inc.'s board of directors may
modify or rescind the policies set fourth in the policy statement, however, in
its sole discretion without stockholder approval, consistent with its fiduciary
duties to Comdisco, Inc. and all of its stockholders.
Principles of Delaware law may protect decisions of our board of directors that
have a disparate impact upon holders of Comdisco Ventures group 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 Ventures group stock, if the board of directors is
adequately informed with respect to those 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.
40
<PAGE>
Holders of Comdisco Ventures group stock have no right to vote on how to
allocate consideration received in connection with a merger of Comdisco
Our restated charter does 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 Ventures group stock
and Comdisco group stock. None of the holders of Comdisco Ventures group stock
or Comdisco group 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, depending on our allocation decision, the consideration to be
received by holders of Comdisco Ventures group stock in these mergers or
consolidations may be materially less valuable than the consideration they
would have received if Comdisco Ventures group had been sold separately or if a
separate class vote on the merger or consolidation occurred.
We may dispose of assets of Comdisco Ventures group 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 as a single class. As long as the assets attributed to
Comdisco Ventures group represent less than substantially all of our assets, we
may approve sales and other dispositions of any amount of the assets of
Comdisco Ventures group without stockholder approval. Under these
circumstances, our board of directors would determine the fair value of all
assets, except for cash and unrestricted publicly traded securities. Any fair
value determination by the board of directors would be subject to the fiduciary
duties owed by the board to all Comdisco stockholders. If we dispose of all or
substantially all of the assets attributed to Comdisco Ventures 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 holders of Comdisco Ventures group
stock;
. redeem the outstanding shares of Comdisco Ventures group stock; or
. convert shares of Comdisco Ventures group stock into outstanding
shares of Comdisco group stock.
Holders of Comdisco Ventures group 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 attributed to Comdisco Ventures 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 Ventures group stock.
If we dispose of less than substantially all of the assets of Comdisco
Ventures group, we currently intend to allocate the proceeds we receive to
Comdisco Ventures group. However, consistent with the policies described
beginning on page 115, our board of directors, in its discretion, would have
the right to allocate those proceeds in a different manner, including an
allocation that would result in no proceeds to holders of Comdisco Ventures
group stock, subject to the fiduciary duties owed by the board to all Comdisco
stockholders.
Corporate-level income taxes may be incurred on a sale of Comdisco Ventures
group's assets that would not be incurred if Comdisco Ventures group were a
separate corporation
Comdisco may incur a tax liability upon a sale of the assets of Comdisco
Ventures group, which would be allocated to Comdisco Ventures group and reduce
the amount available for distribution to the holders of Comdisco Ventures group
stock. By contrast, if Comdisco Ventures group were a separate corporation
whose stock was held directly by those holders, they could sell their stock
directly to the buyer, in which case no corporate-level tax would be incurred.
Consequently, the holders of Comdisco Ventures group stock could receive less
upon a disposition of Comdisco Ventures group than they would if they held
stock of a separate corporation.
41
<PAGE>
We do not intend to pay dividends on Comdisco Ventures group stock, and even if
we decide to do so, are not required to pay dividends equally on Comdisco
Ventures group stock and Comdisco group stock
We do not intend to pay cash dividends in the foreseeable future on
Comdisco Ventures group stock. Under our restated charter, however, if our
board of directors decides to pay dividends on Comdisco Ventures group stock,
we are not required to pay dividends on that stock in amounts equal to any
dividends we pay on Comdisco group stock or any other authorized series of
common stock. This 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.
It will not be possible for a third party to acquire the Comdisco Ventures
group without Comdisco, Inc.'s consent, reducing the potential for a takeover
premium and adversely impacting the market value of Comdisco Ventures group
stock
If the Comdisco Ventures group were a stand-alone entity, any person
interested in acquiring it without negotiation with Comdisco, Inc.'s management
could seek control of the outstanding stock of that entity by means of a tender
offer or proxy contest. However, because the Comdisco Ventures group is part of
Comdisco, Inc., a person interested in acquiring only the Comdisco Ventures
group without negotiation with Comdisco, Inc.'s management would be required to
seek control of the voting power represented by all of the outstanding capital
stock of Comdisco, Inc. entitled to vote on that acquisition, including the
Comdisco group stock. This may discourage potential interested bidders from
seeking to acquire either group, reducing the potential for a takeover premium
and adversely impacting the market value of Comdisco Ventures group stock.
Comdisco's tracking stock structure could make it more costly for a
potential acquiror to obtain control of Comdisco, and in turn Comdisco Ventures
group. As a result, the tracking stock structure could 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 that change in
control.
In addition, some of the provisions of our restated charter, bylaws, and
Delaware law may inhibit changes of control not approved by the board of
directors. For additional anti-takeover constraints, see "Description of
Comdisco Capital Stock--Anti-Takeover Considerations," on page 113.
The market price of Comdisco Ventures group stock could decline if we issue
more Comdisco Ventures group stock
In addition to any distribution of Comdisco Ventures group stock
representing shares of Comdisco Ventures group stock reserved for issuance for
the benefit of Comdisco group or to the holders of Comdisco group stock, our
board of directors may issue additional Comdisco Ventures group stock to, among
other things:
. raise capital for Comdisco Ventures group;
. pay stock dividends or provide for stock splits;
. acquire companies or businesses; or
. provide compensation or benefits to employees.
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 of these
issuances unless NYSE or Nasdaq Stock Market regulations or other applicable
law require approval, or the board of directors deems it advisable. These
issuances could cause the market price of Comdisco Ventures group stock to
decline as more stock becomes available.
42
<PAGE>
The IRS could assert that an exchange of Comdisco Ventures group stock is
taxable to you or us
There are no court decisions or other authorities that control the tax
treatment of tracking stock such as Comdisco Ventures group stock. In addition,
the IRS has announced that it will not issue rulings on the characterization of
stock with characteristics similar to Comdisco Ventures group stock. It is
possible, therefore, that the IRS could successfully assert that the sale of
Comdisco Ventures group stock by Comdisco is taxable to Comdisco, or that any
subsequent conversion of Comdisco Ventures group stock into Comdisco group
stock could be taxable to you or Comdisco. See "Material U.S. Federal Income
Tax Considerations," beginning on page 121.
A 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 stockholders 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. While this proposal, if
enacted, would not directly apply to Comdisco Ventures group stock sold
pursuant to this offering prior to the date of enactment, it could impede
Comdisco's ability to distribute or sell Comdisco Ventures group stock after it
is enacted. The enactment of the Clinton Administration proposal could be a
"Tax Event" that would entitle Comdisco to convert each outstanding share of
Comdisco Ventures group stock into a number of shares of Comdisco group stock
equal to 110% of the ratio of the average market values of Comdisco Ventures
group stock and the Comdisco group stock over a specified trading period prior
to such conversion. See "Material U.S. Federal Income Tax Considerations,"
beginning on page 121, and "Description of Comdisco Capital Stock--Description
of Comdisco Ventures Group Stock," beginning on page 95.
The market price of Comdisco Ventures group stock may fluctuate widely, and
this volatility could cause Comdisco Ventures group stock to trade at a price
below the initial public offering price
We will determine the initial public offering price for Comdisco Ventures
group stock through negotiations with the underwriters and that price may not
be indicative of the market price that will prevail after this offering. For a
description of the factors that will be taken into account to determine the
offering price, please see "Underwriting," on page 124. We believe the
following factors could cause the market price of Comdisco Ventures group stock
to fluctuate widely and could possibly cause Comdisco Ventures group stock to
trade at a price below the initial public offering price:
. announcements of financing transactions by us or our competitors;
. announcements of new services, products, technological
innovations, acquisitions or strategic relationships by our
customers;
. trends or conditions in the Internet-related, communications and
other high-technology industries;
. changes in valuation estimates by securities analysts and in
analysts' recommendations;
. failure to meet or exceed expectations of analysts or investors;
. changes in the stock prices of our customers that are publicly
traded;
. changes in market valuations of other capital and service
providers for Internet-related, communications and other high-
technology companies;
. changes in interest rates;
. changes in the public equity markets for initial public offerings;
and
. general political, economic and market conditions.
Many of these factors are beyond our control. These factors may decrease
the market price of Comdisco Ventures group stock regardless of the operating
performance of Comdisco Ventures group.
43
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933. The words "estimate," "project," "intend,"
"expect," "believe" and similar expressions are intended to identify forward-
looking statements. These forward-looking statements are found at various
places throughout this prospectus, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations for each of Comdisco,
Inc. and Comdisco Ventures group and throughout other documents incorporated in
this prospectus by reference, including Comdisco's 1999 Annual Report on Form
10-K, as amended by Form 10-K/A, and Comdisco's Form 10-Q for the quarter ended
June 30, 2000. These forward-looking statements, including, without limitation,
those relating to the future business prospects, revenues, working capital,
liquidity, capital needs, interest or other costs and income, in each case,
relating to Comdisco, Comdisco group and Comdisco Ventures group, wherever they
occur in this prospectus, are necessarily estimates reflecting the best
judgment of our senior management and involve a number of uncertainties and
factors that could cause actual results to differ materially from those
suggested by the forward-looking statements. Important factors that could cause
actual results to differ materially from estimates or projections contained in
the forward-looking statements include the following:
Comdisco, Inc's operating results are subject to quarterly fluctuations
Comdisco, Inc.'s operating results are subject to quarterly fluctuations
resulting from a variety of factors, including earnings contributions from
Comdisco Ventures group, remarketing activities and services, product
announcements by manufacturers, economic conditions and variations in the
financial mix of leases written, and continued losses from Prism. 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. Comdisco Ventures group's
earnings contributions are impacted by volatility in the public markets.
Comdisco, Inc.'s growth strategy depends on product and market development
The markets for Comdisco, Inc.'s principal products are characterized by
rapidly changing technology, evolving industry standards, and declining prices.
Comdisco, Inc.'s operating results will depend to a significant extent on its
ability to continue to introduce new services and to control and/or reduce
costs on existing services. The success of these and other new offerings is
dependent on several factors, including proper identification of customer
needs, cost, timely completion and introduction, differentiation from offerings
of Comdisco, Inc.'s competitors and market acceptance.
Comdisco, Inc.'s success depends in part on anticipating and adapting to new
technological developments and changing market conditions
Although Comdisco, Inc. 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, Inc.'s business, including its lease volume, leasing revenue and
earnings contributions from leasing.
Remarketing is an important contributor to annual and quarterly earnings
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, Inc.'s global equipment leasing businesses,
44
<PAGE>
must be at 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, Inc. is devoting
resources to its remarketing activities, there can be no assurance that
Comdisco, Inc. will achieve the appropriate level of activity necessary to meet
or match Comdisco, Inc.'s prior and desired operating results.
Comdisco, Inc.'s growth strategy depends in part on the communications
industry. If that industry does poorly, Comdisco, Inc.'s business and financial
results may suffer
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, Inc. with an industry in which leasing is an attractive alternative
to ownership. Comdisco, Inc.'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 obtain funding or funding at reasonable rates to complete their
business plans, there could be an increase in Comdisco, Inc.'s credit losses
above historical levels.
Comdisco, Inc.'s success is highly dependent on developing and expanding our
services business. The services business may be less predictable and the
revenue less recurring than contractual lease and continuity services revenue.
Competition in services may negatively impact Comdisco, Inc.'s business
strategy. Revenue recognition can be negatively affected by longer sales cycles
As a result of the evolving nature of its services business, particularly
the emerging desktop management and managed network services, Comdisco, Inc.
has limited meaningful historical data in which to base its planned operating
expenses. Accordingly, a significant portion of Comdisco, Inc.'s expense
levels, including 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, Inc.'s revenue base has become more diverse with the
growth of other technology services revenue. To attain our services earnings
contribution goals for fiscal 2000, Comdisco, Inc. must: meet our obligations
under the agreements underlying transactions in process at September 30, 1999,
which we refer to as our "sales backlog"; expand its contract subscription
base, both through new contract signings and contract renewals; increase our
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, Inc. must also successfully compete with organizations
offering similar services. Comdisco, Inc.'s ability to obtain new business and
realize revenue on our 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, Inc. will be able to maintain and/or
increase our margins on technology services in fiscal 2000.
Comdisco, Inc.'s business is becoming more service oriented, with the
business driven by our service offerings. These transactions, which generally
include a combination of services and leasing, are more complex than Comdisco,
Inc.'s traditional leasing business. In addition, because these service
offerings represent new services, Comdisco, Inc. has to spend more time
explaining the value of these services to the customer. Accordingly, one impact
of Comdisco, Inc.'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 our 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.
Comdisco, Inc.'s Prism subsidiary has an aggressive business plan in a new and
unproven industry
Prism incurred operating losses since inception and Comdisco, Inc.
expects that Prism's operating losses will continue to increase as it builds
its network and adds service to other areas. In
45
<PAGE>
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, Inc. is unable to adjust operating expense levels and/or capital
expenditures of Prism accordingly, Comdisco, Inc.'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.
Prism's business strategy is largely unproven. A number of factors may
affect Prism's ability to attain its business plan, including the following:
. its ability to successfully market its existing and planned
services to current and new customers;
. its ability to generate customer demand for its services in target
markets;
. the development of its target market and market opportunities;
. market pricing for its services and for competing services;
. the extent of increasing competition;
. ability to acquire funds to expand its network;
. the ability of its equipment and service suppliers to meet its
needs;
. trends in regulatory, legislative and judicial developments;
. its ability to manage growth of its operations;
. its ability to access regions and enter into suitable
interconnection agreements with traditional telephone companies;
. its ability to improve its existing services and to introduce new
service offerings without interruption or interference with its
operations, in a timely and cost effective manner;
. its ability to improve its technology infrastructure to respond to
technological change and new industry standards;
. its reliance on third parties, including some of its competitors
and potential competitors to develop and provide Prism with access
to communications and networking technology;
. its ability to rapidly expand the geographic coverage of its
services;
. its ability to attract, retain and motivate qualified persons;
. its ability to rapidly install high-speed access lines;
. its ability to effectively manage growth of operations; and
. its ability to deliver additional value-added services to its
customers.
Furthermore, Prism's operating results are likely to fluctuate
significantly in the future as a result of numerous factors, many of which are
outside of its control. These factors include, but are not limited to:
. the timing and willingness of traditional telephone companies to
provide it with central office space and the prices, terms and
conditions on which they make available the space to Prism;
46
<PAGE>
. the amount and timing of capital expenditures and other costs
relating to the expansion of its networks and the marketing of its
services;
. delays in the commencement of operations in new regions and the
generation of revenue because certain network elements have lead
times that are controlled by traditional telephone companies and
other third parties;
. the ability to develop and commercialize new services by Prism or
its competitors;
. the ability to deploy on a timely basis its services to adequately
satisfy end-user demand;
. the ability to successfully operate its networks;
. the rate at which customers subscribe to its services;
. decreases in the prices for its services due to competition,
volume-based pricing and other factors;
. the mix of line orders between consumer end-users, and business
end-users, which typically have higher margins;
. the success of its relationship with Williams, Nortel and other
potential strategic partners;
. the development and operation of Prism's billing and collection
systems and other operational systems and processes;
. the rendering of accurate and verifiable bills by Prism's
traditional telephone suppliers and resolution of billing
disputes;
. the incorporation of enhancements, upgrades and new software and
hardware products into its network and operation processes that
may cause unanticipated disruptions; and
. the interpretation and enforcement of regulatory developments and
court rulings concerning the 1996 Telecommunications Act,
interconnection agreements and the anti-trust laws.
Recently, Prism determined to focus its network expansion efforts in ten
markets for the present. Also, Comdisco, Inc. announced its intention to review
strategic alternatives for its investment in Prism. The implementation of these
decisions could significantly effect Prism's business, results of operations
and financial condition.
Economic conditions and other factors may negatively impact Comdisco, Inc.'s
operations
With respect to economic conditions, a recession can cause customers to
put off new investments and increase Comdisco, Inc.'s bad debt experience.
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.
In evaluating these forward-looking statements, you should also review
the risk factors included in this prospectus beginning on page 31. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of the filing in which the statement appears,
unless otherwise specified. Comdisco undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect the
occurrence of unanticipated events. Moreover, in the future, Comdisco and its
officers may make forward-looking statements about the matters described in the
prospectus or other matters concerning Comdisco, Comdisco Ventures group or
Comdisco group.
47
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $15.00 per share, which is
the midpoint of the initial public offering price range set forth on the cover
of this prospectus, and no exercise by the underwriters of their over-allotment
options, the net proceeds from this offering are estimated to be $137,500,000,
after deducting underwriting discounts and commissions of $10,500,000 and
estimated offering expenses of $2,000,000. The net proceeds from the offering
will be allocated to Comdisco Ventures group and will be used by Comdisco
Ventures group to repay inter-group loans to Comdisco group. Comdisco Ventures
group has been using these inter-group loans, together with cash flow from
operations, to fund its venture financing activities. As of June 30, 2000, this
indebtedness was approximately $1.03 billion, bearing an interest rate of
approximately 7.78% per annum. Comdisco group in turn will use the funds it
receives from the repayment of those inter-group loans by Comdisco Ventures
group for general corporate purposes including paying down domestic short-term
debt. On June 30, 2000, Comdisco group had outstanding approximately $887
million of domestic short-term indebtedness, with a weighted average maturity
of approximately 44 days and bearing a weighted average interest rate of
approximately 7.34% per annum. If Comdisco group does not use the net proceeds
immediately, Comdisco group may temporarily invest them in short-term interest
bearing investments.
DIVIDEND POLICY
We do not expect to pay any dividends for the foreseeable future on
Comdisco Ventures group stock. However, should we decide to pay dividends on
Comdisco Ventures group stock, we may do so out of the assets of Comdisco
legally available for the payment of dividends under Delaware law. In this
event, we will transfer corresponding amounts to Comdisco group in respect of
the shares of Comdisco Ventures group stock reserved for issuance for the
benefit of Comdisco group or to the holders of Comdisco group stock. The limit
on any dividends we desire to pay will generally be that amount that would be
legally available for the payment of dividends under Delaware law if Comdisco
Ventures group was a single, separate Delaware corporation. We call this the
"available dividend amount" for Comdisco Ventures group in this prospectus.
We expect that a decision to pay dividends on Comdisco Ventures group
would be based primarily upon Comdisco Ventures group's financial condition,
results of operations, regulatory and business capital requirements, any
restrictions contained in financing or other agreements binding upon Comdisco
Ventures group or us and other factors that our board of directors deems
relevant.
48
<PAGE>
CAPITALIZATION
Comdisco, Inc.
The following table sets forth the total capitalization of Comdisco, Inc.
at June 30, 2000 and as adjusted to reflect (1) the sale of 10,000,000 newly-
issued shares of Comdisco Ventures group stock pursuant to this offering and
(2) the re-classification of the existing common stock of Comdisco into
Comdisco group stock. This table should be read in conjunction with the
consolidated financial statements of Comdisco and related notes appearing
elsewhere in this prospectus, and in Comdisco's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 that are incorporated by reference into
this prospectus.
<TABLE>
<CAPTION>
June 30, 2000
-----------------------
Actual As Adjusted
---------- -----------
(in millions, except
for per share data)
<S> <C> <C>
Interest bearing liabilities
Notes payable and term notes...................... $ 2,143 $ 2,005
Senior notes...................................... 3,384 3,384
Other............................................. 526 526
Preferred stock, $.10 par value; authorized
100,000,000 shares; issued 0 shares................ -- --
Comdisco group stock, $.10 par value; authorized
750,000,000 shares; issued 224,906,304............. 22 22
Comdisco Ventures group stock, $.10 per value per
share; authorized 750,000,000 shares; issued
10,000,000 shares; and 75,000,000 shares in respect
of Comdisco, Inc. interest in Comdisco Ventures
group allocated to Comdisco group (1).............. -- 1
Additional paid-in capital.......................... 375 512
Accumulated other comprehensive income.............. 162 162
Retained earnings................................... 1,223 1,223
---------- ----------
1,782 1,920
Common stock held in treasury, at cost.............. (538) (538)
---------- ----------
Total stockholders' equity........................ 1,244 1,382
---------- ----------
Total capitalization............................ $ 7,297 $ 7,297
========== ==========
--------
(1) The number of shares of Comdisco Ventures group stock outstanding
excludes 12,750,000 shares of Comdisco Ventures group stock that have been
reserved for issuance under a management incentive plan in which those
employees responsible for the operation of Comdisco Ventures group participate.
As of May 26, 2000, options for 11,666,250 shares had been granted under that
plan. The number of shares also excludes 8,250,000 shares of Comdisco Ventures
group stock reserved for issuance under our other stock-based compensation
plans.
Comdisco Ventures Group
The following table sets forth as of June 30, 2000 the total
capitalization of Comdisco Ventures group as adjusted to give effect to the
issuance of 10,000,000 newly-issued shares of Comdisco Ventures group stock and
the use of proceeds from this offering as described above in "Use of Proceeds."
This table should be read in conjunction with the historical financial
information we include elsewhere in this prospectus, and assumes no exercise of
the underwriters' options to purchase additional shares that are described
under "Underwriting," beginning on page 121.
<CAPTION>
June 30, 2000
-----------------------
Actual As Adjusted
---------- -----------
(in thousands)
<S> <C> <C>
Inter-group payable................................. $1,033,040 $ 895,430
Division net worth.................................. 439,090 576,700
---------- ----------
Total capitalization.............................. $1,472,130 $1,472,130
========== ==========
</TABLE>
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF COMDISCO, INC.
The discussion below contains certain forward-looking statements that are
based on the beliefs of Comdisco's management, as well as assumptions made by,
and information currently available to, Comdisco's management. See "Special
Note Regarding Forward-Looking Statements" on page 44 for reference to the
risks, uncertainties and events that could cause those underlying beliefs and
assumptions to change and cause Comdisco's results, performance and
achievements in the current fiscal periods and beyond to differ materially from
those expressed in, or implied by, any forward-looking statements.
This discussion should be read along with Comdisco, Inc.'s consolidated
financial statements included in this prospectus. Historical results and
percentage relationships may not necessarily be indicative of operating results
for any future periods.
Recent Developments
On July 26, 2000, Prism announced its intention to focus its network
expansion efforts in ten markets for the present. Also, Comdisco, Inc.
announced its intention to review strategic alternatives for its investment in
Prism. The implementation of these decisions could significantly effect Prism's
business, results of operations and financial condition.
On May 4, 2000, Comdisco filed our amended and restated charter to
implement a tracking stock structure that was approved by our stockholders on
April 20, 2000. As a result, two new series of stock were created: "Comdisco
group stock" and "Comdisco Ventures group stock." Comdisco Ventures group stock
is intended to separately track the performance of Comdisco Ventures group and
Comdisco group stock is intended to separately track the performance of
Comdisco group, and the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of Comdisco group
stock.
Business
Comdisco's businesses are designed to bring solutions that reduce
technology cost and risk to the customer and in supporting the customer's
technology infrastructure.
The industry in which Comdisco, Inc. operates has become service
oriented, with the business driven by service capabilities. Accordingly, we
have aligned into four primary business lines: (1) 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; (2) global leasing, which we refer to as
"Leasing", in sectors such as electronics, communications, medical,
pharmaceutical, laboratory and scientific and other high technology
businesses,which includes the leasing and remarketing of distributed systems,
such as PCs, servers, workstations and routers, communications equipment,
equipment leasing and technology lifecycle management services; (3) Prism
Communication Services, Inc., our subsidiary which provides high-speed data
connectivity, local and long-distance voice, video, Internet and secure
business applications such as automatic data storage and recovery along with
other teleworking and business-critical solutions, and which, together with our
services and Leasing, we refer to as the Comdisco group; and (4) our venture
financing business, which we refer to as the Comdisco Ventures group, which
provides venture debt and venture leasing to emerging technology companies.
In addition to originating new equipment lease financing, Comdisco
remarkets used equipment from our 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 generate
earnings from follow-on leases and gross profit on equipment sales. Remarketing
activity, an important factor in quarterly
50
<PAGE>
earnings, increased in the current quarter as compared to both the first
quarter of fiscal 2000 and fourth quarter of 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's lease portfolio. In addition,
remarketing activity will be critical in the residual leasing business.
Comdisco finalized the acquisition of Prism during the quarter ended
March 31, 1999.
On March 24, 1999, Comdisco announced a major shift in corporate
strategy, including focusing on high-margin service businesses and shedding
low-margin businesses, including its mainframe leasing portfolio and medical
refurbishing business. The sale of the mainframe portfolio, which we refer to
as the "Sale", and the sale of the medical refurbishing business were both
concluded in the fiscal quarter ended June 30, 1999. In addition to these
sales, we completed the sale of substantially our entire vendor lease portfolio
in September 1999.
Fiscal 1999 compared to Fiscal 1998 and Fiscal 1998 compared to Fiscal 1997
Net Earnings
Fiscal 1999 net earnings to common stockholders, referred to below as
"net earnings," were $48 million, or $.30 per common share-diluted, compared to
$151 million, or $.93 per common share-diluted, and $123 million, or $.78 per
common share-diluted, in fiscal 1998 and 1997, respectively. The decrease in
net earnings in fiscal 1999 compared to fiscal 1998 was due to $150 million of
pre-tax charges, collectively referred to as the "Charge," related to the
divestiture of low-margin businesses and the realignment of Comdisco's service
businesses and due to losses attributable to Prism, which reduced net earnings
by $36 million, or $.14 per diluted common share. Excluding the Charge and
Prism, net earnings for the year ended September 30, 1999 were $167 million, or
$1.03 per diluted common share. Excluding the Charge and Prism, the increase in
net earnings in the year ended September 30, 1999 compared to fiscal 1998 is
primarily due to remarketing activities and earnings contributions from
Comdisco Ventures group. The increase in net earnings in fiscal 1998 and 1997
compared to the prior year is due to increases in earnings contributions from
remarketing and technology services. See "Business" on page 50 for a discussion
of the Charge.
Earnings per common share, basic and diluted, in fiscal 1999 and 1998
benefited from Comdisco's stock repurchase program, which has reduced the
average common shares outstanding. However, average common shares outstanding
increased during fiscal 1998 as compared to fiscal 1997 primarily as a result
of our shared investment program, which we refer to as the "SIP." See Note 12
of Notes to Consolidated Financial Statements on page F-22. Shares issued under
the SIP in fiscal 1998 exceeded the number of shares repurchased in fiscal
1998.
In conjunction with our shift in corporate strategy, we recorded a one-
time pre-tax charge of $150 million, $96 million after tax, or approximately
$0.59 diluted per share, in the quarter ended March 31, 1999. The components of
the 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.
Leasing volume decreased in fiscal 1999 as compared to fiscal 1998,
primarily as a result of our decision to exit the mainframe leasing business
and focus on technology services. Cost of equipment placed on lease was $2.9
billion in fiscal 1999, compared to cost of equipment placed on lease of $3.3
billion and $3.1 billion in fiscal 1998 and 1997, respectively.
Comdisco'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
our technology services business. Costs associated with the development and
implementation of Comdisco'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. Included in the Charge is $30 million associated with the
realignment of our service
51
<PAGE>
businesses, including costs associated with the relocation of its network
management center and consolidation and reconfiguration of some of our
continuity services facilities worldwide.
Financial Condition
Comdisco'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 in the form of lease receipts, including the realization of residual
values through remarketing activities, and external financing. See Note 7 of
Notes to Consolidated Financial Statements on page F-14 for information on our
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 $2.8
billion. Comdisco continues to invest additional capital to upgrade our service
capabilities and enhance future continuity services revenues. In fiscal 1999,
capital expenditures for these purposes 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 continued investment in Advance Recovery
Services, which we refer to as "ARS." ARS is designed to reduce the risk of
data loss as well as recovery time across all market-leading platforms.
Comdisco is also investing in additional personnel to expand our other
technology services offerings and to ensure the quality of our services
offerings.
During fiscal 1999, Comdisco invested approximately $136 million in
Prism, including $91 million in the development and expansion of this business.
Comdisco currently estimates that Prism capital expenditures will be
approximately $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, such as the
procurement, design and construction of central office cages, end-user DSL 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 believes that our estimated cash flow from operations and
current financial resources will be sufficient to fund anticipated future
growth and operating requirements. In addition, Comdisco expects to continue to
utilize a variety of financial instruments to fund our short- and long-term
needs.
Cash Provided by Operating Activities: Net cash provided by operating
activities was $3.2 billion, $2.9 billion and $2.5 billion in fiscal 1999, 1998
and 1997, respectively. During the last five years, net cash provided by
operating activities totaled $12.8 billion.
As of September 30, 1999, Comdisco estimates that future contractual cash
flows from leasing, services and ventures could generate gross cash receipts of
approximately $6.7 billion, including $3.1 billion in fiscal 2000. Comdisco's
liquidity 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 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 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 had committed credit lines of
$1.3 billion established with twenty-nine banks at September 30, 1999. Interest
rates on debt outstanding under the committed lines are negotiated at the time
of the borrowings based either on "bid rates" from participating banks, LIBOR
plus twenty-to-twenty-two basis points or at the banks' then current base
rates. Average daily borrowings under committed and uncommitted lines and loan
participation contracts was $1.2 billion in fiscal 1999, 1998 and 1997. Average
interest rates were 5.07%, 5.95% and 6.10% in fiscal 1999, 1998 and 1997,
respectively.
52
<PAGE>
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, which we refer to as
the "1998 Shelf." Pursuant to the 1998 Shelf, in fiscal 1999 we issued the
following senior notes:
. $350 million of 6.000% Notes Due January 30, 2002
. $350 million of 5.950% Notes Due April 30, 2002
. $300 million of 7.250% 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 Leasing, services, Comdisco Ventures group, Prism, and, where
appropriate, to refinance maturities of interest-bearing liabilities. On
September 24, 1999 we 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, which we refer to as the "1999 Shelf". As
of the end of fiscal 1999, no senior debt had been sold pursuant to the 1999
Shelf. In September 1999, Comdisco established a 500 million Euro Medium Term
Note Program under which we would issue Euro medium term notes. An application
has been made to list notes issued under the program on the Luxembourg Stock
Exchange and we 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's credit committee establishes concentration levels by credit
rating and customer.
Maturities: At September 30, 1999, Comdisco had debt of $2.5 billion
scheduled to mature in fiscal 2000, including $820 million of commercial paper
and short-term bank borrowings. At September 30, 1999, Comdisco had expected
future contractual cash flows from existing lease, services and venture
contracts of $3.1 billion in fiscal 2000. See Notes 6 and 7 of Notes to
Consolidated Financial Statements on page F-14 for information on contractual
cash flows and interest-bearing liabilities, respectively.
Ratios: The ratio of debt to total stockholders' equity, which we refer
to as the "Ratio," was 5.3:1, 5.1:1 and 5.4:1 at September 30, 1999, 1998 and
1997, respectively. During fiscal 1998, Comdisco redeemed our outstanding
preferred stock, which reduced stockholders' equity by $89 million. The 1998
Ratio was positively impacted by the SIP, under which 106 of Comdisco's senior
managers purchased over six million shares of our common stock for
approximately $109 million.
Results of Operations
Total revenue of approximately $4.2 billion and $3.2 billion in fiscal
1999 and 1998 represented increases of 28% 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 $2.7 billion for the
year ended September 30, 1999 represented an increase of 9% compared to the
prior year. Sales-type revenue increased 44% in fiscal 1999 compared to fiscal
1998, reflecting our 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.
53
<PAGE>
Leasing: Operating Lease Margins were $375 million, or 19.3%, and $369
million, or 19.5% in fiscal 1999 and 1998, respectively. Comdisco 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. The relatively modest increase in operating lease revenue minus
operating lease cost in fiscal 1999 compared to fiscal 1998 was due to the
Sale. The sales-type lease margin decreased in fiscal 1999 compared to the
prior year primarily because of lower margins on electronics equipment
remarketing.
The following table presents the Lease Margin for total leasing,
operating and sales-type leases for the five years ended September 30, 1999:
<TABLE>
<CAPTION>
99 98 97 96 95
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Total leasing......................................... 26% 26% 27% 31% 35%
Operating lease....................................... 19% 20% 21% 24% 26%
Sales-type lease...................................... 25% 30% 30% 26% 28%
</TABLE>
Sales: Revenue from sales, which includes remarketing and buy/sell
activities, in fiscal 1999, 1998 and 1997 is shown in the table below (in
millions, except percentages):
<TABLE>
<CAPTION>
99 98 97
---------------------- ---------------------- ----------------------
Revenue Expense Margin Revenue Expense Margin Revenue Expense Margin
------- ------- ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $293 $250 15% $329 $275 16% $269 $210 22%
Sale of mainframe
portfolio.............. 485 485 -- -- -- -- -- -- --
Sale of vendor
portfolio.............. 95 93 2% -- -- -- -- -- --
Sale of medical
refurbishment
business............... 18 18 -- -- -- -- -- -- --
---- ---- --- ---- ---- --- ---- ---- ---
$891 $846 5% $329 $275 16% $269 $210 22%
==== ==== === ==== ==== === ==== ==== ===
</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.
Comdisco Ventures group: Comdisco Ventures group revenue of approximately
$229 million in fiscal 1999 and $114 million in fiscal 1998 represents an
increase of 100% and 20%, respectively, over the respective prior year periods.
The increases were due to higher total leasing revenue and, in fiscal 1999,
higher revenue from the sale of equity interests in early-high stage technology
companies and higher interest income on venture debt. Total leasing revenue of
$118 million for the year ended September 30, 1999 represented an increase of
39% compared to the prior year. Revenue from the sale of equity interests
obtained in conjunction with Comdisco Ventures group's financing transactions
with early-stage high technology companies, which is included in "Other
revenue" on the Statement of Earnings, was $81 million in fiscal 1999 compared
to $15 million and $16 million in fiscal 1998 and 1997, respectively.
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 $91 million, $46 million and $80 million
in fiscal 1999, 1998 and 1997, respectively. In addition to the Comdisco
Ventures group revenue previously discussed, fiscal 1999 includes a reduction
in Comdisco Ventures group revenue of $20 million as an increase to the
54
<PAGE>
allowance for credit losses, and fiscal 1998 and 1997 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 or $.10 per common share-diluted, 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 Comdisco.
Total costs and expenses were $4.1 billion and $3.0 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 Comdisco's technology services.
Leasing costs: Leasing costs totaled $230 billion in fiscal 1999, $1.8
billion in fiscal 1998, and $1.5 billion in fiscal 1997. The increases were
related to increased operating lease revenue and, in fiscal 1999, increased
sales-type revenue. See "Leasing" on page 51 for a discussion of Operating
Lease Margins.
Sales costs: Sales costs were $846 million, $275 million and $210 million
in fiscal 1999, 1998 and 1997, respectively. The increase in fiscal 1999
compared to fiscal 1998 is due to the Sale. The increase in fiscal 1998
compared to fiscal 1997 is related to the increase in sales revenue. See
"Sales" on page 51 for information on sales margins.
Technology services costs: Technology services costs were $440 million in
fiscal 1999, $362 million in fiscal 1998 and $296 million in fiscal 1997. The
increases were due to higher personnel costs and continued investment in new
service development.
Selling, general and administrative: Selling, general and administrative
expenses totaled $306 million in fiscal 1999, $249 million in fiscal 1998, and
$244 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 $337 million in
comparison to $326 million in fiscal 1998 and $299 million in fiscal 1997,
respectively. The increase in interest expense in fiscal 1999 compared to
fiscal 1998 is due to higher average daily borrowings resulting from Comdisco's
increased investment in leasing, Comdisco Ventures group and Prism compared to
the prior period, offset by lower average rates.
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. 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;
55
<PAGE>
. selling and marketing to, and installing service for, customers in
markets where Prism has established service;
. hiring management and other personnel;
. developing and implementing operations support systems and other
information systems.
Prism has incurred losses in every month since its inception and Comdisco
expects to substantially increase our operating expenditures in an effort to
rapidly expand Prism's 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" and "Net Earnings" for a discussion of the Charge
recorded in the second quarter of fiscal 1999.
In the second quarter of fiscal 1997, Comdisco recorded a noncash, non-
operating charge of $25 million, $16 million after-tax or $.10 per common
share, as an addition to its equipment valuation allowance.
Income taxes: Note 9 of Notes to Consolidated Financial Statements on
page F-19 provides details about Comdisco's income tax provision.
International Operations
Comdisco operates principally in four geographic areas: the United
States, Europe, Canada and the Pacific Rim. In its operations, Comdisco works
with multinational corporations, and we provide global solutions in our
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 22% of Comdisco's
total revenue in fiscal 1999 and 20% in both fiscal 1998 and fiscal 1997.
Geographic area data is included in Note 16 of Notes to Consolidated
Financial Statements on page F-26.
Three and nine months ended June 30, 2000 compared to three and nine months
ended June 30, 1999
Net Earnings
Net earnings for the three months ended June 30, 2000 were $17 million,
or $.10 per diluted common share, as compared to net earnings of $36 million,
or $.22 per share, for the three months ended June 30, 1999. Net earnings for
the nine months ended June 30, 2000 were $101 million, or $.62 per diluted
share, as compared to net earnings of $18 million, or $.11 per share, in the
year earlier period. Net earnings for the nine months ended June 30, 1999 were
reduced by $150 million of pre-tax charges recorded in March, 1999, related to
the divestiture of low-margin businesses and in the realignment of Comdisco,
Inc.'s service businesses. See "Business" below for a discussion of this pre-
tax charge.
Excluding the Prism losses, Comdisco had net earnings of $58 million, or
$.36 per share, compared to $43 million, or $.26 per share, for the three
months ended June 30, 2000 and 1999, respectively. The increase for three and
nine months ended June 30, 2000 compared to the year earlier period is
primarily due to increased earnings by Comdisco Ventures group, offset by lower
earnings contributions from Comdisco group, primarily from leasing activities.
Excluding the charges in fiscal 1999 and the Prism losses in both fiscal 2000
and 1999, Comdisco had net earnings of $186 million, or $1.14 per share,
compared to $123 million, or $.76 per share, for the nine months ended June 30,
2000 and 1999, respectively.
56
<PAGE>
Business
Comdisco group:
. Services: Comdisco's technology services business attained record
revenues for the three and nine months ended June 30, 2000;
however, higher costs, primarily associated
with higher personnel costs and continued investment in new
service development, negatively impacted margins on Comdisco's
technology services business. Technology services had pretax
earnings of $12 million in the quarter ended June 30, 2000,
compared to $21 million in the quarter ended June 30, 1999 and $18
million in the quarter ended March 31, 2000. The third quarter of
fiscal 2000 was the third consecutive quarter of declining
earnings contributions from services. Network services had pretax
losses for the three and nine months ended June 30, 2000 of $9
million and $14 million, respectively. Comdisco expects network
services to incur losses in the fourth quarter of fiscal 2000. Web
services, a new service offered by Comdisco, incurred losses of $3
million in the quarter ended June 30, 2000. Revenue from
continuity contracts, which is recognized monthly during the
noncancelable continuity contract and is therefore typically
recurring and predictable, was approximately $89 million, $82
million and $92 million during the three months ended June 30,
2000 and 1999, and March 31, 2000, respectively, representing
approximately 52%, 62% and 59% of technology services revenue.
Included in the $150 million pre-tax charge, as discussed below,
is $30 million associated with the relocation of some of its
continuity services facilities worldwide.
. Leasing: Leasing had pretax earnings of $24 million and $60
million in the three and nine months ended June 30, 2000, compared
to $24 million and $87 million in the three and nine months ended
June 30, 1999, respectively. The pretax earnings recorded in the
nine months ended June 30, 1999, $87 million, excludes $120
million in pre-tax charges recorded in the second quarter of
fiscal 1999 related to Comdisco's divestiture of low-margin
businesses. The decrease in pretax earnings contribution from
leasing is due to a number of factors, including, but not limited
to, the Sale, a change in the mix of leases written, with a higher
percentage of new leases written as direct financing leases and
higher costs, primarily personnel costs, associated with our
operations. Cost of equipment placed on lease was $556 million
during the quarter ended June 30, 2000. This compares to cost of
equipment placed on lease of $657 million and $528 million during
the quarters ended June 30, 1999 and March 31, 2000, respectively.
During the nine months ended June 30, 2000 and 1999, cost of
equipment placed on lease totaled $1.9 billion and $2.1 billion,
respectively. Comdisco's residual leasing business in the areas of
electronics, communications, medical, laboratory and scientific
had worldwide cost of equipment placed on lease of $218 million
and $655 million in the three and nine months ended June 30, 2000,
respectively, compared to $89 million and $398 million in the
prior year periods. See below for a discussion of remarketing.
In addition to originating new equipment lease financing,
Comdisco's 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 generate
earnings from follow-on leases and gross profit on equipment
sales. Remarketing activity, an important factor in quarterly
earnings, increased in the current quarter as compared to both the
second quarter of fiscal 2000 and the third quarter of fiscal
1999. Remarketing activity should continue to be an important
contributor to quarterly earnings in the near and long term
because of the size of Comdisco's lease portfolio. In addition,
remarketing activity will be critical in the residual leasing
business.
57
<PAGE>
. Prism: Prism revenues from subscribers were approximately $1
million and $3 million in the three months and nine months ended
June 30, 2000, respectively. Prism had pretax losses of $64
million and $133 million in the three and nine months ended
June 30, 2000, respectively. During the three months ended June
30, 1999, Prism had a pretax loss of $11 million. From February
28, 1999 (date of acquisition) to June 30, 1999, Prism had a
pretax loss of $14 million.
Prism has incurred losses in every month since its inception. Prism
expects to continue to incur substantial operating losses, net losses and net
operating cash outflows for the next several years as it attempts to grow its
customer base in its markets.
Prism recently signed a $120 million agreement with the network unit of
Williams Communications Group, Inc. to provide Prism long-term capacity and
fiber on Williams' fiber-optic network. Comdisco believes that the majority of
the value in the transaction is in long-term network capacity on the Williams
Multi-Service Broadband Network(TM). Williams Communications will also provide
collocation and fiber maintenance services over the twenty-year agreement.
Funding of the $120 million transaction consists of $110 million in cash paid
over the life of the contract as well as Prism's issuance of $10 million of
common stock to Williams Communications for these services representing a 1%
fully diluted ownership of Prism.
Nortel Networks(TM) also recently acquired a 1% fully diluted common
stock ownership position in Prism for US $10 million. The relationship between
the two companies began in early 1998 when Prism awarded Nortel Networks an
initial contract for constructing its data network enhanced by Nortel
Networks' digital modem high-speed Internet access. Since that time, Prism has
continued to expand upon this original agreement and has agreed to purchase up
to $460 million of switches, integrated line cards, customer premises
equipment and ancillary technology.
Comdisco Ventures group:
. The third quarter of fiscal 2000 was a record third quarter for
Comdisco Ventures group, with record revenues from leasing and
interest income on venture debt. For the three months ended June
30, 2000 and 1999, Comdisco Ventures group recorded revenue of $
150 million and $60 million, which represented increases of 151%
and 83%, respectively, over the prior year periods. For the nine
months ended June 30, 2000 and 1999, Comdisco Ventures group
recorded revenue of $451 million and $138 million, which
represented increases of 228% and 54%, respectively, over the
prior year periods. Revenue from the sale of equity investments,
consisting of warrant sale proceeds and capital gains, for the
three and nine months ended June 30, 2000 and 1999 were as follows
(in millions):
<TABLE>
<CAPTION>
Nine
Three months months
ended ended
June 30, June 30,
--------------- ----------
2000 1999 2000 1999
------ ------ ---- ----
<S> <C> <C> <C> <C>
Proceeds from the sale of equity securities....... $ 26 $ 8 $139 $ 8
Less: cost of equity securities................... (5) (3) (14) (3)
------ ------ ---- ---
Capital gains..................................... 21 5 125 5
Warrant sale proceeds............................. 60 15 143 32
------ ------ ---- ---
Total............................................. $ 81 $ 20 $268 $37
====== ====== ==== ===
</TABLE>
58
<PAGE>
Comdisco Venture group's policy has been to sell its equity positions in an
orderly manner as soon as reasonably possible after a liquidity event. This
general policy allows Comdisco Ventures group to generate cash for reinvestment
in new transactions; Comdisco Ventures group believes it is preferable to make
new advances to start-ups rather than hold the securities of public companies.
In addition, Comdisco Ventures group has benefited from a strong IPO market for
venture capital-backed companies. There can be no assurance that the strong IPO
market for venture capital-backed companies will continue in the near or long
term.
Comdisco formed Hybrid Venture Partners, LP ("Hybrid Fund"), in October
1999 to originate venture debt and direct equity financing products for the
benefit of Comdisco Ventures group. Comdisco committed $250 million as the sole
limited partner to Hybrid Fund, all of which has been invested in, or committed
to, Comdisco Ventures group customers. The Hybrid Fund has been closed and it
will not seek additional capital commitments.
Results of Operations
Three Months Ended June 30, 2000
Total revenue for the three months ended June 30, 2000 was $953 million
compared to $1.3 billion in the prior year quarter and $1.01 billion in the
quarter ended March 31, 2000. The decrease in total revenue is primarily due to
the Sale, which increased sales revenue by $485 million in the three months
ended June 30, 1999. Total leasing revenue of $533 million for the quarter
ended June 30, 2000 represented a decrease of 7% compared to the year earlier
period. Total leasing revenue was $611 million in the second quarter of fiscal
2000. The decrease in operating lease revenue is due to a change in the mix of
leases written, with a higher percentage of new leases classified as direct
financing leases rather than operating leases. Sales-type lease revenue
decreased 18% in the current year quarter compared to the year earlier quarter,
primarily as a result of a higher percentage of remarketing transactions done
as sales rather than as leases.
Operating Lease Margin was $82 million, or 19.8% of operating lease
revenue, and $85 million, or 19.2% of operating lease revenue, in the three
months ended June 30, 2000 and 1999, respectively. The Operating Lease Margin
was $84 million, or 19.1% in the quarter ended March 31, 2000. Comdisco expects
the Operating Lease Margin to be at or below current levels throughout the
remainder of fiscal 2000, depending on the equipment leased and the volume of
operating leases. The decrease in operating lease revenue minus operating lease
cost in the current year quarter compared to the year earlier quarter is due
the change in the mix of leases written. Comdisco expects the growth of the
operating lease portfolio to slow as the mix of leases results in more direct
financing leases rather than operating leases.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, for the three months ended June 30, 2000 and 1999 were as follows
(in millions, except percentages):
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
Revenue Expense Margin Revenue Expense Margin
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Sales........................... $142 $115 19% $ 62 $ 50 19%
Sale of mainframe Portfolio..... -- -- -- 485 485 --
Sale of medical Refurbishment
business....................... -- -- -- 18 18 --
---- ---- --- ---- ---- ---
Total........................... $142 $115 19% $565 $553 2%
==== ==== === ==== ==== ===
</TABLE>
Revenue from technology services for the three months ended June 30, 2000
and 1999 was $173 million and $133 million, respectively, a 30% increase. Cost
of technology services for the three months ended June 30, 2000 and 1999 was
$161 million and $112 million, respectively, a 44% increase. The increase in
cost of technology services is attributed to the development and implementation
of Comdisco's network services infrastructure.
59
<PAGE>
Other revenue for the three months ended June 30, 2000 and 1999 was $105
million and $30 million, respectively. Revenue from the sale of equity
positions by Comdisco Ventures group was $80 million and $20 million in the
three months ended June 30, 2000 and 1999, respectively. Prism revenue from
subscribers was approximately $1 million in the quarter ended June 30, 2000.
Total costs and expenses for the quarter ended June 30, 2000 were $927
million compared to $1.25 billion in the prior year period. The decrease in
total costs and expenses is primarily due to the $150 million pre-tax charge
included in the prior year and the Sale, offset by higher expenses incurred by
Prism in the current year quarter.
Leasing costs totaled $382 million for the three months ended June 30,
2000, compared to $411 million and $458 million in the three months ended June
30, 1999 and March 31, 2000, respectively. The decreases in the current quarter
is due to reduced operating lease revenue resulting from the change in the mix
of leases written and, with respect to the second quarter of fiscal 2000, a
reduction in sales-type lease transactions. The decrease in sales-type
transactions is primarily a result of a higher percentage of remarketing
transaction done as sales rather than leases. See above for a discussion of
Operating Lease Margins.
Sales costs were $115 million, $553 million and $78 million in the three
months ended June 30, 2000 and 1999 and March 31, 2000, respectively. The three
months ended June 30, 1999 includes the Sale. The increase in current quarter
compared to the second quarter of fiscal 2000 is due to a higher volume of
remarketing transactions done as sales. See above for information on sales
margins.
Technology services costs were $161 million in the three months ended
June 30, 2000, $112 million in the three months ended June 30, 1999 and $138
million in the three months March 31, 2000. The increases were due to higher
personnel costs and continued investment in new service development.
Selling, general and administrative expenses totaled $116 million in the
quarter ended June 30, 2000 compared to $77 million in the quarter ended June
30, 1999 and $143 million in the quarter ended March 31, 2000. The increase in
the current year quarter compared to the year earlier period is primarily due
to an increase in bad debt expense and an increase in Comdisco Ventures group
incentive compensation costs as a result of gains realized on the sale of
equity positions. The following table summarizes selling, general and
administrative expenses (in millions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Incentive compensation................................................ $ 34 $18
Other compensation and benefits....................................... 34 31
Outside services...................................................... 15 9
Bad debt expense Comdisco Ventures group.............................. 16 1
Bad debt expense Comdisco group....................................... 4 2
Other expenses........................................................ 13 16
---- ---
$116 $77
==== ===
</TABLE>
Comdisco expects selling, general and administrative expenses to increase
throughout fiscal 2000 primarily because of higher revenue from Comdisco
Ventures group, which will increase incentive compensation costs, and higher
personnel costs.
Interest expense for the three months ended June 30, 2000 and 1999
totaled $88 and $82 million, respectively. Increases in interest costs resulted
from higher interest rates in the current period compared to the prior year
period.
Prism expenses for the three months ended June 30, 2000 totaled $65
million, compared to $11 million in the year earlier quarter and $42 million in
the second quarter of fiscal 2000. Network and product costs were $25 million
for the three months ended June 30, 2000 compared to $17 million in the
60
<PAGE>
second quarter of fiscal 2000. These costs are attributable to the expansion of
Prism's networks and increased orders resulting from their sales and marketing
efforts. Sales, marketing, general and administrative expenses were $19 million
and $14 million for the three months ended June 30, 2000 and March 31, 2000,
respectively. These costs are attributable to growth in headcount in all areas
of Prism, continued expansion of Prism's sales and marketing efforts,
deployment of Prism's networks and building of Prism's operating
infrastructure. Depreciation and amortization was approximately $13 million for
the current quarter compared to $6 million for the second quarter of fiscal
2000.
Nine months ended June 30, 2000
Total revenue was $2.8 billion and $3.2 billion for the nine months ended
June 30, 2000 and 1999, respectively. The decrease in total revenue in the
current year period is due to the Sale in the prior year period. Total leasing
revenue was $1.7 billion and $2.0 billion for the nine months ended June 30,
2000 and 1999, respectively. The decrease in total leasing revenue compared to
the prior year period was primarily due to the reduced revenue from sales-type
transactions, and a reduction in operating lease revenue. Remarketing activity
was strong in the third quarter of fiscal 2000 and, although sales-type revenue
decreased, sales, which also represents remarketing activity, increased in the
current year period.
Operating Lease Margin was $249 million, or 19.3% of operating lease
revenue, and $286 million, or 19.3% of operating lease revenue, in the nine
months ended June 30, 2000 and 1999, respectively. The decrease in Operating
Lease Margin in the current year period compared to the year earlier period was
due to a change in the mix of leases written, with a higher percentage of
leases written as direct financing leases rather than operating leases. We
expect the growth of the operating lease portfolio to slow as the mix of leases
written results in more direct financing leases rather than operating leases.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, for the nine months ended June 30, 2000 and 1999 were as follows
(in millions, except percentages):
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
Revenue Expense Margin Revenue Expense Margin
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Sales........................... $308 $243 21% $187 $159 15%
Sale of mainframe portfolio..... -- -- -- 485 485 --
Sale of medical refurbishment
business....................... -- -- -- 18 18 --
---- ---- --- ---- ---- ---
Total........................... $308 $243 21% $690 $662 4%
==== ==== === ==== ==== ===
</TABLE>
The increase in sale margins during the nine months ended June 30, 2000
is primarily due to remarketing of communications equipment, which had above
average margins on their remarketing transactions.
Revenue from technology services for the nine months ended June 30, 2000
and 1999 was $476 million and $376 million, respectively, a 27% increase. Cost
of technology services for the nine months ended June 30, 2000 and 1999 was
$424 million and $317 million, excluding the pre-tax charge, respectively, a
34% increase. The increase in revenue is due to higher revenue from network and
desktop management services. The decrease in technology services margins is due
to increasing infrastructure costs associated with the development of the
network services business and costs associated with the development of
Comdisco's web hosting and availability services.
Other revenue for the nine months ended June 30, 2000 and 1999 was $360
million and $66 million, respectively. Revenue from the sale of available-for-
sale securities by Comdisco Ventures group was $268 million and $37 million in
the nine months ended June 30, 2000 and 1999, respectively. During the nine
months ended June 30, 2000, approximately eighty-four companies in the equity
securities portfolio were acquired/merged or completed an IPO, compared to
forty-three companies in the
61
<PAGE>
prior year period. During the current period Comdisco realized an additional
$32 million of revenues from the sale other available-for-sale securities.
Prism revenue from subscribers was approximately $3 million in the nine months
ended June 30, 2000.
Total costs and expenses for the nine months ended June 30, 2000 were
$2.7 billion compared to $3.2 billion in the prior year period. The decrease is
due to the Sale and the Charge in the prior year period.
Selling, general and administrative expenses totaled $375 million in nine
months ended June 30, 2000 compared to $219 million in the prior year period.
The principal reasons for the increase in the current year period compared to
the year earlier period are an increase in bad debt expense for Comdisco
Ventures group and an increase in incentive compensation costs as a result of
gains realized on the sale of equity positions held in the Comdisco Ventures
group portfolio. The following table summarizes selling, general and
administrative expenses (in millions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Incentive compensation............................................... $101 $ 41
Other compensation and benefits...................................... 102 91
Outside services..................................................... 46 29
Bad debt expense Comdisco Ventures group............................. 62 2
Bad debt expense Comdisco group...................................... 25 9
Other expenses....................................................... 39 47
---- ----
$375 $219
==== ====
</TABLE>
On May 26, 2000, Comdisco granted non-qualified stock options for
Comdisco Ventures group stock under a management incentive plan to employees
responsible for the operations of Comdisco Ventures group and to a former
employee of Comdisco Ventures group. Of the options granted, 10,391,250 were
granted at $2.5647 per share and 1,275,000 were granted at $7.20 per share.
Comdisco measures compensation costs for these options, excluding the
terminated employee, using the intrinsic value based method of accounting. For
the terminated employee, Comdisco utilizes the fair market value for measuring
compensation costs. For options granted where the exercise price is less than
the market value as determined by an independent appraisal, and for the
terminated employee, is less than the fair market value as determined using an
option-pricing model, compensation expense will be recorded over the three-year
vesting period. Stock-based compensation expense, which is included in
incentive compensation for the three and nine months ended June 30, 2000,
totaled $2 million. Stock-based incentive compensation to be recorded in the
fourth quarter of fiscal 2000 will be approximately $5 million. Stock-based
compensation expense for fiscal 2001, 2002 and 2003 will be approximately $16
million, $7 million and $2 million, respectively.
Interest expense for the nine months ended June 30, 2000 and 1999 totaled
$259 and $253 million, respectively. Increases in interest costs resulted from
higher interest rates in the current period compared to the prior year period.
Prism expenses for the nine months ended June 30, 2000 totaled $135
million, compared to $14 million in the year earlier period. Network and
product costs were $51 million for the nine months ended June 30, 2000. Sales,
marketing, general and administrative expenses were $46 million for the nine
months ended June 30, 2000. Depreciation and amortization was approximately $22
million for the current period.
Financial Condition
Comdisco's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. Comdisco utilizes a variety of financial instruments to
fund its short and long-term needs.
62
<PAGE>
Comdisco plans to continue to be active in issuing senior debt during the
remainder of fiscal 2000, primarily to support the anticipated growth of
Comdisco's four primary business lines: technology services, Leasing, Prism and
Comdisco Ventures group, and, where appropriate, to refinance maturities of
interest-bearing liabilities.
Capital expenditures for equipment are generally financed by cash
provided by operating activities, recourse debt, or by assigning the
noncancelable lease rentals to various financial institutions at fixed interest
rates on a nonrecourse basis. Cash provided by operating activities for the
nine months ended June 30, 2000 and 1999 was $2.5 billion and $2.2 billion,
respectively. Cash provided by operations has been used to finance equipment
purchases and, accordingly, had a positive impact on the level of borrowing
required to support the company's investment in its lease portfolio. Comdisco
expects this trend to continue, with cash flow from leasing and remarketing
reinvested in the equipment portfolio.
Other Matters at September 30, 1999
Qualitative Information About Market Risk: One of Comdisco's primary
market risk exposures is interest rate risk, primarily related to Comdisco's
interest-bearing obligations. Generally, a changing interest rate environment
does not impact Comdisco's margins since the effects of higher or lower
borrowing costs would be reflected in the rates on newly leased assets. In
addition, Comdisco attempts to match the maturities of its borrowings with the
cash flows from our leased assets and notes receivables, thereby reducing our
interest rate exposure.
Comdisco 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 does
not speculate on interest rates, but rather manages our portfolio of assets and
liabilities to mitigate the impact of interest rate fluctuations. Comdisco does
not use derivatives for trading purposes. See Note 7 of Notes to Consolidated
Financial Statements on page F-14 for information on Comdisco's average daily
borrowings, Comdisco's derivative financial instruments, comprising interest
rate swaps and foreign currency forward exchange contracts and effective
interest rates.
The table below presents principal, or notional, amounts and related
weighted-average interest rates by year of maturity for Comdisco's notes
payable, term notes and senior notes (in millions, except percentages):
<TABLE>
<CAPTION>
00 01 02 03 04+
---- ---- ----- ---- ----
<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's interest-bearing
obligations and not our lease portfolio, the information presented therein has
limited predictive value.
Comdisco's investment in equity securities is also subject to market
price risk. A 10% decrease in market values would reduce the carrying value of
Comdisco's publicly traded equity securities by $20 million. Many of these
equity securities are highly volatile stocks.
63
<PAGE>
Recently Issued Professional Accounting Standards: Comdisco 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's financial statements.
Year 2000: Comdisco has substantially completed a program to assess,
remediate, mitigate and contingency plan for the potential impact of "Year
2000" issues throughout the company. "Year 2000" issues arise where date-
sensitive software uses two digit year date fields, sorting the year 2000
("00") before the year 1999 ("99"). As a result, these systems may not process
dates beyond 1999, resulting in data corruption and processing errors and
possible system failures.
Comdisco's program has addressed its internal computer systems and
applications, facilities, equipment portfolio, and continuity and network
services operations. This program includes assessment and mitigation of Year
2000 issues with respect to information technology and other equipment that
uses software embedded on computer chips. In addition, Comdisco is attempting
to monitor the Year 2000-compliance status of its vendors, suppliers and
service providers. Comdisco believes that it is taking the necessary steps
regarding Year 2000 compliance with respect to matters within its control to
provide that Year 2000 issues will not materially impact Comdisco. However,
there can be no assurance that Year 2000 issues will not adversely affect
Comdisco.
The SEC issued an interpretive guidance regarding disclosure of Year 2000
issues and consequences, effective August 4, 1999. On September 23, 1999,
Comdisco provided this disclosure in a Form 8-K filing, a copy of which is
available for download at the SEC Internet home page at www.sec.gov. This Year
2000 Readiness is incorporated by reference in Comdisco's Annual Report on Form
10-K for the year ended September 30, 1999, as amended by Form 10-K/A.
Euro Compliance: While Comdisco 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's financial condition or overall
trends in results of operations.
Inflation: Comdisco does not consider the present rate of inflation to
have a significant impact on the businesses in which we operate.
64
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF COMDISCO VENTURES GROUP
The discussion below contains certain forward-looking statements that are
based on the beliefs of Comdisco's management, as well as assumptions made by,
and information currently available to, Comdisco's management. See "Special
Note Regarding Forward-Looking Statements" on page 44 for reference to the
risks, uncertainties and events that could cause those underlying beliefs and
assumptions to change and cause Comdisco's results, performance and
achievements in the current fiscal periods and beyond to differ materially from
those expressed in, or implied by, any forward-looking statements.
This discussion should be read along with Comdisco Ventures group
financial statements included in this prospectus. Historical results may not
necessarily be indicative of operating results for any future period.
Overview
This discussion should be read along with the Comdisco Ventures group's
separate financial statements included in this prospectus. Historical results
and percentage relationships may not necessarily be indicative of operating
results for any future periods.
The financial statements of Comdisco Ventures group include the balance
sheets, statements of earnings and division net worth, and cash flows of our
venture financing business. These 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 Financial
Statements of Comdisco Ventures group beginning on page F-34 in this
prospectus. Comdisco Ventures group's financial statements have been prepared
in a manner which management believes is reasonable and appropriate. These
financial statements include the financial position, results of operations and
cash flows of Comdisco Ventures group, presented to give effect to the
accounting principles applicable to Comdisco's tracking stock capital
structure.
So long as Comdisco Ventures group stock is outstanding, management
intends to provide to Comdisco stockholders separate financial statements,
financial reviews, descriptions of the business, and other relevant financial
information for Comdisco Ventures group as well as consolidated and
consolidating financial information for Comdisco prepared in accordance with
generally accepted accounting principles. Notwithstanding its current intention
to provide these financial statements, Comdisco, Inc. has no legal obligation
to continue to do so, and may discontinue providing these statements at any
time.
Notwithstanding the allocation of assets and liabilities, including
contingent liabilities, between Comdisco Ventures group and Comdisco group for
the purposes of preparing these financial statements, this allocation and the
change to a tracking stock capital structure by Comdisco 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 Ventures
group stock are common stockholders of Comdisco. The assets attributed to one
business will be subject to the liabilities of the other business, even if
these liabilities arise from lawsuits, contracts or indebtedness that are
attributed to the other business. If Comdisco is unable to satisfy one
business's liabilities out of the assets attributed to it, Comdisco would be
required to satisfy those liabilities with assets Comdisco has attributed to
the other business. Furthermore, holders of Comdisco Ventures group stock and
Comdisco group stock will have no 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.
Comdisco's board of directors can make operational and financial
decisions that could favor Comdisco group over Comdisco Ventures group.
Comdisco's board of directors and management has the discretion to re-allocate
assets, liabilities, revenues, expenses and cash flows allocated to Comdisco
Ventures group, without the approval of the holders of Comdisco Ventures group
stock. Any re-allocations are intended to be made in accordance with the
allocation and management policies governing the relationship between the
Comdisco groups adopted by our board. These allocation and management
65
<PAGE>
policies can be modified or abandoned by the board of directors in its
discretion, without the approval of the holders of Comdisco Ventures group
stock. The flexibility afforded Comdisco to interpret and change these
allocation and management policies may make it difficult to access the future
prospects of Comdisco Ventures group based on its past performance. Any
decision relating to the operations or finances of Comdisco Ventures group,
including any decision made under these policies, and any decision to alter or
abandon these policies, will be made subject to the fiduciary duties owed by
Comdisco's board of directors and management to all Comdisco stockholders.
Financial effects from one business that affect Comdisco's consolidated
results of operations or financial condition could 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 distributions 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 group's financial statements
should be read in conjunction with Comdisco's audited consolidated financial
information contained elsewhere in this prospectus and the unaudited financial
information of Comdisco, Inc., Comdisco group and Comdisco Ventures group
provided in Comdisco's Form 10-Q for the quarter ended June 30, 2000, included
elsewhere in or incorporated by reference into this prospectus.
On April 20, 2000, the stockholders of Comdisco, at a special meeting,
approved the authorization of a new series of Comdisco common stock, "Comdisco
Ventures group stock," that is intended to track the performance of Comdisco
Ventures group. On May 4, 2000, Comdisco filed its restated charter which
established Comdisco Ventures group stock as a series of common stock.
Revenue
Currently, Comdisco Ventures group's revenues are derived primarily from
leasing, interest income on venture debt and the sale of public equity
holdings.
. Lease revenue: Comdisco Ventures group leases almost all types of
equipment from all manufacturers. These leases are "full payout"
leases, or leases in which Comdisco Ventures group recovers,
through lease payments, all acquisition and other costs incurred
with respect to the lease plus an acceptable rate of return.
Generally, "full payout" leases would be accounted for as
financings, similar to an installment purchase. However, Comdisco
Ventures group records these transactions as operating leases in
accordance with FAS 13, "Accounting for Leases," which requires
operating lease accounting where the collectability of the lease
payments is not assured. Under FAS 13, operating leased assets
consist of the equipment cost, less the amount depreciated to
date, revenue consists of the contractual lease payments
recognized on a straight-line basis, and depreciation expense is
recognized on a straight-line basis over the lease term to
Comdisco Ventures group's estimate of the equipment's fair market
value at lease termination. As part of the lease transaction,
Comdisco Ventures group receives warrants to purchase an equity
interest in the borrower at a stated exercise price based on the
price paid by venture capitalists.
. Interest income: Venture debt is generally structured as an
equipment loan or a subordinated loan. The debt bears fixed
interest rates with coupons currently ranging from 8.0% to 13.0%
per annum, although the effective rate may be greater. In
addition, fees typically ranging from 0.75% to 1.5% of the
principal amount of the loan commitment may be paid at closing. As
part of the transaction, Comdisco Ventures group receives warrants
to purchase an equity interest in its customer, or a conversion
option, in each case at a stated exercise price based on the price
paid by venture capitalists.
. Sale of equity holdings: Comdisco Ventures group also provides
financing to its customers by purchasing convertible preferred
stock or common stock. Comdisco
66
<PAGE>
Ventures group generates capital gains when the equity is sold. In
addition, Comdisco Ventures group records the proceeds from the
sale of warrants received in conjunction with its lease and loan
transactions as income when received. Historically, Comdisco
Ventures group's general policy has been to sell its 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 Comdisco Ventures group's ability to sell its equity
position for several months after a liquidity event. Comdisco
Ventures group's management consults with its outside asset
manager on at least a quarterly basis and has adjusted its general
policy on occasion to respond to market conditions. However,
Comdisco Ventures group's policy with respect to disposition of
its equity holdings is not intended to, and does not, assure that
Comdisco Ventures group will maximize its return on any particular
holding. Furthermore, because the creation of a public market or
an acquisition/merger (collectively referred to as a "liquidity
event") is beyond Comdisco Ventures group's control and is
difficult, if not impossible, to predict, Comdisco Ventures
group's operating results are subject to significant and material
quarterly fluctuations. Fluctuations in future quarters may be
greater than those experienced in past quarters as a result of the
growth in the number of direct equity financings made by Comdisco
Ventures group, market volatility for emerging growth companies
and as a result of Comdisco Ventures group's focus on Internet-
related, communications and other high-technology companies. For
those securities without a public trading market, the realizable
value of Comdisco Ventures group's interests may prove to be lower
than the carrying value currently reflected in the financial
statements.
Comdisco Ventures group also generates revenue from buy/sell activities
and from selling equipment at lease termination, generally to the original
lessee.
Comdisco Ventures group expects continued growth in all revenue sources
in fiscal 2000. In addition, the valuation of Comdisco Ventures group's
warrant and equity holdings has increased significantly during the eighteen
months ending June 30, 2000, primarily as a result of strong equity markets
for these securities. Accordingly, Comdisco Ventures group expects, based upon
current stock market valuations, an increase in revenue and earnings
contributions from its equity holdings in fiscal 2000. See "Risk Factors--
Risks Relating to the Business of Comdisco Ventures Group," beginning on page
31.
Costs and Expenses
Leasing: Costs and expenses are principally depreciation of equipment.
Depreciation is recognized on a straight-line basis over the lease term to
Comdisco Ventures group's estimate of the equipment's fair market value at
lease termination. In addition to depreciation, initial direct costs related
to operating leases, primarily salespersons' commissions, are capitalized and
amortized over the lease term.
Selling, general and administrative: Comdisco Ventures group's 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 has provided to Comdisco Ventures group
finance, billing, administrative services, insurance, budgeting, legal
services and other functions through a shared services program and going
forward will provide these services under a master inter-group agreement. As
part of its business plan, Comdisco Ventures group has hired and expects to
continue to hire additional employees. As a result, Comdisco Ventures group
expects these expenses to increase as the number of employees increases. In
addition, since management compensation is based upon pretax earnings of
Comdisco Ventures group, compensation expenses are expected to increase in
fiscal 2000, primarily as a result of higher earnings contributions from the
sale of equity holdings.
67
<PAGE>
Interest: Comdisco Ventures group funds its business with cash flow from
operations and with inter-group loans from Comdisco. See "--Liquidity and
Capital Resources," on page 73. Interest on inter-group loans is computed
monthly based on the average inter-group balance.
Bad debt expense: Comdisco Ventures group records 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 venture lease and venture debt portfolio.
Results of Operations
Fiscal 1999 compared to fiscal 1998 and fiscal 1998 compared to fiscal 1997
Net earnings of approximately $42.8 million and $17.2 million in fiscal
1999 and 1998, respectively, represent increases of 150% and 13%, respectively
over the prior year periods. The principal reasons for the increase in earnings
during fiscal year 1999 and 1998 are the significant increase in warrant sale
proceeds and capital gains, increased interest income on notes, and increased
revenues from leasing.
Total revenue of approximately $228.5 million and $114.3 million in
fiscal 1999 and 1998, respectively 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 venture debt and, in fiscal 1999,
an increase in the sale of equity holdings.
Lease revenue: 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 24% over
fiscal 1997 total leasing revenue of $68.6 million.
Leasing volume increased in both fiscal 1999 and 1998 as compared to the
prior years. Lease volume in the last fiscal year was the highest annual volume
in Comdisco Ventures group's history. Cost of equipment placed on lease was
$204.2 million in fiscal 1999 compared to cost of equipment placed on lease of
$113.9 million and $77.9 million in fiscal 1998 and 1997, respectively.
The Operating Lease Margin was $28.8 million, or 24.7% of operating lease
revenue and $23.3 million, or 28.0% of operating lease revenue in fiscal 1999
and 1998, respectively. This decrease in the Operating Lease Margin in fiscal
1999 versus fiscal 1998 is due to an increase in the lease volume. Comdisco
Ventures group expects the Operating Lease Margin to remain at approximately
25% of operating lease revenue in fiscal 2000.
Interest income: Interest income on venture debt 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 group funded loans totaling
$323.9 million, compared to $57.2 million in fiscal 1998 and $34.3 million in
fiscal 1997. See Note 3 of Notes to Financial Statements beginning on page F-36
for information concerning Comdisco Ventures group's notes receivable and "Risk
Factors," beginning on page 31, for a discussion of factors that may affect
earnings contributions from notes receivable and Comdisco Ventures group's
financial condition.
68
<PAGE>
Sale of equity holdings: Warrant sale proceeds and capital gains for
fiscal 1999, 1998 and 1997 were as follows (in millions):
<TABLE>
<CAPTION>
Year ended
September 30,
-------------------
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>
During fiscal 1999, approximately sixty companies were acquired or merged
or completed an initial public offering, compared to approximately thirty
companies in fiscal 1998.
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, $1.0 million and $1.0 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 incentive
compensation expenses. Management incentive compensation is based upon pretax
earnings of Comdisco Ventures group, 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 the Comdisco Ventures group's larger
lease and venture debt portfolios. The interest rate on inter-group loans from
Comdisco was 7.5% in fiscal 1999, 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 $6.3 million in fiscal 1997. The
increase in fiscal 1999 compared to the prior year reflects the increase in the
reserve related to increased venture lease, venture debt and direct equity
financing volume.
Income taxes: The effective income tax rate was 40% in each of fiscal
1999, 1998 and 1997. The effective income tax rate approximates the statutory
rate.
Three months Ended June 30, 2000
Total revenue for the three months ended June 30, 2000 was $149.6 million
compared to $59.6 million in the quarter ended June 30, 1999 and $160.4 in the
quarter ended March 31, 2000; this represented increases of 151% and 83%,
respectively, over those prior quarterly periods.
Net earnings for the three months ended June 30, 2000 were $32.4 million,
as compared to $13.2 million for the three months ended June 30, 1999. The
principal reasons for the increase in net earnings during the three months
ended June 30, 2000 compared to the year earlier period are the significant
increases in warrant sale proceeds and capital gains, increased interest income
on notes, and increased earnings contributions from leasing.
69
<PAGE>
Lease revenue: Total leasing revenue of $50.8 million for the quarter
ended June 30, 2000 represented an increase of 63% over $31.1 million recorded
for the quarter ended June 30, 1999. Total leasing revenue was $46.9 million in
the second quarter of fiscal 2000. Cost of equipment placed on lease was $115.2
million during the quarter ended June 30, 2000, compared to $59.1 million and
$96.5 million during the quarters ended June 30, 1999 and March 31, 2000,
respectively. These increases are the result of increases in both number of
customers and average lease size.
Operating Lease Margin was $11.4 million, or 22.5%, and $7.8 million, or
25.1% of operating lease revenue, in the three months ended June 30, 2000 and
1999, respectively. The Operating Lease Margin was $10.9 million, or 24.2% in
the quarter ended March 31, 2000. The decrease in the Operating Lease Margin in
the current year period compared to the second quarter of fiscal 2000 is due to
an increase in the quarterly lease volume. Generally, new leases written have
lower margins in their initial quarter compared to future quarters.
Interest income: Interest income on venture debt was $14.7 million in the
quarter ended June 30, 2000 compared to $6.3 million and $12.0 million during
the quarters ended June 30, 1999 and March 31, 2000, respectively. During the
quarter ended June 30, 2000, Comdisco Ventures group funded loans totaling
$167.7 million, compared to $85.0 million and $157.8 million in the quarters
ended June 30, 1999 and March 31, 2000, respectively.
Sale of equity holdings: Revenue from the sale of equity holdings, that
is warrant sale proceeds and capital gains, for the quarters ended June 30,
2000 and 1999 and March 31, 2000 were as follows (in millions):
<TABLE>
<CAPTION>
Three
months Three months
ended ended
June 30, March 31,
------------ ------------
2000 1999 2000
----- ----- ------------
<S> <C> <C> <C>
Proceeds from the sale of equity securities.......... $25.7 $ 7.5 $57.7
Less: cost of equity securities...................... (5.1) (2.9) (5.6)
----- ----- -----
Capital gains........................................ 20.6 4.6 52.1
Warrant sale proceeds................................ 59.7 15.4 46.4
----- ----- -----
Total................................................ $80.3 $20.0 $98.5
===== ===== =====
</TABLE>
During the quarter ended June 30, 2000, Comdisco Ventures group funded
equity financings totaling $40.1 million, compared to $12.0 million and $81.6
million in the quarters ended June 30, 1999 and March 31, 2000, respectively.
The increase in revenue from the sale of equity holdings in the current
quarter compared to the prior year period is due to an increase in the number
of companies in which Comdisco Ventures group has equity holdings that have
experienced liquidity events, which impacts the number of securities available-
for-sale. Market valuations from an initial public offering can also
significantly affect the revenue from the sale of equity investments. Comdisco
Venture group's general policy has been to sell its equity positions in an
orderly manner as soon as reasonably possible after a liquidity event. This
general policy allows Comdisco Ventures group to generate cash for reinvestment
in new transactions; Comdisco Ventures group believes it is preferable to make
new advances to start-ups rather than hold the securities of public companies.
The valuation of Comdisco Ventures group's warrant and other public
equity holdings has increased significantly during the twelve months ended June
30, 2000, primarily as a result of strong equity markets for those securities.
Accordingly, Comdisco Ventures group expects, based on current stock market
valuations, an increase in revenue and earnings contributions from its equity
holdings in the
70
<PAGE>
remainder of fiscal 2000. See "Risk Factors," beginning on page 31 for a
discussion of the factors that may affect proceeds from the sale of warrants
and capital gains.
Total costs and expenses for the quarter ended June 30, 2000 were $95.7
million compared to $37.6 million in the prior year period. Total costs and
expenses were $97.6 million in the quarter ended March 31, 2000. The increase
in total costs and expenses in the current quarter compared to the prior year's
quarter and the second quarter of fiscal 2000 is due to the increase in venture
lease and venture debt activities, and higher selling, general and
administrative expenses related to increased personnel costs and higher
incentive compensation.
Selling, general and administrative: Selling, general and administrative
expenses totaled $21.5 million in the quarter ended June 30, 2000 compared to
$5.7 million in the quarter ended June 30, 1999 and $23.5 million in the
quarter ended March 31, 2000. The principal reason for the increase in the
current year quarter compared to the year earlier period is an increase in
incentive compensation expenses as a result of higher revenue from the sale of
equity holdings.
On May 26, 2000, the company granted non-qualified stock options for
Comdisco Ventures group stock under a management incentive plan to employees
responsible for the operations of the Comdisco Ventures group and to a former
employee of Comdisco Ventures group. Of the options granted, 10,391,250 were
granted at $2.5647 per share and 1,275,000 were granted at $7.20 per share. We
measure compensation costs for these options, excluding the terminated
employee, using the intrinsic value based method of accounting. For the
terminated employee, we utilize the fair market value for measuring
compensation costs. For options granted where the exercise price is less than
the market value as determined by an independent appraisal, and for the
terminated employee, is less than the fair market value as determined using an
option-pricing model, compensation expense will be recorded over the three-year
vesting period. Stock-based compensation expense, which is included in
incentive compensation, for the three and nine months ended June 30, 2000,
totaled $2 million. Stock-based compensation expense to be recorded in the
fourth quarter of fiscal 2000 will be approximately $5 million. Stock-based
compensation expense for fiscal 2001, 2002 and 2003 will be approximately $16
million, $7 million and $2 million, respectively.
Interest: Interest expense for the three months ended June 30, 2000 was
$17.4 million compared to $6.6 million in the prior year period and $13.1
million in the quarter ended March 31, 2000. The increase in the current
quarter compared to the prior year period and prior quarter is due to higher
average daily inter-group borrowings resulting from the growth in Comdisco
Ventures group's business.
Bad debt expense: Bad debt expense for the three months ended June 30,
2000 totaled $16.0 million compared to $0.8 million in the quarter ended June
30, 1999 and $24.0 million in the quarter ended March 31, 2000. The increase in
the current quarter compared to the prior year period reflects the increase in
the reserve related to increased growth in venture lease, venture debt and
direct equity financing volumes.
Income taxes: The effective income tax rate was 40% in the quarter ended
June 30, 2000 compared to 40% and 41% in the quarters ended June 30, 1999 and
March 31, 2000, respectively. The effective income tax rate approximates the
statutory rate.
Nine Months Ended June 30, 2000
Total revenue was $451.3 million and $137.8 million for the nine months
ended June 30, 2000 and 1999, respectively.
Net earnings for the nine months ended June 30, 2000 were $106.8 million,
as compared to $27.9 million in the year earlier period.
71
<PAGE>
Lease revenue: Total leasing revenue of $135.7 million for the nine
months ended June 30, 2000 represented an increase of 62% over $83.7 million
recorded in the year earlier period. Cost of equipment placed on lease for the
nine months ended June 30, 2000 and 1999 was $291 million and $147 million,
respectively.
Operating lease revenue minus operating lease cost was $31.9 million, or
23.9% and $20.6 million, or 24.9% of operating lease revenue, in the nine
months ended June 30, 2000 and 1999, respectively.
Interest income: Interest income on venture debt was $38.5 million for
the nine months ended June 30, 2000 as compared to $12.8 million for the year
earlier period. During the nine months ended June 30, 2000 and 1999, Comdisco
Ventures group funded loans totaling $454.1 million and $225.0 million,
respectively.
Sale of equity holdings: Revenue from the sale of equity holdings, that
is warrant sale proceeds and capital gains, for the nine ended June 30, 2000
and 1999 were as follows (in millions):
<TABLE>
<CAPTION>
Nine months
ended
June 30,
-------------
2000 1999
------ -----
<S> <C> <C>
Proceeds from the sale of equity securities...................... $139.3 $ 7.5
Less: cost of equity securities.................................. (14.1) (2.9)
------ -----
Capital gains.................................................... 125.2 4.6
Warrant sale proceeds............................................ 142.4 32.4
------ -----
Total............................................................ $267.6 $37.0
====== =====
</TABLE>
During the nine months ended June 30, 2000 and 1999, Comdisco Ventures
group funded equity financings totaling $112.3 million and $20.3 million,
respectively.
The increase in revenue from the sale of equity holdings in the current
period compared to the prior year period is due to an increase in the number of
companies in which Comdisco Ventures group has equity holdings that have
experienced liquidity events, which impacts the number of securities available-
for-sale. Market valuations from an initial public offering can also
significantly affect the revenue from the sale of equity investments. During
the nine months ended June 30, 2000, approximately eighty-four companies were
acquired/merged or completed an initial public offering, compared to forty-
three companies in the year earlier period.
The valuation of Comdisco Ventures group's warrant and other public
equity holdings has increased significantly during the twelve months ended June
30, 2000, primarily as a result of strong equity markets for those securities.
Accordingly, Comdisco Ventures group expects, based on current stock market
valuations, an increase in revenue and earnings contributions from its equity
holdings in the remainder of fiscal 2000. See "Risk Factors," beginning on page
31 for a discussion of the factors that may affect proceeds from the sale of
warrants and capital gains.
Total costs and expenses for the nine months ended June 30, 2000 were
$273.7 million compared to $91.3 million in the prior year period. The increase
in total costs and expenses reflects the growth in business activities.
Selling, general and administrative: Selling, general and administrative
expenses totaled $63.4 million during the first nine months of fiscal 2000
compared to $8.8 million in the prior year period. The increase is due to
higher incentive compensation costs, which totaled $52.1 million in the nine
months ended June 30, 2000 compared to $4.8 million in the year earlier period.
72
<PAGE>
Interest expense: Interest expense for the nine months ended June 30,
2000 was $41.3 million compared to $15.2 million in the prior year period. The
increase is primarily due to higher inter-group borrowings.
Bad debt expense: Bad debt expense for the nine months ended June 30,
2000 totaled $61.8 million compared to $2.4 million for the prior year period.
The increase reflects the growth in business volume.
Income taxes: The effective income tax rate was 40% during the nine
months ended June 30, 2000 and 1999. The effective income tax rate approximates
the statutory rate.
Liquidity and Capital Resources
The board of directors of Comdisco, Inc. and its capital stock committee
each has a wide degree of discretion over the cash management policies of both
the Comdisco Ventures group and the Comdisco group, consistent with their
respective fiduciary duties to Comdisco, Inc. as a whole. Pursuant to this
discretion, these entities may freely transfer cash generated by the Comdisco
Ventures group to the Comdisco group and vice versa, as well as determine the
allocation of proceeds from future issuances of Comdisco Ventures group stock.
In addition, the timing and decision to finance capital expenditures of the
Comdisco Ventures group remains at the discretion of the board of directors of
Comdisco, Inc. Pursuant to the policy statement, the board of directors and
senior management of Comdisco, Inc. have the authority to determine the uses of
the net proceeds allocated to the Comdisco Ventures group. This policy
statement is subject to change at the discretion of the board of directors of
Comdisco, Inc. This flexibility could potentially make it difficult to assess
the Comdisco Ventures group's liquidity and capital resource needs, and in
turn, the future prospects of Comdisco Ventures group based on its past
performance.
While Comdisco has been the primary source of funds for Comdisco Ventures
group, Comdisco has no obligation to provide funds to Comdisco Ventures group
in the future and 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 any limited partnerships formed by Comdisco Ventures group in
the future will be funded at levels that will permit Comdisco Ventures group to
effectively pursue its business strategy. If Comdisco Ventures group were
otherwise unable to obtain funding, from Comdisco or otherwise, on acceptable
terms, Comdisco Ventures group's ability to fund its expansion or respond to
competitive pressures would be significantly impaired.
Comdisco Ventures group's operating activities during fiscal 1999,
including capital expenditures for equipment and venture debt originations,
were funded primarily by cash flow from operations and inter-group loans from
Comdisco. Total net cash provided (used) by Comdisco Ventures group was $322.0
million in fiscal 1999, compared to $32.9 million in fiscal 1998 and ($1.9)
million in fiscal 1997 and $321.4 million in the first nine months of fiscal
2000, compared to $244.9 million in the prior year period. The increase in
fiscal 1999 and in the first nine months of fiscal 2000 compared to the prior
year periods, is primarily due to increased business opportunities in venture
leases, venture debt and direct equity financings. In order to continue to be
able to pursue these increased opportunities, Comdisco Ventures group is
pursuing alternative means of funding its activities, including, but not
limited to, the establishment of limited partnerships to raise funds from third
parties, in addition to Comdisco Ventures group.
As of September 30, 1999, Comdisco Ventures group estimates that future
contractual cash flows from venture leases and venture debt could generate
gross cash receipts of approximately $724 million, including approximately $262
million in fiscal 2000.
73
<PAGE>
Comdisco Ventures group's capital requirements may vary based upon the
timing and the success of implementation of its business plan and as a result
of competitive developments or if:
. demand for Comdisco Ventures group's services or its cash flow
from operations is less than or more than expected;
. development plans or projections change or prove to be inaccurate;
. Comdisco Ventures group makes any acquisitions or commitments in
excess of the current plan; or
. Comdisco Ventures group accelerates or otherwise alters the
schedule or targets of its business plan implementation.
Comdisco could also attempt to raise funds for Comdisco Ventures group
by selling more Comdisco Ventures group stock to the public and allocating
those proceeds to Comdisco Ventures group. Comdisco has no plans at this time
for another offering.
Qualitative Information About Market Risk
Comdisco Ventures group's primary market risk exposures are interest
rate risk and market price risk.
Comdisco Ventures group's interest rate risk is primarily related to its
interest-bearing obligations to Comdisco. Comdisco Ventures group's leased
assets and notes receivable are at fixed rates, whereas its interest-bearing
obligations to Comdisco are floating. For new venture lease or venture debt
transactions, the effects of higher or lower borrowing costs would be
reflected in the rates on these transactions. However, for the existing
venture lease and venture debt 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.
Comdisco Ventures group's holdings of equity securities are subject to
market price risk. A 10% decrease in market values would reduce the September
30, 1999 market value of the Comdisco Ventures group's publicly traded equity
securities by $20 million. Many of these equity securities are highly volatile
stocks.
74
<PAGE>
BUSINESS OF COMDISCO VENTURES GROUP
Overview
Comdisco Ventures group provides venture leases, venture debt and direct
equity financing to venture capital-backed companies. Comdisco Ventures group's
relationships with established venture capital firms help it identify what it
believes are the best positioned companies in the most attractive high growth
industries. Comdisco Ventures group offers a broad range of equity-linked
financing products, which complement equity from venture capital firms and debt
from venture-oriented banks and asset-based lenders. Comdisco Ventures group
also plans to offer a number of additional services to its network of
customers. During the last two years, some of Comdisco Ventures group's notable
customers include Ariba, Ask Jeeves, Avici Systems, Be Free, Copper Mountain
Networks, Corvis, Critical Path, E-Loan, E.piphany, eToys, Extreme Networks,
Gadzoox Networks, NextCard, Niku, Northpoint Communications, Optical Networks,
Siara Systems and StratumOne Communications.
Comdisco Ventures group provides its customers with financing
"commitments"--agreements to provide up to a stated dollar amount of financing
over a stated period of time. Comdisco Ventures group was formed in 1987 as a
division of Comdisco, Inc. It has been operated as a division since that time
and is not a separate legal entity. Since 1987, Comdisco Ventures group has
committed approximately $2.8 billion in venture leases, venture debt and direct
equity financings, including $738 million in fiscal 1999 and $1.2 billion in
the first nine months of fiscal 2000. Of the over 870 companies Comdisco
Ventures group has helped finance, over 185 have gone public and over 145 have
been acquired, in each case providing Comdisco Ventures group with the
opportunity to liquidate its equity position in those companies.
Net earnings increased 150% to $42.8 million for fiscal 1999, as compared
to $17.2 million for fiscal 1998, and were $74.4 million in the first six
months of fiscal 2000.
The Market for Venture Financing
The emergence of Internet-related, communications and other high-
technology companies has been unprecedented in the last few years. The need for
capital to support the growth of these companies has likewise been
unprecedented. More specifically, a typical start-up company today has to raise
more capital faster than a similarly situated company a few years ago.
Several factors are behind this change. Technological advances have
accelerated, making product and service life cycles shorter. Innovative
companies must get their products to market as fast as possible before a
competitor renders their product obsolete. Getting to market faster requires
greater capital expenditures.
There is also a perception that the public equity markets reward a price
premium to companies that can establish the largest market share, build the
most compelling brand or create a new market niche early on. To gain this so-
called "first mover advantage," some companies today spend heavily on product
development, brand awareness, sales force expansion and infrastructure. All
these efforts accelerate the need for capital.
According to the National Venture Capital Association and Venture
Economics, venture capital firms invested a record $48.3 billion in portfolio
companies in 1999, representing a 151.6% increase over the $19.2 billion they
invested in 1998. Additionally, those same sources report the number of
companies receiving financing increased 25.6% in 1999 to 3,649 while the
average venture capital investment per company has also increased
significantly, to $13.2 million in 1999 from $6.6 million in 1998.
Historically, two primary sources of capital for start-up companies have
been venture capitalists and venture-oriented banks and asset-based lenders.
While the availability of venture capital has increased along with the volume
of start-up activity, venture capital generally represents the most dilutive
and
75
<PAGE>
intrusive type of financing. 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 generally result in no or minimal
dilution of ownership of existing equity holders, they typically involve high
monthly cash disbursements, limitations on the use of funds and adherence to
restrictive financial covenants.
Comdisco Ventures group believes these two primary sources of capital do
not fully meet the capital needs of start-up companies in the current economic
environment. Additionally, their disadvantages highlight the need for less
costly and less dilutive financing sources, creating opportunities for
alternative capital providers, like Comdisco Ventures group.
Comdisco Ventures Group's Solution
Comdisco Ventures group believes it provides significant value to
entrepreneurs and their venture capital investors through flexible financing
products and services which allow entrepreneurs to build their companies
quickly, while minimizing the dilution of their equity ownership positions.
Comdisco Ventures group has proven its ability to understand the capital
needs of its customers and to develop and customize attractive financings to
meet those needs. Currently, Comdisco Ventures group's primary financing
products are venture leases, venture debt and direct equity financings. Venture
leases are leases with warrants that compensate Comdisco Ventures group 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 more
traditional debt financing. The warrants or conversion feature of venture
leases and venture debt generally provide Comdisco Ventures group 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 Comdisco Ventures group to offer more flexible
financing and security terms. Direct equity financings involve Comdisco
Ventures group's purchase of convertible preferred stock and common stock from
its customers. Comdisco Ventures group also provides other ancillary
financings, including convertible debt, bridge loans, expansion loans,
acquisition financings and landlord guarantees.
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,
Comdisco Ventures group 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.
Comdisco Ventures group currently offers equipment procurement, exchange,
and upgrade services to its customers. Comdisco Ventures group plans to
introduce existing Comdisco group services to its customers. We expect that
Comdisco Ventures group customers will use web hosting and web availability
services, business continuity services, and network management services.
Comdisco has hired
76
<PAGE>
a full time sales person to coordinate with Comdisco Ventures group
introduction of these services, Comdisco Ventures group currently intends to
develop other services to its network of customers beginning in the second half
of fiscal 2001. It is anticipated that, when introduced, these services will be
designed to save Comdisco Ventures group's customers' time, effort and money as
they race to build their businesses.
Comdisco Ventures Group's Strategy
Comdisco Ventures group intends to expand its position as a provider of
venture leases and venture debt and introduce complementary services to venture
capital-backed companies. Its strategy is to continue to leverage its
management experience and resources to capitalize on the growing demand for
financing by venture capital-backed companies. Components of Comdisco Ventures
group's strategy include:
. leveraging relationships with established venture capitalists;
. providing capital through products that meet the varied needs of
venture capital-backed companies;
. maintaining a diversified customer base;
. expanding funding sources;
. capitalizing on the Comdisco affiliation and resources; and
. developing complementary service offerings that respond to the
changing needs of venture capital-backed companies.
Leveraging Comdisco Ventures group's relationships with established venture
capitalists
Comdisco Ventures group has developed long-term working relationships
with twenty to thirty of these firms by participating in numerous transactions
with them over the years. These venture capital firms serve as an important
referral source for leads. Additionally, since the venture capital firms have
already invested in these customers, Comdisco Ventures group benefits
indirectly from their diligence and expertise in starting and building new
companies. This working relationship affords Comdisco Ventures group continued
access to attractive financing opportunities. Comdisco Ventures group believes
that these venture capital firms view Comdisco Ventures group as an important
financial partner for their customers, both at the initial and subsequent
stages of growth, due to Comdisco Ventures group's financial resources, varied
financing products and industry expertise. Comdisco Ventures group believes
that, as a general rule, Comdisco Ventures group's financing products serve as
an effective source of financial leverage for the return on the venture capital
firms' equity investments in the same manner as traditional debt provides
financial leverage for more mature companies. Moreover, Comdisco Ventures
group's flexibility has been and could be useful in those rare situations that
require a specifically crafted financial solution. Comdisco Ventures group also
provides advice as to the financeability of particular companies to assist
venture capital firms and entrepreneurs in preparing business plans.
Providing capital through products that meet the varied needs of venture
capital-backed companies.
Comdisco Ventures group currently offers a broad range of financing
alternatives to venture capital-backed companies. The success of Comdisco
Ventures group has been fueled, in part, by its ability to understand the
capital needs of its customers and to develop and customize attractive
financings to meet those needs. Currently, Comdisco Ventures group's primary
financing products are venture leases, venture debt and direct equity
financings through the purchase of convertible preferred stock and common
stock. See "--Comdisco Ventures Group's Products," beginning on page 76 for a
description of these products.
77
<PAGE>
Maintaining a diversified customer base
Comdisco Ventures group provides financing products to customers
diversified across many industry sectors. This diversification reduces the
impact to Comdisco Ventures group should there be a downturn in any sector. The
following chart illustrates customer industry sector diversification by
aggregate commitments from October 1, 1996 through June 30, 2000.
[GRAPH]
Communications & Networking 27%
Computer Hardware & Semiconductors 7%
Internet 40%
Life Sciences 8%
Other Products & Services 2%
Software & Computer Services 16%
Comdisco Ventures group often provides financings to several venture
capital-backed companies in a specific emerging industry sector in order to
increase the likelihood of aligning itself with the most successful venture
capital-backed 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. Comdisco Ventures group, due to its limited ownership and lack of
strategic involvement, for example, typically no board representation,
generally avoids these kinds of conflict limitations. This allows Comdisco
Ventures group to diversify its financings across several start-ups within an
industry sector.
Expanding Comdisco Ventures group's funding sources
Historically, Comdisco Ventures group has funded its financing activities
through cash flows from its operations, as well as inter-group borrowings from
Comdisco. As demand for its financing products has grown, and to reduce the
balance sheet risk to Comdisco stockholders, Comdisco Ventures group has
explored possible alternative sources of funds for its financing activities,
including selling shares of Comdisco Ventures group stock to the public in the
offering contemplated by the prospectus. Comdisco Ventures group may, depending
on market conditions, form funding vehicles in which it seeks to raise capital
from third parties.
Capitalizing on the Comdisco affiliation and resources
As a division of Comdisco, Comdisco Ventures group is able to bring a
number of benefits to its customers:
. Equipment Procurement. As a result of our experience in leasing
and remarketing equipment and our equipment purchasing power,
Comdisco Ventures group is able to offer its customers an
equipment procurement service designed to save them time, effort
and money.
78
<PAGE>
. Technology Services. Comdisco Ventures group offers a range of
Comdisco's technology services to its 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. Comdisco Ventures group can also
introduce Comdisco as a potential customer for, or partner to, a
customer as the customer evolves beyond the start-up stage.
Developing complementary service offerings that respond to the changing needs
of venture capital-backed companies
In addition to financing products, Comdisco Ventures group currently
intends to develop and provide value-added services to its network of customers
beginning in the first half of fiscal 2001. Comdisco Ventures group will charge
its customers for the use of these services. The fees will be payable in cash
or equity or a combination of cash and equity. These services, when developed,
will also be designed to allow Comdisco Ventures group's customers to take
advantage of opportunities provided by the other members of Comdisco Ventures
group's network of customers. Comdisco Ventures group also plans to introduce
Comdisco group services to its customers.
Comdisco Ventures Group's Products
Typically, Comdisco Ventures group's products are structured as
commitments by it 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 Comdisco Ventures group generally must keep those
committed but undrawn amounts available for the customer. Comdisco Ventures
group also may receive the right, as part of a commitment, to purchase a
specific amount of equity in a planned future equity round of its customer.
Comdisco Ventures group usually receives a fee for providing its financing
commitment based on the original amount committed. Comdisco Ventures group's
commitment to finance is typically subject to the absence of any material
adverse change or any default under the loan or lease and compliance by its
customers with other loan or lease requirements.
Comdisco Ventures group generally will receive warrants to purchase
equity securities or the right to convert some of its debt into equity
securities of its 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 Comdisco
Ventures group's 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.
Venture leases
Comdisco Ventures group's venture leasing activities consist primarily of
the direct origination of non-cancelable, full-payout leases. These leases
cover a variety of equipment including computers, servers and other information
technology equipment, laboratory and scientific equipment, testing equipment,
production equipment and software. The rental rate and all other transaction
terms are individually negotiated with Comdisco Ventures group's customers. The
leased equipment is owned by Comdisco Ventures group through Comdisco, which in
turn purchased the equipment from a variety of manufacturers.
79
<PAGE>
Substantially all equipment leases that Comdisco Ventures group
originates have specified non-cancelable initial terms ranging from two to five
years. The general terms and conditions of all of these 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 Comdisco Ventures group monthly and
annual financial information.
Comdisco Ventures group may also structure transactions as a loan secured
by the underlying equipment, and Comdisco Ventures group considers these kinds
of arrangements as part of its venture equipment financing activities.
Factors considered in determining which financing structure to use
include the customer's desire to keep the equipment at the end of the
financing, Comdisco Ventures group's need for security, the flexibility at the
end of the financing and accounting and tax treatment. For example, a customer
that wants to keep the equipment at the end of the term may prefer the secured
loan structure and be treated as the owner of the equipment at inception of the
financing. On the other hand, a customer that does not want to keep the
equipment at the end of the term, or wants flexibility to return the equipment,
may prefer the lease structure whereby it has the right to return the equipment
at the end of the lease and may treat the transaction as an operating lease.
Under the lease structure, Comdisco Ventures group, through Comdisco, is the
owner of the equipment and is generally in a better position than an unsecured
lender in the event of default. In addition, under the lease structure,
Comdisco Ventures group, through Comdisco, is responsible for the remarketing
of the equipment at the end of the term. Under the loan structure, Comdisco is
not responsible for remarketing at the end of the term.
During fiscal 1999 and 1998, Comdisco Ventures group originated leases
through approximately 230 and 180 separate transactions, respectively,
representing total commitments of approximately $332 million and $221 million,
respectively.
In the nine months ended June 30, 2000, Comdisco Ventures group
originated leases through approximately two hundred and fifty separate
transactions, representing total commitments of approximately $536 million.
Venture debt
Historically, Comdisco Ventures group's venture debt activities have
consisted primarily of the direct origination of debt financings to customers
pursuant to subordinated, secured loan agreements. These loans bear fixed
interest rates over the prime rate and are usually repaid in thirty-six monthly
installments. Typically, the customer makes several months of interest-only
payments, the balance being amortizing installments of principal and interest.
In addition, fees may be paid to Comdisco Ventures group at closing.
These subordinated loans typically have been 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. Comdisco Ventures group's loan documents usually
contain cross-default provisions and may have specific provisions governing
future financing or pledging of assets. Occasionally, Comdisco Ventures group
makes unsecured loans to companies in anticipation of an acquisition, initial
public offering, or a longer term venture financing. These unsecured loans are
typically short-term or payable on demand by Comdisco Ventures group. These
unsecured loans involve more risk than secured loans because Comdisco Ventures
group is a general creditor of the customer and has no priority claim on any
specific assets. However, the unsecured loans are made in anticipation of
events that should provide sufficient funds for repayment of the unsecured
loans. Because the unsecured loans involve more risk than secured loans,
unsecured loans command better economic terms, and therefore typically provide
higher interest rates, shorter terms, and higher warrant coverage and
conversion features. Comdisco Ventures group believes that the increased risk
from unsecured loans is not material because the amount of such unsecured loans
is small.
80
<PAGE>
During fiscal 1999 and 1998, Comdisco Ventures group committed $3.3
million in three unsecured transactions, and $2.5 million in two unsecured
transactions, respectively, representing about 0.9% and 3.7% respectively, of
total subordinated loan commitments. In the nine months ended June 30, 2000,
Comdisco Ventures group committed $7.7 million in two unsecured transactions,
representing about 1.5% of total subordinated loan commitments. One $7 million
unsecured loan was refinanced into a convertible loan three months later.
Comdisco Ventures group believes that the overall percentages of unsecured
loans to total subordinated loan commitments is not likely to materially change
in the future.
During fiscal 1999 and 1998, Comdisco Ventures group originated
subordinated loans through approximately 145 and 30 separate transactions,
respectively, representing total commitments of approximately $367 million and
$68 million, respectively.
In the nine months ended June 30, 2000, Comdisco Ventures group
originated subordinated loans through approximately one hundred and thirty-five
separate transactions, representing total commitments of approximately $522
million.
Hybrid Fund began funding subordinated loan financings in the third
quarter of fiscal 2000. Comdisco Ventures group will participate in the returns
generated by the fund as the sole limited partner and as a member of the
general partner of Hybrid Fund. See "--Hybrid Fund," on page 86.
Direct equity financings
Through December 31, 1999, Comdisco Ventures group provided equity
financing to its customers by directly purchasing common or convertible
preferred stock. Comdisco Ventures group generally purchases equity at a
valuation based on the most recent previous financing round to venture
capitalists or, as applicable, a current or contemplated financing round.
During fiscal 1999 and 1998, Comdisco Ventures group made direct equity
investments with approximately ninety and thirty-five customers, representing
approximately $39 million and $7 million, respectively.
In the nine months ended June 30, 2000, Comdisco Ventures group made
direct equity investments with approximately 140 customers, representing
approximately $113 million. As of June 30, 2000, Comdisco Ventures group has
made total direct investments with an original investment value of
approximately $174 million. Both of these amounts include the direct equity
investments made by Hybrid discussed below.
Hybrid Fund began funding direct equity financings beginning in the
second fiscal quarter of 2000, and since inception, Hybrid has made direct
equity investments with approximately 25 customers representing approximately
$17 million. Comdisco Ventures group will participate in the returns generated
by the fund as the sole limited partner and as a member of the general partner
of Hybrid Fund. See "--Hybrid Fund," on page 86.
Overview of Financing Commitments and Equity Holdings of Comdisco Ventures
Group
Comdisco Ventures group believes that it is one of the largest sources of
venture leases and venture debt in its market.
New lease, debt and equity commitments
The following table illustrates total new lease, debt and direct equity
commitments made by Comdisco Ventures group during each of the last five fiscal
years and the first six months of fiscal 2000.
81
<PAGE>
Total New Commitments By Fiscal Year
1995-Current
(in millions)
<TABLE>
<CAPTION>
First
nine months
1995 1996 1997 1998 1999 2000
----- ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Leases............................ $77.3 $103.5 $144.3 $220.6 $332.1 $ 535.6
Debt.............................. 2.5 7.5 19.5 67.7 367.1 521.6
Equity............................ 1.6 3.1 3.7 7.4 39.0 106.9
----- ------ ------ ------ ------ --------
Total........................... $81.4 $114.1 $167.5 $295.7 $738.2 $1,164.1
===== ====== ====== ====== ====== ========
</TABLE>
The following table lists Comdisco Ventures group's fifteen largest
commitments provided through June 30, 2000.
Fifteen Largest Commitments Provided Through June 30, 2000
Asera, Inc.
Avici Systems, Inc.
Blue Nile, Inc.
Cereva Networks, Inc.
Chorum Technologies, Inc.
Corio, Inc.
HomeGrocer.com
living.com, Inc.
New Edge Networks, Inc.
OurHouse.com
Silicon Access Technology, Inc.
StockPower, Inc.
Telegis Networks, Inc.
Telocity, Inc.
Urban Media, Inc.
Comdisco Ventures group tries to avoid concentrating its financing risk
in a few customers. Comdisco Ventures group's commitment of approximately $25
million to living.com, Inc. is the largest commitment Comdisco Ventures group
has made to any single customer. On August 29, 2000, living.com filed for
Chapter 11 reorganization under the federal bankruptcy laws. In addition, other
business-to-consumer companies such as HomeGrocer.com have experienced reduced
access to capital markets which has put pressure on their liquidity. In
determining its allowance for credit losses, Comdisco Ventures group takes into
account these industry issues. At June 30, 2000 no commitment to any single
customer represents more than 2% of Comdisco Ventures group's total assets.
Equity holdings
Liquidity events. Comdisco Ventures group has been successful in
identifying companies that ultimately proceed to a liquidity event, such as an
initial public offering, or a merger with or sale to another company. In
addition to its ability to identify these companies, Comdisco Ventures group
benefits 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 Comdisco Ventures group the opportunity to sell or otherwise
dispose of its equity interests in those companies in an orderly manner to
generate cash that Comdisco Ventures group generally looks to reinvest in new
transactions, because Comdisco Ventures group believes it is comparatively
advantageous
82
<PAGE>
to make new advances to start-ups rather than hold the securities of public
companies. In most cases, securities law restrictions on transfer and
contractual lock-up provisions restrict Comdisco Ventures group's ability to
sell its equity positions for several months after a liquidity event. The
following table lists customers of Comdisco Ventures group that have been
acquired by a public company or have had their IPO, since October 1, 1996.
Comdisco Ventures Group's Customers That Have Completed Their Initial Public
Offering
or Been Acquired by Public Companies Since October 1, 1996
First Nine Months of Fiscal 2000
IPO Acquisition by Public Company
Be Free, Inc. Abaton.com, Inc.
CacheFlow, Inc. AdKnowledge, Inc.
Caliper Technologies Corp.
C-Bridge Internet Solutions, Inc. Agere, Inc.
Arithmos, Inc.
CrossWorlds Software, Inc. @mobile.com, Inc.
Data Critical Corp.
Digital Impact, Inc. @motion, Inc.
Digital Insight C-Port Corporation
Diversa Corporation Della & James.com
DSL.net, Inc. eve.com, Inc.
FirstSense Software, Inc.
Edison Schools, Inc.
(formerly, Edison Project) FlowWise Networks
Egreetings Network, Inc.
Flyswat, Inc.
Foglight Software, Inc.
Exelixis, Inc. FreeGate Corp.
Extensity, Inc.
GetThere.com, Inc.
Gloss.com, Inc.
iMark.com, Inc.
Handspring, Inc. Mitotix, Inc.
HomeGrocer.com, Inc.
Novera Software, Inc.
iBEAM Broadcasting Corporation Oberon Software, Inc.
iGo Corporation
Interwoven, Inc. Onebox.com
Lightspan Partnership, Inc.
Pivotal Corporation
Power Trends, Inc.
Metawave Communications Corp.
MotherNature.com, Inc. Post Communications, Inc.
Neoforma.com, Inc. Promatory Communications
Net.Genesis Corp. Quote.com, Inc.
Raycer, Inc.
Niku Corporation remarQ Communities, Inc.
OnDisplay, Inc. RightPoint Software, Inc.
ONI Systems Corp. (formerly RightWorks Corporation
Optical Networks, Inc.) Rubric, Inc.
Onvia.com, Inc. Sandpiper Networks, Inc.
PlanetRx.com, Inc. Siara Systems, Inc.
Praecis Pharmaceuticals, Inc. Simba Technologies, Inc.
Quantum Effect Devices, Inc. Supplybase, Inc.
QuickLogic Corp. TimeShift, Inc.
Saba Software, Inc. Tycho Networks, Inc.
SciQuest.com, Inc. Warpspeed Communications, Inc.
Sequenon, Inc. WaveSpan Corporation
Silicon Image, Inc. WebSpective Software, Inc.
Silicon Laboratories, Inc. Xros, Inc.
Snowball.com, Inc.
Telocity, Inc.
Tularik, Inc.
Turnstone Systems, Inc.
Virage, Inc.
Virata Corp.
Webvan Group, Inc.
83
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1999
-----------
IPO Acquisition by Public Company
--- -----------------------------
<S> <C>
Adforce, Inc. Academic Systems
Agile Software Corporation BabyCenter, Inc.
Allaire Corporation BFC Enterprises, Inc.
Ariba Technologies, Inc. BioStar, Inc.
Ask Jeeves, Inc. BrainPlay.com, Inc.
Audible, Inc. Chabi.com
Concur Technologies, Inc. CytoMed, Inc.
Continuus Software Corp. DAS Devices, Inc.
Copper Mountain Networks, Inc. Diamond Lane Communications Corp.
Critical Path, Inc. Excel Switching Corporation
E.piphany, Inc. Expersoft Corp.
Efficient Networks, Inc. Fibex Systems, Inc.
E-Loan, Inc. Internet Profiles Corp.
eToys, Inc. Lightera Networks, Inc.
Extreme Networks, Inc. LinkExchange, Inc.
FlyCast Communications Corp. Monterey Networks, Inc.
Gadzoox Networks, Inc. Pivot Technologies, Inc.
Intraware, Inc. Seeker Software
Keynote Systems, Inc. Sentryl Software Corporation
NetObjects, Inc. SpringStreet, Inc.
Netro Corporation StratumOne Communications, Inc.
NextCard, Inc. TransMedia Communications, Inc.
NorthPoint Communications, Inc. When, Inc. (when.com)
NVidia Corporation Whistle Communications
Packeteer, Inc. Zip2 Corporation
Phone.com, Inc.
Portal Software, Inc.
Quokka Sports
Ramp Networks, Inc.
SalesLogix Corporation
Select Comfort Direct Corp.
Showcase Corporation
TiVO, Inc.
Ventro Corporation (formerly, Chemdex
Corp.)
Viant Corporation
Vignette Corporation
Vixel Corporation
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1998
-----------
IPO Acquisition by Public Company
--- -----------------------------
<S> <C>
Com21, Inc. AnyRiver Entertainment, Inc.
CombiChem, Inc. ComCore Semiconductor, Inc.
Corixa Corporation CommQuest Technologies, Inc.
FlexiInternational Software, Inc. European Software Publishing Ltd.
Focal, Inc. gene/Networks, Inc.
FVC.COM Global Center, Inc.
Gene Logic, Inc. Hotmail Corporation
Hybrid Networks, Inc. ICAST Corp.
Information Advantage, Inc. Insight Micro Array Systems
Inktomi Corporation Netbot, Inc.
MicroMuse, Inc. OnLive! Technologies, Inc.
Power Integrations, Inc. PetCare Plus, Inc.
Preview Travel, Inc. Prominet Corporation
SportsLine.com, Inc. Research Holdings, Ltd.
USWeb Corporation Wayfarer Communications, Inc.
<CAPTION>
Fiscal 1997
-----------
IPO Acquisition by Public Company
--- -----------------------------
<S> <C>
Cardima, Inc. Agile Networks, Inc.
Cerus Corporation Alexon Biomedical, Inc.
Concentric Network Corp. Allelix Neuroscience, Inc.
Corsair Communications, Inc. Books That Work
Cubist Pharmaceuticals, Inc. ChemGenics/Millennium Pharmaceuticals
Endocardial Solutions, Inc. Digital Style Corp.
Intensiva HealthCare Corp. Dynasty Technologies, Inc.
Leukofile, Inc. Informed Access Systems, Inc.
Lightbridge, Inc. Integrity QA Software, Inc.
Micro Therapeutics, Inc. Light Source Computer Images, Inc.
NeoMagic Corporation NetObjects, Inc.
Netmoves Corporation OnStream Networks, Inc.
(formerly, faxSAV, Inc.) PharmaGenics, Inc.
Peapod, Inc. PharmaSource Group, Inc.
Triangle Pharmaceuticals, Inc. Quinta Corporation
ViroPharma, Inc. Rapid City Communications Corp.
Sahara Networks, Inc.
Sneaker Stadium, Inc.
TransGlobal Systems, Inc.
TravelNet, Inc.
TView, Inc.
ViewStar Corporation
Web TV Networks, Inc.
Whitetree, Inc.
Zane Publishing, Inc.
</TABLE>
Public equity holdings. Comdisco Ventures group directs the management of
its public equity holdings through a third party asset manager, E.M. Warburg,
Pincus & Co. E.M. Warburg, Pincus & Co. provides administrative services for
Comdisco Ventures group, including such activities as exercising warrants and
filing required documentation with the SEC. Additionally, they execute stock
sales and advise on short term sales strategy and timing consistent with
Comdisco Ventures group's practice of selling stock in an orderly manner.
Comdisco Ventures group's disposition policy with respect to its equity
holdings is not intended to, and does not, assure that Comdisco Ventures group
will maximize its return on any particular holding. Rather, Comdisco Ventures
group's general policy historically has been to sell its equity positions in an
orderly manner as soon as reasonably possible after a liquidity event. In
almost all cases, securities law restrictions on transfer and contractual lock-
up provisions restrict
85
<PAGE>
Comdisco Ventures group's ability to sell its equity position for several
months after a liquidity event. Consequently, Comdisco Ventures group's general
policy and these restrictions mean that Comdisco Ventures group may be unable
to realize the highest possible price for its equity positions. Comdisco
Ventures group's management consults with its outside manager on at least a
quarterly basis and has adjusted its general policy on occasion to respond to
market conditions. Going forward, Comdisco Ventures group may review and change
this general policy.
As of June 30, 2000, the current public equity holdings of Comdisco
Ventures group had an equity value of $484 million and represented ownership in
approximately 70 companies. The ten largest equity holdings represented 71% of
the total equity value of these holdings and was composed of the following
companies:
Largest Public Equity Stakes as of June 30, 2000
<TABLE>
<CAPTION>
Company Industry Sector
----------------------------------- ----------------------------------
<S> <C>
Ciena Corporation/1/ Communications & Networking
E.piphany, Inc. Software & Computer Services
Handspring, Inc. Computer Hardware & Semiconductors
iBEAM Broadcasting Corporation Communications & Networking
Niku Corporation Software & Computer Services
Nortel Networks Corp./2/ Communications & Networking
OnDisplay, Inc. Internet
ONI Systems Corp. (formerly Optical
Networks, Inc.) Communications & Networking
Redback Networks, Inc./3/ Communications & Networking
Turnstone Systems, Inc. Communications & Networking
</TABLE>
--------
/1/ Comdisco Ventures group received shares in Ciena Corporation, as a
result of that company's purchase of Lightera Networks, Inc.
/2/ Comdisco Ventures group received shares in Nortel Networks Corp., as
a result of that company's purchase of Promatory Communications.
/3/ Comdisco Ventures group received shares in Redback Networks, Inc. as
a result of that company's purchase of Siara Systems, Inc.
The equity instruments Comdisco Ventures group holds are generally
subject to securities law restrictions on transfer and contractual lock-ups
restricting its ability to sell them for up to approximately 180 days after an
initial public offering or longer. Of the $484 million in equity value of the
current public equity holdings of Comdisco Ventures group at June 30, 2000,
approximately $390 million was not then available for sale as a result of
unexpired restrictions. The public market for high-technology and other
emerging growth companies is extremely volatile. This volatility may adversely
affect both Comdisco Ventures group's ability to dispose of those equity
securities and the value of those equity securities on disposal.
Private equity holdings. In addition to the public equity holdings of
Comdisco Ventures group, as of June 30, 2000, it held warrants and other equity
positions in approximately 450 companies that are still private. The following
table sets forth those companies, grouped by business sector, to which Comdisco
Ventures group has committed $3 million or more in financing (whether as a
venture lease, venture debt or direct equity purchase) as of June 30, 2000.
86
<PAGE>
Private Company Equity Holdings of Comdisco Ventures Group
as of June 30, 2000
Commitments Greater than $3 million
Communications & Networking
2Wire, Inc.
AccessLan Communications, Inc. Mahi Networks, Inc.
MainStreet Networks, Inc.
Mapletree Networks, Inc.
Accordion Networks, Inc.
Agility Communications, Inc.
Airspan Communications Corporation MimEcom, Inc.
New Edge Networks, Inc.
Applicast, Inc. Octave Communications, Inc.
Atmosphere Networks, Inc. Optical Micro-Machines, Inc.
Avici Systems, Inc. Optical Solutions, Inc.
Bandwidth9 Optimight Communications, Inc.
Oresis Communications, Inc.
BridgeWave Communications, Inc.
BrightLink Networks, Inc. Pluris, Inc.
Caly Networks, Inc. Positive Communications, Inc.
Chorum Technologies, Inc. ProactiveNet, Inc.
Cinta Corporation QuantumShift
COLO.COM Quintessent Communications, Inc.
Corvis Corporation Santera Systems, Inc.
Shoreline Teleworks, Inc.
Crescent Networks, Inc.
eConvergent, Inc.
Endgate Corporation SingleSourceIT, Inc.
Equinix, Inc. Speedera Networks, Inc.
eVoice, Inc. dba TalkStar.com Telegis Networks, Inc.
Exterprise, Inc. Telencomm, Inc.
Telera, Inc.
Flashcom, Inc. Tellium, Inc.
Geyser Networks, Inc.
Urban Media, Inc.
Gigabit Wireless, Inc.
Gotham Networks, Inc. Vectris Communications, Inc.
Indus River Networks, Inc. Vertical Networks, Inc.
Video Networks, Inc.
iPass, Inc. Wavtrace, Inc.
Jetstream Communications, Inc.
White Rock Networks, Inc.
Lantern Communications, Inc. Yipes Communications, Inc.
LGC Wireless, Inc. Zaffire, Inc.
Computer Hardware & Semiconductors
Aptix Corporation Silicon Spice, Inc.
Censtor Corporation Siros Technologies
Chip2Chip, Inc. Stream Machine, Inc.
Cielo Communications, Inc. Transmeta Corporation
Gemfire, Inc.
Monterey Design Systems Veridiem, Inc.
Volterra Semiconductor Corporation
Silicon Access Technology, Inc. ZettaCom, Inc.
87
<PAGE>
Internet
Affinia, Inc. Impresse Corporation
Agillion.com, Inc. Indulge.com, Inc.
Andale, Inc.
Asera, Inc. InPurchase, Inc.
Interactive Transaction Services, Inc.
Autodaq Corporation iOwn Holdings, Inc.
BenefitPoint, Inc.
iProperty.com, Inc.
Bestoffer.com, Inc. IQ commerce Corporation
Bigstep.com
Kinzan.com
BlackHog, Inc.
Blue Nile, Inc. Liaison Technology, Inc.
Lipstream Networks, Inc.
Bowstreet.com, Inc. living.com Inc.
Lucy.com, Inc.
Bravanta.com, Inc. (formerly
BravoGifts.com, Inc.) MetaTV, Inc.
Brigade Solutions, Inc. Miadora, Inc.
Brightware, Inc Mobshop.com, Inc. (formerly
Broadband Sports, Inc. Accompany, Inc.)
Carstation.com, Inc. MoneyLine Network, Inc.
Celarix, Inc.
myCFO, Inc.
Cereva Networks, Inc. Myplay, Inc.
Chip Shot Golf Corporation Myteam.com, Inc.
Christianity.com, Inc. Naisa Systems, Inc.
Naxon Corporation
Circline, Inc.
NetFlix.com, Inc.
ClickRadio, Inc.
NONSTOP Solutions, Inc.
Cohera Corporation
Collabria, Inc. NowDocs.com, Inc.
Obongo, Inc.
comScore Networks, Inc.
Dental X Change, Inc.
Desktop.com, Inc. Ofoto, Inc.
DoughNET Inc. OpenTable.com, Inc.
OurHouse.com, Inc.
Dunk.Net
eBates Shopping.com, Inc. PayMyBills.com, Inc.
perksatwork.com, Inc.
eCoverage, Inc.
eGroups, Inc. Petopia.com, Inc.
Pogo.com Inc.
ePhysician, Inc. Primary Knowledge, Inc.
Embark.com, Inc. PurchasingCenter.com, Inc.
Qpass, Inc.
EqualFooting.com, Inc.
Quickdot Corporation
eSprocket Corporation
essential.com, Inc. Resonate, Inc.
e-STEEL Corporation RocketTalk, Inc.
EthnicGrocer.com, Inc. Sameday.com
Firedrop, Inc.
Firstlook.com, Inc. Scale Eight, Inc.
ServiceLane.com, Inc.
Food.com, Inc. ShoppingList.com, Inc.
Furniture.com, Inc. Shutterfly.com, Inc.
Gator.com Corporation SocialNet.com
Great Entertaining, Inc. StockPower, Inc.
Topica, Inc.
Greenlight.com
HomeGain.com, Inc. Vividence Corporation
WebSwap, Inc.
Homes.com, Inc.
HomeWarehouse.com, Inc. Xtra On-line Corporation
IAM.com, Inc.
iExchange.com, Inc. Zambeel, Inc.
Zoho Corporation
88
<PAGE>
Life Sciences
Accumetrics, Inc. Eos Biotechnology, Inc.
Acusphere, Inc. FeRx Incorporated
Adesso Specialty Services Idun Pharmaceuticals, Inc.
Advanced Medicine, Inc. Inspire Pharmaceuticals, Inc.
Align Technology, Inc. InterVentional Technologies, Inc.
American WholeHealth, Inc. Kelson Physician Partners, Inc.
PercuSurge, Inc.
Anadys Pharmaceuticals, Inc.
Radiant Research, Inc.
(formerly ScriptGen
TheraSense, Inc.
Pharmaceuticals, Inc.)
Argonaut Technologies, Inc. XenoPort, Inc.
asterion.com, Inc.
Cryogen, Inc.
Cytokinetics, Incorporated
Software & Computer Services
2Bridge Software Luminate Software Corporation
Acta, Inc. MarketTools, Inc.
Allegrix, Inc. Market-Touch Corporation
Angara E-Commerce Software, Inc. NewChannel, Inc.
Annuncio Software, Inc. NightFire Software, Inc.
Arbortext, Inc.
NUASIS Corporation
Broadsoft, Inc. Portera Systems
Corio, Inc.
DataCore Software Corporation Pretzel Logic, Inc.
Docent, Inc. Shym Technology, Inc.
Support.com, Inc. (formerly Tioga
eALITY, Inc. Systems, Inc.)
eDocs, Inc. TANTAU Software, Inc.
Efficient Market Services Torrent Systems, Inc.
Flashpoint Technology, Inc. Trellix Corporation
Instill Corporation TriStrata, Inc.
Integral Development Corporation ValiCert, Inc.
Linguateq, Incorporated
LinuxCare, Inc. Virtual Growth Incorporated
Worldstreet Corporation
Yantra Corporation
LiveCapital, Inc.
Other Products & Services
Advantage Schools, Inc.
AnyTime Access, Inc. cEverything Corporation
Gazoontite
Hybrid Fund
Comdisco formed Hybrid Venture Partners, L.P., a Delaware limited
partnership, in October 1999 to fund venture debt and direct equity financing
products for the benefit of Comdisco Ventures group. Comdisco committed $250
million as a limited partner to Hybrid Fund, all of which has been invested in,
or committed to, customers. The Hybrid Fund is now closed and will not seek
additional capital commitments beyond that $250 million. Hybrid Fund began
funding direct equity financings in the second quarter of fiscal 2000 and began
funding venture debt during the third quarter of fiscal 2000. Comdisco Ventures
group intends to transfer those venture debt transactions it originated during
the second and third quarters of fiscal 2000 to Hybrid Fund in the fourth
quarter.
Comdisco Ventures group intends to continue to fund venture leases and
equipment loans directly.
As the sole limited partner, Comdisco has committed 99% of the capital of
Hybrid and receives 99% of that part of the profits and losses allocated based
on capital commitments. Comdisco has
89
<PAGE>
allocated its interests in Hybrid Fund to Comdisco Ventures group as part of
the implementation of the tracking stock structure. Items of profit and loss of
Hybrid Fund attributable to the short-term investment of idle cash will be
allocated among the partners of Hybrid Fund in proportion to their respective
capital commitments. All other items of net profit of Hybrid Fund will be
allocated among Comdisco, the sole limited partner and the general partner, as
follows:
. First, 100 percent to all the partners in proportion to their
respective capital commitments until each partner has been
allocated net profits representing an 8 percent priority return on
its unreturned capital contributions.
. Next, 100 percent to the general partner until cumulative
allocations of net profit over the term of Hybrid Fund have been
made:
(1) 80 percent to all the partners in proportion to their
respective capital commitments; and
(2)20 percent to the general partner as a carried interest.
. Next, 80 percent to all the partners in proportion to their
respective capital commitments and 20 percent to the general
partner as a carried interest.
Net losses of Hybrid 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 Hybrid Fund to its partners may be made in cash or in
securities.
The general partner of Hybrid Fund is Rosemont Venture Management I,
L.L.C., a Delaware limited liability company. The managing members of the
general partner primarily responsible for Hybrid Fund's investment activities
initially will include James P. Labe and Geoffrey L. Tickner, members of
management of Comdisco Ventures group. Comdisco also holds a non-managing
membership interest in this general partner, an interest it has allocated to
Comdisco Ventures group as part of the implementation of the tracking stock
structure, and is entitled to participate in the general partner's profits and
losses. Prior to the offering of Comdisco Ventures group stock, Comdisco
generally receives 30% of the profit and losses of the general partner. After
the offering of Comdisco Ventures group stock, Comdisco generally will receive
49% of the profits and losses of the general partner. In addition to its share
of the profits and losses of Hybrid Fund, the general partner will receive an
annual management fee equal to 2% of the aggregate committed capital of Hybrid
Fund. Beginning in 2005, this fee will be equal to 2% of the aggregate cost
basis of securities held by Hybrid Fund and reasonable reserves for the payment
of fund expenses and the purchase of portfolio securities under pre-existing
binding commitments.
Comdisco has the right to participate in a manner and on an economic
level similar to its participation in Hybrid Fund in any fund in which any of
the members of current senior management responsible for its investment
activities are substantially involved in the future, provided that Comdisco
Ventures group stock remains outstanding and Comdisco commits to provide at
least 25% of the committed capital of that subsequent fund. Comdisco intends to
allocate these interests to Comdisco Ventures group should they become
available.
Instead of receiving payments of principal and interest and loan fees
associated with venture debt and the payments of sales proceeds associated with
its direct equity holdings, Comdisco, Inc. will receive, and has allocated to
Comdisco Ventures group, returns from venture debt and direct equity financings
held by Hybrid Fund through its limited partnership interests in Hybrid Fund
and membership interests in the general partner.
Financing Procedures
The successful execution of Comdisco Ventures group's business and
operating strategy is dependent upon its underwriting and investment policies
and procedures.
90
<PAGE>
Comdisco Ventures group reviews business plans generated by its referral
network in order to identify potential customers. After identifying potential
customers that it believes merit further investigation, Comdisco Ventures group
evaluates those potential customers in more depth. This review process,
described below, forms the basis of Comdisco Ventures group's decision to fund
or reject a lease, loan and/or direct equity financing.
Preliminary Evaluation
Comdisco Ventures group meets with the potential customer's management
and performs a preliminary investigation of its management, business
operations, and prospects. Comdisco Ventures group generally consults with and
gathers information from a wide variety of industry sources to assess the
prospects of a potential customer and its industry. Comdisco Ventures group
reviews 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 Comdisco Ventures group is satisfied with
its preliminary investigation of management, operations and prospects, it
typically issues a term sheet outlining a proposed transaction. After reaching
an agreement on the term sheet, Comdisco Ventures group begins due diligence.
Due Diligence
Comdisco Ventures group's 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 for senior
management and discussions with industry research analysts, other industry
participants, customers and suppliers where appropriate. Comdisco Ventures
group may also review the potential customer's charter, capital structure,
subsidiaries, assets, liabilities, employee plans, litigation, tax matters and
other relevant legal documentation.
Portfolio Monitoring and Risk Management
Comdisco Ventures group has three primary tools to monitor the
performance and quality of its financings:
. Comdisco Ventures group monitors the progress of product
development, cash burn and overall adherence to the business plan;
. Comdisco Ventures group maintains regular contact with management
teams to discuss business enrichment, cash flow needs and
potential financing and other capital structure issues; and
. Comdisco Ventures group reviews various financial statements
received from its customers on a quarterly basis.
Workouts
All loans that are 60 days or more overdue are classified as a work-out
account. Whenever feasible, Comdisco Ventures group attempts to use its
position as a lender and equity investor to work with other investors and
lenders to rehabilitate, rather than liquidate, defaulted loans. Comdisco
Ventures group's primary objective at this stage is to minimize its loss on the
lease and loan obligations.
Loss experience
Since the initiation of its financing activities, credit losses have been
less than 3% of Comdisco Ventures group's total commitments originated. This
percentage does not reflect any significant loss experience from Comdisco
Ventures group's subordinated debt products, which were only first introduced
on a large scale beginning in fiscal 1998.
91
<PAGE>
Comdisco Ventures group believes that its low level of credit losses are
largely a result of its (1) transaction structuring experience, (2) due
diligence procedures specifically designed to analyze transactions with
emerging growth companies, (3) extensive monitoring and review of these
transactions, and (4) corrective approach to addressing delinquency. Comdisco
Ventures group's loss experience has also benefited from the experience and
diligence of those established venture capital firms that typically precede
Comdisco Ventures group into a financing relationship with its customers.
Competition
Comdisco Ventures group's 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. The competition that Comdisco Ventures group faces
is situation-specific and depends, in part, on the issues that concern the
customer. For example, a customer that has a financing need of several hundred
thousand dollars, or that is unconcerned about restrictive covenants, may find
a venture-oriented bank more attractive. Or, a customer that needs a large
quantity of equipment from one specific vendor may be able to negotiate vendor
financing that is more attractive than alternative financing offered by
Comdisco Ventures group. Some non-traditional funding sources, such as
distribution channel partners, joint venture partners, and owners of
complementary technologies, may be motivated to provide attractive financing as
one part of a larger collaboration. An increasing number of public companies
also provide substantial capital to companies who might otherwise be candidates
for Comdisco Ventures group's financing products. Comdisco Ventures group
believes it competes effectively with these competitors based on its creative
deal structuring and flexibility, willingness to craft individual solutions to
financing needs, reputation, quality of service, ability to leverage its
relationship with Comdisco, and ability to respond rapidly.
Employees
As of June 30, 2000, Comdisco Ventures group employed forty-seven people
on a full time basis--twenty-nine people personnel were involved in marketing
and sales, sixteen were in processing, servicing and administrative support and
two were executive employees. No employees are represented by a labor union.
James P. Labe is the chief executive officer of the Comdisco Ventures
group and has directed the efforts of Comdisco, Inc.'s venture financing
activities since he founded Comdisco Ventures as a division of Comdisco in
early 1987. Jim received his MBA degree from the University of Chicago and his
BA degree from Middlebury College.
Geoffrey L. Tickner, Jr. is the chief operating officer of the Comdisco
Ventures group. He joined Comdisco Ventures group in 1998 after fifteen years
in investment banking at Smith Barney. Geoff received his BA from Princeton
University in 1982 and his MBA degree from Stanford University in 1986.
John J. Vosicky is the chief financial officer of the Comdisco Ventures
group. He is also Executive Vice President and Chief Financial Officer of
Comdisco and will continue to serve in those capacities. John received his BA
degree from St. Mary's University in 1970 in accounting, and received his CPA
certificate from the State of Illinois in 1973.
Glen Howard is the managing director and group head of venture lease
investments for the Comdisco Ventures group. He has been with Comdisco, Inc.
for more than thirteen years, serving ten years in lease financing sales and
marketing at Comdisco before moving to Comdisco Ventures group three years ago.
Glen received his BS degree in Systems Industrial Engineering from the
University of Arizona and received his MBA degree from Saint Mary's College.
92
<PAGE>
Facilities
Comdisco Ventures group's principal executive offices are located and its
venture leasing and venture debt activities are conducted at 3000 Sand Hill
Road, Menlo Park, California. In addition to its principal offices, Comdisco
Ventures group leases office space in Palo Alto, California, Waltham,
Massachusetts and Rosemont, Illinois.
Comdisco Ventures group believes its current facilities are adequate for
its existing needs and that additional, suitable space will be available as
required.
Regulation, Licenses and Qualifications, Federal And State
Because Comdisco Ventures group is a non-bank, commercial lender, it is
not subject to material federal regulation. Nevertheless, Comdisco Ventures
group may be required to comply with the Equal Credit Opportunity Act ("ECOA").
Under the ECOA, Comdisco Ventures group is required to give all 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.
Comdisco Ventures group is not subject to material regulation in most
states, although some states do require licensing for some kinds of commercial
financing activities. Most states' usury laws, which limit the amount of
interest charged on loans originated in a state, either exempt commercial loans
or do not extend the benefit of the usury laws to corporate borrowers.
To date, substantially all documentation relating to Comdisco Ventures
group's financing products is accepted in, and funding is made through,
Comdisco's principal offices in Illinois and these transactions are intended to
be governed by Illinois law, which does not require licensing for those
activities. Hybrid Fund has applied for a license in California. Comdisco, Inc.
has applied for a license in California as well, as it expands its funding
sources.
Comdisco Ventures group believes it is currently in material compliance
with any applicable state usury laws as well as other applicable federal and
state statutes and regulations.
Comdisco Ventures group believes existing federal and state laws and
regulations have not had a material adverse effect on its operations. There
can, however, be no assurance that future laws and regulatory changes will not
occur and will not place additional burdens on its operations.
93
<PAGE>
DESCRIPTION OF COMDISCO CAPITAL STOCK
The following is a summary and should be read with our restated charter
which we have filed as an exhibit to the registration statement of which this
prospectus is a part.
Our Restated Charter and Initial Designations of Series of Common Stock and
Preferred Stock
On April 20, 2000, our stockholders authorized us to file our restated
charter. Under our restated charter, which we filed with the Secretary of State
of Delaware on May 4, 2000, there are 1,800,000,000 shares of common stock of
Comdisco authorized. The board of directors may issue the common stock in
multiple series. The board has designated two series of common stock as of the
date of this prospectus--750,000,000 shares of Comdisco Ventures group stock
and 750,000,000 shares of Comdisco group stock.
As of the filing of our restated charter, Comdisco's existing common
stock was re-classified as Comdisco group stock. As of June 30, 2000 there were
224,906,304 shares of Comdisco group stock issued and outstanding. Prior to
this offering, no Comdisco Ventures group stock has been issued and
outstanding.
Under our restated charter and to the extent permitted by Delaware law,
our board of directors could, without the need to obtain stockholder approval:
. designate common stock not previously designated by the board of
directors, or re-designate 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
shares of one group reserved for issuance for the benefit of another group or
to the holders of shares of another group's stock.
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. At the time it creates a new series, our board of
directors may establish a new group to which that new series relates either by:
. allocating to it newly acquired assets, or
. reallocating to it some of the assets and liabilities from an
existing group.
If Comdisco, Inc.'s board of directors decides to reallocate assets and
liabilities, Comdisco, Inc.'s board of directors would reserve for issuance a
number of shares of stock of the new group for the benefit of the group or
groups to which those assets and liabilities were previously attributed.
Comdisco, Inc.'s board of directors does not currently have any plan to issue
any new series of common stock.
Authorized but unissued shares of Comdisco Ventures group stock and
Comdisco group 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 Stock Market rules.
94
<PAGE>
Preferred Stock
Our board of directors has the authority to issue preferred stock in one
or more series, without stockholder approval and 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. Our
restated charter designates two series of preferred stock:
.200,000 shares of Series C junior participating preferred stock; and
. 200,000 shares of Series D junior participating preferred stock.
These shares are reserved for issuance in connection with Comdisco's
preferred stock purchase rights described below. None of these shares are
currently issued or outstanding.
Description of Comdisco Ventures Group Stock
Shares reserved for issuance for the benefit of the Comdisco group or to the
holders of Comdisco group stock.
Comdisco, Inc.'s board of directors has reserved 75,000,000 shares of
Comdisco Ventures group stock for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock. Prior to the issuance of Comdisco
Ventures group stock in this offering, these reserved shares will represent all
of the earnings and losses of the Comdisco Ventures group.
The board of directors made this determination following discussion with
Comdisco's independent financial advisors, based on:
. the historical and projected financial and operating information
of Comdisco Ventures group;
. the market prices of securities and other financial and operating
information of companies engaged in activities similar to those of
Comdisco Ventures group;
. prevailing equity market conditions; and
. the range of the initial public offering price of the Comdisco
Ventures group stock to be issued.
Immediately after this offering, the reserved shares will represent 88%
of the total of the shares of Comdisco Ventures group stock outstanding and the
shares reserved for issuance for the benefit of Comdisco group or to the
holders of Comdisco group stock. If the over-allotment option is exercised in
full, shares of Comdisco Ventures group stock outstanding will be reserved for
issuance for the benefit of the Comdisco group or to the holders of Comdisco
group stock will represent approximately 87% of this total.
The shares of Comdisco Ventures group stock reserved for issuance for the
benefit of Comdisco group or to the holders of Comdisco group stock would not
constitute outstanding shares of common stock and, accordingly, would not be
voted on any matter by the Comdisco group, including any matter requiring the
vote of the holders of Comdisco Ventures group stock as a separate class.
However, the market value attributable to these reserved shares should be
reflected in the market value of the Comdisco group stock, which in turn would
affect the aggregate voting power represented by Comdisco group stock on any
matter in which holders of Comdisco group stock and Comdisco Ventures group
stock vote together as a single class.
The outstanding shares percentage equals the number of shares of Comdisco
Ventures group stock outstanding divided by the sum of the number of shares of
Comdisco Ventures group stock outstanding and the number of shares of Comdisco
Ventures group stock reserved for issuance for the benefit of the Comdisco
group or to the holders of Comdisco group stock. The outstanding shares
95
<PAGE>
percentage will equal 100%, and the number of shares of Comdisco Ventures
group stock reserved for issuance for the benefit of the Comdisco group or to
the holders of Comdisco group stock will equal zero, at any time that all of
the earnings and losses of the Comdisco Ventures group are represented by the
outstanding Comdisco Ventures group stock.
The following illustration demonstrates the calculation of the
outstanding shares percentage, if:
. 10,000,000 shares of Comdisco Ventures group stock were
outstanding as a result of this initial public offering.
. 75,000,000 shares of Comdisco Ventures group stock were reserved
for issuance for the benefit of the Comdisco group or to the
holders of Comdisco group stock.
then the outstanding shares percentage with respect to the Comdisco Ventures
group would equal 12% based on the following calculation:
<TABLE>
<S> <C>
number of shares of Comdisco Ventures group
stock outstanding = outstanding shares percentage
(number of shares of Comdisco Ventures group
stock outstanding
+
number of shares reserved for issuance for the
benefit of the
Comdisco group or to the holders of Comdisco
group stock)
10,000,000 shares
_______________________________________________ = 12%
10,000,000 shares + 75,000,000 shares
</TABLE>
We will adjust the outstanding share percentage to reflect further
issuances or repurchases of Comdisco Ventures group stock that relate to
Comdisco Ventures group, including the grant of any restricted stock awards or
exercises of any options granted to, Comdisco employees, capital contributions
to, or returns of capital from, Comdisco Ventures group and certain other
events, including any distribution of that reserved stock to holders of
Comdisco group stock.
Whenever we decide to issue shares of Comdisco Ventures group stock, we
would determine, in our sole discretion, whether to attribute that issuance
and its proceeds to:
. Comdisco group in respect of the shares of Comdisco Ventures group
stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock in a manner analogous to a
secondary offering of common stock of a subsidiary owned by a
corporate parent, or
. Comdisco Ventures group in a manner analogous to a primary
offering of common stock.
If we issue any shares of Comdisco Ventures group stock and attribute
that issuance and its proceeds to Comdisco group in respect of the shares of
Comdisco Ventures group stock reserved for issuance for the benefit of
Comdisco group or to the holders of Comdisco group stock :
. the number of shares so reserved would be reduced by the number of
shares that we issue,
. the number of outstanding shares of Comdisco Ventures group stock
would be increased by the same amount,
. the total number of notional shares deemed outstanding of Comdisco
Ventures group stock would remain unchanged, and
. the outstanding shares percentage would be correspondingly
increased.
If we instead attribute that issuance and its proceeds to Comdisco
Ventures group:
. the number of shares so reserved would remain unchanged,
96
<PAGE>
. the number of outstanding shares of Comdisco Ventures group stock
and the total number of notional shares deemed outstanding of
Comdisco Ventures group stock would be increased by the number of
shares we issue, and
. the outstanding shares percentage would be correspondingly
increased.
We have the right to issue shares of Comdisco Ventures group stock as a
distribution on Comdisco group stock. If we did so, we would attribute that
distribution to Comdisco group in respect of the shares of Comdisco Ventures
group stock reserved for issuance for the benefit of Comdisco group or to the
holders of Comdisco group stock. As a result:
. the number of shares so reserved would be reduced by the number of
shares so distributed,
. the number of outstanding shares of Comdisco Ventures group stock
would be increased by the same amount,
. the total number of notional shares deemed outstanding of Comdisco
Ventures group stock would remain unchanged, and
. the outstanding shares percentage would be correspondingly
increased.
If instead we issued shares of Comdisco Ventures group stock as a
distribution on outstanding shares of Comdisco Ventures group stock, we would
attribute that distribution to Comdisco Ventures group, in which case we would
proportionately increase the number of the shares of Comdisco Ventures group
stock reserved for issuance for the benefit of Comdisco group or to the holders
of Comdisco group stock. As a result:
. the number of shares of Comdisco Ventures group stock so reserved
and the total number of notional shares deemed outstanding of
Comdisco Ventures group stock would each be increased by the same
percentage as the number of outstanding shares of Comdisco
Ventures group stock is increased, and
. the outstanding shares percentage would remain unchanged.
At the time of any dividend on the outstanding shares of Comdisco
Ventures group stock other than any dividend payable in shares of Comdisco
Ventures group stock, we will credit to Comdisco group, and charge against
Comdisco Ventures group, a corresponding amount in respect of the shares of
Comdisco Ventures group stock reserved for issuance for the benefit of Comdisco
group or to the holders of Comdisco group stock. Specifically, the
corresponding amount will equal (1) the aggregate amount of that dividend times
(2) a fraction, the numerator of which is the number of the shares of Comdisco
Ventures group stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock and the denominator of which is the
number of shares of Comdisco Ventures group stock then outstanding.
If we decide to repurchase shares of Comdisco Ventures group stock, we
would determine, in our sole discretion, whether to attribute that repurchase
and its cost to:
. Comdisco group in a manner analogous to a purchase of common stock
of a subsidiary by a corporate parent, or
. Comdisco Ventures group in a manner analogous to an issuer
repurchase.
If we repurchase shares of Comdisco Ventures group stock and attribute
that repurchase and its cost to Comdisco group:
. the number of the shares of Comdisco Ventures group stock reserved
for issuance for the benefit of Comdisco group or to the holders
of Comdisco group stock would be increased by the number of shares
so purchased,
. the number of outstanding shares of Comdisco Ventures group stock
would be decreased by the same amount,
97
<PAGE>
. the total number of notional shares of Comdisco Ventures group
stock deemed outstanding would remain unchanged, and
. the outstanding shares percentage would be correspondingly
decreased.
If we instead attribute that repurchase of Comdisco Ventures group stock
and its cost to Comdisco Ventures group:
. the number of the shares of Comdisco Ventures group stock reserved
for issuance for the benefit of Comdisco group or to the holders
of Comdisco group stock would remain unchanged,
. the number of outstanding shares of Comdisco Ventures group stock
and the total number of notional shares of Comdisco Ventures group
stock deemed outstanding would be decreased by the number of
shares so repurchased, and
. the outstanding shares percentage would be correspondingly
reduced.
We may, in our sole discretion, determine to transfer cash or other
property of:
. Comdisco Ventures group to Comdisco group in return for a decrease
in the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of
Comdisco group stock in a manner analogous to a return of capital,
or
. Comdisco group to Comdisco Ventures group in return for an
increase in the shares of Comdisco Ventures group stock reserved
for issuance for the benefit of Comdisco group or to the holders
of Comdisco group stock, in a manner analogous to a capital
contribution.
If we determine to transfer cash or other property of Comdisco Ventures
group to Comdisco group in return for a decrease in the shares of Comdisco
Ventures group stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock:
. the number of shares so reserved and the total number of notional
shares of Comdisco Ventures group stock deemed outstanding would
each be decreased by an amount equal to the fair value of that
cash or other property divided by the market value of a share of
Comdisco Ventures group stock on the day of transfer,
. the number of outstanding shares of Comdisco Ventures group stock
would remain unchanged, and
. the outstanding shares percentage would be correspondingly
increased.
If we instead determine to transfer cash or other property of Comdisco
group to Comdisco Ventures group in return for an increase in the shares of
Comdisco Ventures group stock reserved for issuance for the benefit of Comdisco
group or to the holders of Comdisco group stock:
. the number of shares so reserved and the total number of notional
shares of Comdisco Ventures group stock deemed outstanding would
each be increased by an amount equal to the fair value of that
cash or other property divided by the market value of a share of
Comdisco Ventures group stock on the day of transfer,
. the number of outstanding shares of Comdisco Ventures group stock
would remain unchanged, and
. the outstanding shares percentage would be correspondingly
decreased.
We may not attribute issuances of Comdisco Ventures group stock to
Comdisco group, transfer cash or other property of Comdisco Ventures group to
Comdisco group in return for a decrease in the shares of Comdisco Ventures
group stock reserved for issuance for the benefit of Comdisco group or to the
holders of Comdisco group stock or take any other action to the extent that
doing so would cause the
98
<PAGE>
number of the shares of Comdisco Ventures group stock reserved for issuance for
the benefit of Comdisco group or to the holders of Comdisco group stock to
decrease below zero.
Dividends. We will be permitted to pay dividends on Comdisco Ventures
group stock out of assets of Comdisco legally available for the payment of
dividends under Delaware law. Our restated charter, however, provides that the
total amounts paid as dividends on Comdisco Ventures group stock cannot exceed
the available dividend amount for Comdisco Ventures group.
The "available dividend amount" for Comdisco Ventures group at any time
is the amount that would then be legally available for the payment of dividends
on Comdisco Ventures group stock under Delaware law if:
. Comdisco Ventures group was an independent Delaware corporation;
and
. Comdisco Ventures group had outstanding a number of shares of
common stock, par value $0.10 per share, equal to the number of
shares of Comdisco Ventures group stock that are then outstanding
plus the number of shares of Comdisco Ventures group stock
reserved for issuance for the benefit of Comdisco group or to the
holders of Comdisco group stock.
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 Ventures group. 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.
Subject to the above limitations, 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. Dividend payments may also be subject to any
other limitations set forth in any future series of preferred stock or in any
agreements binding on Comdisco from time to time.
If shares of Comdisco Ventures group stock are still reserved for
issuance for the benefit of the Comdisco group or to the holders of Comdisco
group stock at the time of any dividend on the outstanding shares of Comdisco
Ventures group stock, Comdisco, Inc. will credit to the Comdisco group, and
charge against the Comdisco Ventures group, a corresponding amount of the
shares of Comdisco Ventures group stock reserved for issuance for the benefit
of the Comdisco group or to the holders of Comdisco group stock.
Mandatory dividend, redemption or conversion of Comdisco Ventures group
stock. If we sell or dispose of all or substantially all of the properties and
assets of Comdisco Ventures group in a transaction other than one described
below under "--Exceptions to the Dividend, Redemption or Conversion Requirement
if a Disposition Occurs" our board of directors will decide if we will:
99
<PAGE>
. pay a dividend to the holders of Comdisco Ventures group 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 Comdisco Ventures group stock in
exchange for cash and/or securities or other property having a
value equal to the proportionate interest of the holders of
Comdisco Ventures group stock 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 Comdisco
Ventures group stock having an aggregate average market value,
during the twenty-day trading period beginning on the sixteenth
trading day following consummation of that transaction, equal to
the proportionate interest of the holders of Comdisco Ventures
group stock in the value of the net proceeds of the disposition;
or
. convert each outstanding share of Comdisco Ventures group stock
into a number of shares of Comdisco group stock equal to 115% of
the ratio of the average market value of one share of Comdisco
Ventures group stock to the average market value of one share of
Comdisco group stock during the twenty-day trading period ending
on the fifth trading day prior to the first public announcement of
that disposition transaction.
We will determine the proportionate interest of the holders of Comdisco
Ventures group stock in the net proceeds of a disposition by assuming that the
shares of Comdisco Ventures group stock reserved for issuance for the benefit
of Comdisco group or to the holders of Comdisco group stock are issued and
outstanding. Under these circumstances, our board of directors in its sole
discretion, will determine the fair market value of all assets, except for cash
and unrestricted publicly traded securities.
We may only pay a dividend or redeem shares of a series 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 ninetieth trading
day following the disposition date.
For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to Comdisco
Ventures group means a portion of the properties and assets that represents at
least 80% of the value of the properties and assets attributed to Comdisco
Ventures 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:
. any taxes payable by us, or which would have been payable but for
the utilization of tax benefits attributable to Comdisco group, 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 Comdisco Ventures group,
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 Comdisco Ventures group.
100
<PAGE>
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 fifteen
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 of all or substantially all the assets of Comdisco Ventures group
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 Comdisco Ventures group 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 that
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 Comdisco Ventures group 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 Comdisco Ventures 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, Comdisco Ventures group stock, 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, and there
is no minimum ownership position we must have in the entity to take advantage
of this exception. As a result of these exceptions, holders of Comdisco
Ventures group stock could find themselves holding a tracking stock that tracks
the performance of a set of assets owned by an entity or entities supervised by
management other than Comdisco Ventures group.
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 Comdisco Ventures group
stock;
. 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 thirtieth 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 Comdisco Ventures group
stock, as applicable, into newly issued shares of Comdisco group
stock as contemplated under "Conversion of Comdisco Ventures group
stock at option of Comdisco" below.
Sale of less than substantially all the assets of Comdisco Ventures
group. We currently intend to allocate to Comdisco Ventures group for its
benefit the proceeds from any disposition of less than all or substantially all
of the Comdisco Ventures group properties and assets. However, consistent with
the policies described under "Relationship Between Comdisco Ventures Group and
Comdisco Group," beginning on page 114, our board of directors has the right to
determine whether to allocate those proceeds differently, subject to the
fiduciary duties owed by the board of directors to all Comdisco stockholders.
101
<PAGE>
Conversion of Comdisco Ventures group stock at option of Comdisco. We
will have the right, at any time, to convert shares of Comdisco Ventures group
stock into a number of shares of Comdisco group stock initially equal to 125%
of the ratio of the average market value of one share of Comdisco Ventures
group stock to the average market value of one share of Comdisco group stock
over a twenty-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 Comdisco Ventures group stock. The
percentage applied to the ratio of market values will decline ratably each
quarter over a period of ten quarters to 115%.
The premiums described above that are provided upon any conversion of
Comdisco Ventures group stock are intended for the protection of the holders
of that class of stock in the initial years while the stock is establishing a
trading market since a decision by Comdisco, Inc. to convert that stock may be
made without the consent of the holders of Comdisco Ventures group stock. The
decrease in the premium from 25% to 15% over the first ten calendar quarters
after the Comdisco Ventures group stock is outstanding is intended to allow
greater flexibility to Comdisco, Inc. in using these provisions over time by
decreasing the dilutive effect of such a conversion on holders of Comdisco
group stock. Provisions similar to these, with comparable declining premiums,
are included in the terms of tracking stocks of other public companies that
have issued tracking stock. Accordingly, we believe these premiums are
necessary in order for us to be able to successfully market the Comdisco
Ventures group stock in the offering, while balancing the need for Comdisco,
Inc. to maintain flexibility in its capital structure.
If, however, we convert Comdisco Ventures group stock into Comdisco
group stock as a result of a tax event, as defined below, we will have the
right to convert shares of Comdisco Ventures group stock into a number of
shares of Comdisco group stock equal to 110% of the ratio of the average
market values of the Comdisco Ventures group stock and the Comdisco group
stock described above, regardless of when that adverse tax law change takes
place.
"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 those regulations by an
administrative agency; or
. any official or administrative pronouncement, action or judicial
decision interpreting or applying those laws or regulations,
without regard to whether that 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 group stock or Comdisco Ventures group stock, or
. any Comdisco group stock or Comdisco Ventures group stock is not
or at any time in the future will not be treated solely as stock
of Comdisco, or
. any Comdisco group stock or Comdisco Ventures group 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
102
<PAGE>
determines that, under the facts and circumstances then existing, an equity
structure consisting of multiple series of common stock 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 Comdisco Ventures
group stock. For additional information on the risks of a conversion and the
limited remedies available to stockholders, see "Risk Factors--Risks Relating
to a Capital Structure with Two or More Separate Series of Common Stock--Our
right to convert Comdisco Ventures group stock into Comdisco group stock at any
time without stockholder approval may prevent the holders of Comdisco Ventures
group stock from retaining an investment in a tracking stock under
circumstances in which they would wish to retain their investment," on page 39.
The conversion ratio that will result in the specified premium will be
calculated based on the average market value of one share of Comdisco Ventures
group stock as compared to the average market value of one share of Comdisco
group stock during the twenty consecutive trading day period ending on, and
including, the fifth trading day immediately preceding the date on which we
mail the notice of conversion to holders of Comdisco Ventures group stock.
Conversion would be based upon the relative market values of Comdisco
group stock, on the one hand, and Comdisco Ventures group stock, on the other.
Many factors could affect the market values of Comdisco group stock and
Comdisco Ventures group stock, including our results of operations and those of
each group, 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 Comdisco Ventures group stock in exchange for stock of
subsidiary. Although it currently has no intention to do so, our board of
directors may redeem on a pro rata basis all of the outstanding shares of
Comdisco Ventures group stock for shares of the common stock of one or more of
our wholly owned subsidiaries which will then own all of the assets and
liabilities attributed to Comdisco Ventures group, and no other assets or
liabilities. We may redeem shares of Comdisco Ventures group stock for
subsidiary stock only if we have legally available funds under Delaware law. In
connection with any exchange, in the event that we have shares of Comdisco
Ventures group stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock, we could retain any remaining shares of
common stock of the subsidiary holding Comdisco Ventures group's assets or
distribute those shares as a dividend on Comdisco group 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.
Because Comdisco Ventures group would most likely be subject to the
registration requirements of the 1940 Act if the exchange described above were
to occur, it is unlikely that our board of directors would redeem Comdisco
Ventures group stock in the manner described in this section.
General Conversion and Redemption Provisions.
Notices upon disposition of group assets. Not later than the twentieth
trading day after the consummation of a sale of all or substantially all of the
properties and assets of Comdisco Ventures group, we will announce publicly by
press release:
. the estimated net proceeds of the disposition;
. the number of shares of Comdisco Ventures group stock outstanding;
103
<PAGE>
. the number of shares of any series of common stock into which
Comdisco Ventures group stock is convertible and the conversion,
exchange or exercise price of those convertible securities; and
. the number of shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of
Comdisco group stock.
Not later than the fortieth 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 Comdisco Ventures group stock
with the net proceeds of the disposition; or
. convert the shares of Comdisco Ventures group stock into shares of
Comdisco group stock.
We will mail to each holder of shares of Comdisco Ventures group stock
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 Comdisco Ventures group
stock into shares of Comdisco group stock or into shares of stock of a
subsidiary as described above, Comdisco will send each holder of Comdisco
Ventures group stock that is being converted or redeemed a notice not less than
thirty nor more than forty-five days prior to the conversion or redemption
date. This notice will contain:
. a statement that all outstanding shares of Comdisco Ventures group
stock will be converted or redeemed, as applicable;
. the conversion or redemption date;
. the number of shares of Comdisco group stock or the number of
shares of stock of the subsidiary, as the case may be, which each
holder of Comdisco Ventures group 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 Comdisco Ventures group stock are to be redeemed, we will redeem
those shares proportionately from among the holders of outstanding shares of
Comdisco Ventures group stock or by the 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 Comdisco Ventures group 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 the shares of
Comdisco Ventures group stock so exchanged or redeemed were registered, and no
issue or delivery will be made unless and until the person requesting that
issue pays to Comdisco the amount of any tax or establishes to our satisfaction
that this tax has been paid.
Stockholder rights upon conversion or redemption. If shares of Comdisco
Ventures group stock are converted or redeemed as previously described, after
this conversion or redemption all rights of a
104
<PAGE>
holder of shares of Comdisco Ventures group stock that were converted or
redeemed will cease. The only right a holder of shares of Comdisco Ventures
group 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 Comdisco Ventures group 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 Comdisco Ventures group 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 Comdisco Ventures group stock were converted or redeemed
until surrender of the holder's certificate in exchange for a certificate
representing shares of that 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 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 that surrender. From
and after a conversion, Comdisco will, however, be entitled to treat the
certificates for Comdisco Ventures group 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 Comdisco Ventures group
stock represented by those certificates should have been converted,
notwithstanding the failure to surrender those certificates.
Voting rights. Holders of Comdisco Ventures group stock will generally
vote together with holders of Comdisco group stock as a single class on all
matters requiring a stockholder vote.
Until the thirty-first trading day following the effective date of the
restated charter, on all matters as to which all series of Comdisco's common
stock will vote together as a single class:
. each share of Comdisco Ventures group stock will have one vote;
and
. each share of Comdisco group stock will have one vote.
On and after that thirty-first trading day, at each vote of stockholders,
the aggregate voting power of the Comdisco Ventures group stock and Comdisco
group stock will be adjusted as follows:
. each share of Comdisco Ventures group 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 Comdisco Ventures group stock to the
average market value of one share of Comdisco group stock during
the 20 consecutive trading days ending on (and including) the
record date of the vote; and
. each share of Comdisco group stock will have one vote.
For example, if the average market value of one share of Comdisco
Ventures group stock for the period specified above was $20.00, and the average
market value of one share of the Comdisco group stock for the period specified
above was $40.00, each share of Comdisco group stock would have one vote and
each share of Comdisco Ventures group stock would have 0.5 votes based on the
following calculation:
Average market value of Comdisco Ventures group stock
------------------------ = $20.00
= .5 votes per share of
----- Comdisco Ventures group
stock
Average market value of Comdisco group stock
$40.00
However, in the event that the foregoing calculation results in the
holders of Comdisco Ventures group stock holding more than 35% of the total
voting power of all outstanding shares of common stock, the vote of each share
of Comdisco Ventures group stock that exceeds that amount will be reduced so
105
<PAGE>
that all of the outstanding shares of Comdisco Ventures group stock in the
aggregate represent 35% of the total voting power of all outstanding shares of
Comdisco's common stock.
Subject to the 35% limitation, 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.
Comdisco group stock will have and will retain a substantial majority of
the combined voting power of Comdisco Ventures group stock and Comdisco group
stock because:
. we expect that initially the aggregate market value of the
outstanding shares of Comdisco group stock will be substantially
greater than the aggregate market value of the outstanding shares
of Comdisco Ventures group stock; and
. the aggregate voting power of all of the outstanding shares of
Comdisco Ventures group stock is limited to 35% of the total
voting power of all outstanding shares of common stock, regardless
of the market value of the Comdisco Ventures group stock.
Fluctuations in the relative voting rights of Comdisco Ventures group
stock, Comdisco group stock and any additional class of common stock that is
subsequently created and entitled to a number of votes per share based on
market values could influence an investor interested in acquiring and
maintaining a fixed percentage of the voting power of Comdisco, Inc.'s common
stock to acquire such percentage by acquiring the class of common stock having
a greater number of votes per share.
If Comdisco, Inc. issues shares of an additional series of common stock,
each share of such additional series of common stock will have a number of
votes, including a fraction of one vote or no vote, as Comdisco, Inc.'s board
of directors determines at the time of issuance. Shares of stock of any group
reserved for issuance for the benefit of another group or to the holders of
stock of that group will have no voting rights.
Accordingly, the relative per share voting rights of Comdisco Ventures
group stock, Comdisco group stock and any additional class of common stock that
is entitled to a number of votes per share based on market values will
fluctuate depending on changes in the relative market values of shares of the
classes of common stock.
Comdisco, Inc. will set forth the number of outstanding shares of
Comdisco Ventures group stock, Comdisco group stock and any additional class of
common stock in the Comdisco, Inc. Annual Report on Form 10-K and its Quarterly
Reports on Form 10-Q filed under the Securities Exchange Act of 1934. Comdisco,
Inc. will disclose in any proxy statement for a stockholders' meeting the
number of outstanding shares and per share voting rights of Comdisco Ventures
group stock, Comdisco group stock and additional group stock, if any.
The holders of Comdisco Ventures group 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 or by Nasdaq
Stock Market rules. Matters that provide for separate class voting include
amendments to our restated charter that would change the par value of Comdisco
Ventures group stock or alter or change the powers, preferences or special
rights of shares of Comdisco Ventures group stock so as to adversely affect the
holders of Comdisco Ventures group stock.
Liquidation. In the event of our voluntary or involuntary liquidation,
dissolution or winding-up, the holders of Comdisco Ventures group stock and
Comdisco group stock will be entitled to receive our assets, if any, remaining
for distribution to stockholders on a per share basis in proportion to the
liquidation units per share of each series. Our assets remaining for
distribution will be determined 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. Each share of
Comdisco group stock shall have one liquidation unit. Each share of Comdisco
Ventures group stock will have a number of liquidation units, including a
fraction of one liquidation unit, equal to the ratio of
106
<PAGE>
(1)the average market value of a share of Comdisco Ventures group
stock during the twenty consecutive trading days prior to February 28,
2001, to
(2) the average of the market value of one share of Comdisco group
stock over the same period, expressed as a decimal fraction rounded to
the nearest five decimal places.
If the voluntary or involuntary dissolution, liquidation or winding up of
Comdisco occurs prior to February 28, 2001, the average market value of one
share of Comdisco Ventures group stock will be determined based on:
(1)the twenty consecutive trading day period immediately prior to
the dissolution, liquidation or winding-up event, or
(2)the actual number of consecutive trading days in the event that
the dissolution, liquidation or winding-up event, if that event occurs
prior to the 21st trading day after the effective date of our restated
charter.
After the number of liquidation units with respect to Comdisco Ventures
group stock has been determined in the manner above, the number will not be
changed except as described below. Thus, the liquidation rights of the holders
of the Comdisco Ventures group stock or Comdisco group stock may not bear any
relationship to the relative market values or the relative voting rights of
that series.
The liquidation units of the Comdisco Ventures group stock and Comdisco
group 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.
If Comdisco subdivides, by stock split, reclassification or otherwise, or
combines, by reverse stock split, reclassification or otherwise, the
outstanding shares of Comdisco Ventures group stock or Comdisco group stock,
the number of liquidation units of the Comdisco Ventures group stock or
Comdisco group 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 Comdisco
Ventures group 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.
In the case of our dissolution, liquidation or winding up:
. no holder of Comdisco group stock will have any special right to
receive specific assets of Comdisco group; and
. no holder of Comdisco Ventures group stock will have any special
right to receive specific assets of Comdisco Ventures group.
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.
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 Ventures group stock.
Determinations by the Board of Directors
Any determinations made by our board of directors in good faith under our
restated charter or in any certificate of designation filed pursuant to our
restated charter would be final and binding on all
107
<PAGE>
stockholders of Comdisco, subject to rights under applicable Delaware law and
under the federal securities laws.
Preemptive Rights
Holders of Comdisco Ventures group 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.
Amended and Restated Rights Agreement
We have issued and will issue preferred stock purchase rights to all
holders of our common stock under a rights agreement amended and restated as
of May 4, 2000, between Comdisco and ChaseMellon Shareholder Services L.L.C.,
as rights agent.
The restated rights agreement provides that:
. each right in effect at the date of restatement be redesignated as
a Comdisco group stock right, which will continue to allow holders
of outstanding Comdisco group stock to purchase shares of our
Series C junior participating preferred stock if a distribution
date occurs;
. for each share of Comdisco group stock issued between the date of
the restated rights agreement and the expiration date of the
rights, we will issue one Comdisco group stock right which will
allow holders to purchase shares of our Series C junior
participating preferred stock if a distribution date occurs; and
. for each share of Comdisco Ventures group stock issued between the
date of the restated rights agreement and the expiration date of
the rights, we will issue one Comdisco Ventures group stock right
which will allow holders to purchase shares of our Series D junior
participating preferred stock if a distribution date occurs.
We refer to the Comdisco group stock rights and the Comdisco Ventures
group stock rights collectively as the "rights."
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
. 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 that 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."
Any person or group that beneficially owns 20% or more of our
outstanding common stock on the effective date of the amendment and statement
of the rights plan, which we refer to as an "existing holder," will not be
deemed an "acquiring person" until that existing holder acquires beneficial
ownership of 30% or more of the voting power of our outstanding common stock.
An adverse person is a person or group (1) which beneficially owns 10% or more
of the voting power 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.
108
<PAGE>
Until the distribution date, the rights will not be represented by a
separate certificate and may be transferred only with their respective series
of common stock.
Following the distribution date, holders of rights other than any
acquiring person or adverse person, whose rights will thereupon become null and
void, will be entitled to purchase from us:
. in the case of a Comdisco right, one one-thousandth of a share of
Series C junior participating preferred stock at a purchase price
of $75, subject to adjustment; and
. in the case of a Comdisco Ventures group stock right, one one-
thousandth of a share of Series D junior participating preferred
stock at a purchase price of $180, subject to adjustment.
The purchase prices discussed above are referred to as the "Series C
purchase price" and the "Series D purchase price."
Unless the rights are earlier redeemed, if any person or group becomes an
acquiring person or our board of directors declares a person to be an "adverse
person":
. a Comdisco group stock right will entitle its holder other than
any acquiring person or adverse person to purchase, at the Series
C purchase price, a number of shares of Comdisco group stock with
a market value equal to twice that purchase price;
. any Comdisco Ventures group stock right will entitle its holder
other than any acquiring person or adverse person to purchase, at
the Series D purchase price, a number of shares of Comdisco
Ventures group stock with a market value equal to twice that
purchase price; and
. all rights of any acquiring person or adverse person will become
null and void.
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 group stock per Comdisco group stock right,
subject to adjustment, and
. one share of Comdisco Ventures group stock per Comdisco Ventures
group 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 that merger, consolidation or other business
combination of, or the purchaser in, that sale or transfer with a market value
equal to twice the applicable purchase price.
The rights will expire on November 17, 2007, unless we extend or
terminate them as described below.
109
<PAGE>
At any time until the close of business on the fifteenth day following a
public announcement that there is an acquiring person or our board of directors
declares a person to be an "adverse person", our board of directors may redeem
all of the rights at a price of $0.01 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 that redemption price.
Prior to a distribution date, 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 that
supplement or amendment is adverse to any holders of the rights. From and after
a distribution date, the board of directors may, without the approval of any
holders of rights, supplement or amend the amended and restated rights
agreement only:
. 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 other than an acquiring person, adverse person and their
associates and affiliates.
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 that person of shares of common stock prior to that 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 series 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 the acquisition would not trigger
the rights. In addition, the rights will not be triggered and a divestiture of
shares will not be required if a person becomes the holder of 15% or more, or
30% or more in the case of an existing holder, of the voting power of all of
our series of common stock, solely as a result of either (1) the reduction of
our outstanding common stock as the result of our repurchase of any of our
common stock or (2) any adjustment of the voting rights of Comdisco Ventures
group stock in accordance with the provisions of our restated charter. However,
any person who exceeds that threshold as a result of our stock repurchases or a
voting rights adjustment will trigger the rights if the person subsequently
acquires additional shares of our common stock. Our board may also further
amend the amended and restated rights agreement in the future, including in
connection with any distribution of shares of Comdisco Ventures group stock
reserved for issuance to Comdisco group or to the holders of Comdisco group
stock to compensate for any unintended effects of the variable voting rights
associated with Comdisco Ventures group stock.
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 those changes in control described in the
restated rights agreement. 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.
We have filed the form of amended and restated rights agreement with the
SEC as an exhibit to the registration statement of which this prospectus is a
part.
Other Provisions of Our Restated Charter, Bylaws and Delaware Law
Authorized shares. Our restated charter provides 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
110
<PAGE>
determined by our board of directors, and authorize and issue additional common
stock of any previously designated series. Our board of directors, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each series of common
stock or preferred stock. 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
Stock Market rules or Delaware law. The purpose of authorizing the board of
directors to determine these rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. This authority
however 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 thereby 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.
Classified board of directors; removal of directors; limitation on
ability to call special meetings. Our restated charter provides 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. Our 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 provides 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 further 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 discouraging open market purchases of
any series of common stock.
Business combinations with substantial stockholders. Our restated charter
provides that business combinations with substantial stockholders will require
the vote of two-thirds of the voting stock of Comdisco to approve that
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;
111
<PAGE>
. 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.
Stockholder nominations and proposals. 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, a stockholder 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 proposal.
In addition, the bylaws provide that only the board of directors,
chairman of the board, chief executive officer or president of Comdisco can
call special meetings of stockholders and that the only business that may be
brought before a special meeting is that business specified in the notice of
that 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.
Delaware law. Section 203 of the General Corporation Law of the State of
Delaware applies to Comdisco. Generally, 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 that 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
112
<PAGE>
. 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.
Stock Transfer Agent and Registrar
ChaseMellon Shareholder Services L.L.C. will act as the registrar and
transfer agent for Comdisco Ventures group stock.
Anti-takeover Considerations
If Comdisco Ventures group were a separate company and not part of a
single enterprise, any person interested in acquiring Comdisco Ventures 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 Ventures group stock to reflect the
separate performance of Comdisco Ventures group, a person interested in
acquiring Comdisco Ventures group without negotiation with Comdisco's
management could obtain control of that group only by obtaining control of all
our outstanding voting stock.
The existence of multiple series of common stock could present
complexities and could pose obstacles, financial and otherwise, to an acquiring
person. The existence of multiple series of common stock could 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
that change in control.
Additional shares of common stock and preferred stock are 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. These 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 Restated Charter, Bylaws and Delaware Law", beginning on page 110.
113
<PAGE>
RELATIONSHIP BETWEEN COMDISCO VENTURES GROUP AND COMDISCO GROUP
Because Comdisco group and Comdisco Ventures group 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. These policies are not
subject to approval by Comdisco's stockholders and may be changed at any time
without stockholder approval.
We have summarized the material provisions of the Comdisco Ventures group
policy statement below. This summary is qualified in its entirety by reference
to the text of the Comdisco Ventures group policy statement that is filed as an
exhibit to the registration statement of which this prospectus is a part. For
information on how to obtain this document, see "Where You Can Find More
Information" on page 129. You are urged to read it in its entirety.
Fiduciary and Management Responsibilities
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 to
the holders of our Comdisco group stock and Comdisco Ventures group stock 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.
Role of the Comdisco Capital Stock Committee
Our board of directors will establish the Comdisco capital stock
committee as a committee of our board of directors under our bylaws to oversee
the interaction between the businesses of Comdisco group and Comdisco Ventures
group. The members of the Comdisco capital stock committee are Nicholas K.
Pontikes, Keith Hartley and Carolyn Murphy, who are all members of our board of
directors. Members of the Comdisco capital stock committee have no separate
fiduciary duty to act solely in the best interests of the holders of Comdisco
Ventures group stock, but rather owe their fiduciary duties to all Comdisco
stockholders as a whole. In accordance with our bylaws, our board of directors
will delegate to the Comdisco capital stock committee authority to:
. interpret, make determinations under, and oversee the
implementation of the policies described in the policy statement
regarding Comdisco Ventures group stock matters described under
"--Comdisco Ventures Group Policy Statement," beginning on page
115;
. review our policies, programs and practices relating to:
. the business and financial relationships between Comdisco
group and Comdisco Ventures group,
. disclosures to stockholders and the public concerning, and
transactions by Comdisco or any of its subsidiaries, in
shares of Comdisco Ventures group stock, and
. any matters arising in connection with any of the
foregoing, all to the extent the Comdisco capital stock
committee may deem appropriate;
114
<PAGE>
. recommend changes in the policies, programs and practices that
Comdisco capital stock committee may deem appropriate;
. recommend adoption of additional policies governing the
relationship between Comdisco Ventures group and Comdisco group;
and
. engage the services of accountants, investment bankers,
appraisers, attorneys and other service providers to assist the
Comdisco capital stock committee in performing its duties.
The Comdisco capital stock committee will have and may exercise such other
powers, authority and responsibilities as our board of directors may determine
from time to time. Although our board of directors has no present intention to
do so, it may modify, suspend or rescind the authority of the Comdisco capital
stock committee at any time.
Comdisco Ventures Group Policy Statement
We will, effective upon issuance of Comdisco Ventures group stock, adopt
the Comdisco Ventures group policy statement, which Comdisco intends to follow.
Amendment and modification to the Comdisco Ventures group policy statement
Our board of directors may amend, modify, suspend or rescind the policies
set forth in the Comdisco Ventures group policy statement, including any
resolution implementing the provisions of the Comdisco Ventures group policy
statement, at any time without the approval of our stockholders. Our board may
also, without the approval of Comdisco, Inc.'s stockholders, adopt additional
or other policies or make exceptions with respect to the application of the
policies described in the Comdisco Ventures group policy statement in
connection with particular facts and circumstances, all as our board may
determine in its discretion. Any decision made pursuant to a policy adopted by
our board, and any decision to alter, abandon or add to, these policies, will
be made by the board subject to the fiduciary duties owed by Comdisco's board
to all Comdisco stockholders.
General policy
Our board of directors has determined, and the Comdisco Ventures group
policy statement states, that all material matters in which holders of Comdisco
group stock and Comdisco Ventures group stock may have divergent interests will
be generally resolved in a manner that is in the best interests of Comdisco and
all of its common stockholders after giving fair consideration to the
potentially divergent interests and all other relevant interests of the holders
of the separate classes of the common stock of Comdisco.
Relationship between the Comdisco group and Comdisco Ventures group
The Comdisco Ventures group policy statement provides that Comdisco will
seek to manage Comdisco group and Comdisco Ventures group in a manner designed
to maximize the operations, unique assets and value of both groups. Comdisco
expects that the operating relationship between the two groups will include the
coordination and use of bundled offers, marketing, sales, branding, and other
intellectual property and technology. In addition, there will be various
financial arrangements between the two groups, including with respect to debt,
other financings and taxes.
General. The Comdisco Ventures group policy statement provides that,
except as otherwise provided in the policy statement, all material commercial
transactions between Comdisco group and Comdisco Ventures group will be on
commercially reasonable terms taken as a whole and will be subject to the
review and approval of our board of directors and/or the Comdisco Ventures
group stock Committee as its designee.
Allocation of corporate overhead and support services. Generally,
Comdisco Ventures group will have access to the support services of Comdisco
group, including human resources, legal, payroll, accounting, tax, information
technology and network services.
115
<PAGE>
For shared corporate services that arise as a result of being part of a
combined entity, including securities filing and financial reporting services,
costs relating to these services will be:
. allocated directly to the group utilizing those services, and
. if not directly allocable to a group, allocated between the groups
on a fair and reasonable basis as our board of directors
determines.
For other support services, for example, billing and purchasing services,
the Comdisco Ventures group policy statement provides that the groups will seek
to achieve enterprise efficiencies to minimize the aggregate costs incurred by
the two groups combined, although each group also will be entitled to negotiate
and procure other support services on their own from third parties.
Sourcing and provision of other services. Other than corporate overhead
and support services, Comdisco Ventures group will use exclusively the services
offered by Comdisco group if those types of services are required in Comdisco
Ventures group transactions. The Comdisco Ventures group policy statement
further provides that Comdisco group will provide these services to Comdisco
Ventures group at the best price offered by Comdisco group to third parties in
similar situations when taking into account all relevant factors. In
establishing these prices, consideration of other factors, as appropriate, such
as avoided costs and synergies to be shared between the groups are expected to
be taken into account. In addition, each group will cooperate in good faith to
develop offers that reflect such other factors.
It is expected that when the combined services of the two groups are
bundled or offered together and the total cost to consumers of each of those
services are separately identified on a billing statement, Comdisco group and
Comdisco Ventures group will each control the pricing of its respective
services and receive the associated revenues.
In a combined transaction offering where the services of the two groups
are integrated and the total costs to consumers of each of those services are
not separately identified on a billing statement, the groups are expected to
work collaboratively to determine the nature of their arrangements and are also
permitted to source the services of the other group as described above;
provided, however, that Comdisco Ventures group may not offer a combination of
services comprised primarily of Comdisco group's services without Comdisco's
agreement.
Inter-group interest. The Comdisco Ventures group policy statement
provides that Comdisco Ventures group will not acquire Comdisco group stock.
No employee interest in customers. The Comdisco Ventures group policy
statement states that all employees of Comdisco are governed by Comdisco's
conflicts and insider trading policies. In addition, the Comdisco Ventures
group policy statement provides that no employee of Comdisco Ventures group may
acquire any interest in any customer of Comdisco Ventures group.
Corporate opportunities
The Comdisco Ventures group policy statement provides that our board of
directors will allocate any business opportunities and operations, any acquired
assets and businesses and any assumed liabilities between the two groups, in
whole or in part, as it considers to be in the best interests of Comdisco and
its stockholders as a whole and as contemplated by the other provisions of the
policy statement. If a business opportunity or operation, an acquired asset or
business, or an assumed liability would be suitable to be undertaken by or
allocated to either group, our board of directors will allocate it using its
business judgment or in accordance with procedures that our board of directors
adopts from time to time to ensure that decisions will be made in the best
interests of Comdisco and its stockholders as a whole. Any allocation of this
type may involve the consideration of a number of factors that our board of
directors determines to be relevant, including, without limitation, whether the
business opportunity or operation, the acquired asset or business, or the
assumed liability is principally within the existing scope of a group's
business and whether a group is better positioned to undertake or have
allocated to it such
116
<PAGE>
business opportunity or operation, acquired asset or business or assumed
liability. Our board of directors currently intends, however, subject to and
without limiting the provisions of the Comdisco Ventures group policy
statement, to allocate future venture financing opportunities to Comdisco
Ventures group.
Dividend policy
The Comdisco Ventures group policy statement provides that, subject to
the limitations on dividends set forth in our charter, including any
preferential rights of any series of preferred stock of Comdisco, and to the
limitations of applicable law, holders of shares of Comdisco Ventures group
stock will be entitled to receive dividends on that stock when, as and if our
board of directors authorizes and declares dividends on that stock.
Since Comdisco Ventures group is expected to require significant capital
commitments to finance its operations and fund its future growth, the Comdisco
Ventures group policy statement provides that Comdisco does not expect to pay
any dividends on shares of Comdisco Ventures group stock. If and when our board
of directors determines to pay any dividends on shares of Comdisco Ventures
group stock, the Comdisco Ventures group policy statement provides that this
determination will be a business decision that our board of directors makes
based upon the results of operations, financial condition and capital
requirements of Comdisco and other factors that our board of directors
considers relevant.
We expect that our dividend policy with respect to Comdisco group stock
will be consistent with the dividend policy we had for our prior existing
common stock.
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 group
stock and Comdisco Ventures group stock in the sole discretion of the board of
directors.
We will otherwise be permitted to pay dividends on Comdisco Ventures
group stock, as well as transfer corresponding amounts to Comdisco group in
respect of the shares of Comdisco Ventures group stock reserved for issuance
for the benefit of Comdisco group or to the holders of Comdisco group stock
group, but the total of the amounts paid as dividends on the shares of Comdisco
Ventures group stock and the corresponding amounts transferred to Comdisco
group in respect of the shares of Comdisco Ventures group stock reserved for
issuance for the benefit of Comdisco group or to the holders of Comdisco group
stock cannot exceed the available dividend amount for that group.
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 expect that determinations to pay dividends on Comdisco Ventures group
stock or Comdisco group stock would be based primarily upon the financial
condition, results of operations, capital requirements, any restrictions
contained in our financing or other agreements and those other factors as our
board of directors deems relevant.
Financial reporting
The Comdisco Ventures group policy statement provides that Comdisco will
prepare and include in its filings with the SEC separate financial statements
of Comdisco Ventures group for so long as
117
<PAGE>
Comdisco Ventures group stock is outstanding. The financial statements of
Comdisco Ventures group will reflect the financial position, results of
operations and cash flows of the businesses attributed to Comdisco Ventures
group and in the case of annual financial statements will be audited.
Comdisco capital stock committee
We will, effective upon issuance of Comdisco Ventures group stock,
establish the Comdisco capital stock committee of our board of directors that
we describe above under "--Role of the Comdisco Capital Stock Committee,"
beginning on page 114.
In making determinations in connection with the policies set forth in the
Comdisco Ventures group policy statement, the members of our board of directors
and Comdisco capital stock committee will act in a fiduciary capacity and in
accordance with legal guidance concerning their respective obligations under
applicable law. Members of the Comdisco capital stock committee have no
separate fiduciary duty to act solely in the best interests of the holders of
Comdisco Ventures group stock, but rather owe their fiduciary duties to all
Comdisco stockholders as a whole. The delegation of responsibilities to
Comdisco capital stock committee will be subject to changes our board of
directors may determine.
Preparation of Financial Statements
We will prepare consolidated and consolidating financial statements for
Comdisco, Inc. and separate financial statements for Comdisco Ventures group,
each in accordance with generally accepted accounting principles, consistently
applied. The financial statements of Comdisco Ventures group will reflect the
financial condition, results of operations and cash flows of the businesses
included in that group.
The financial statements of Comdisco Ventures group will also include the
allocated portions of debt, interest, retirement benefit costs, shared services
costs, corporate general and administrative costs and taxes for that group. We
will make these allocations for the purposes of preparing these financial
statements. However, the holders of Comdisco Ventures group 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" on the next
page; or
. as a sale of assets between groups; or
. as a reduction or increase in the number of shares of Comdisco
Ventures group stock reserved for issuance for the benefit of
Comdisco group or to the holders of Comdisco group stock.
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.
118
<PAGE>
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 group 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 group, and applied to Comdisco Ventures group's 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 that 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 that
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 that 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.
Equity issuances and repurchases and dividends. We will reflect all
financial effects of issuances and repurchases of shares of Comdisco Ventures
group stock or Comdisco group 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 Ventures group stock or
Comdisco group stock entirely in the respective financial statements of the
related group.
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 these
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 these
transfers may be paid by one group to another in cash or other consideration.
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 those benefits.
119
<PAGE>
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.
These policies are reflected in a tax sharing agreement between Comdisco
and Comdisco Ventures group.
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.
120
<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax consequences of the ownership of Comdisco Ventures group
stock. The discussion is based on the Internal Revenue Code of 1986, Treasury
regulations, published positions of the Internal Revenue Service, and court
decisions as of the date of this prospectus, all of which are subject to
change. In particular, Congress could enact legislation affecting the treatment
of stock with characteristics similar to the Comdisco Ventures group stock, or
the Treasury Department could issue regulations that change current law. Any
future legislation or regulations could apply retroactively to the offering of
Comdisco Ventures group stock. 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 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 stockholders who will hold their Comdisco Ventures group stock as
capital assets within the meaning of Section 1221 of the Code. It may not apply
to those stockholders 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 stockholders who acquired their stock pursuant to the exercise
of employee stock options or otherwise as compensation. Material U.S. federal
income and estate tax consequences to non-U.S. stockholders are set forth
further below.
Each Comdisco stockholder 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.
Tracking Stock as Stock of Comdisco
In the opinion of Hopkins & Sutter, our special tax counsel, Comdisco
Ventures group stock will be considered stock of Comdisco for federal income
tax purposes. Accordingly, for federal income tax purposes, we believe that
neither you nor we will recognize any income, gain or loss as a result of the
issuance of Comdisco Ventures group stock pursuant to this offering.
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 Ventures group stock
represents property other than stock of Comdisco. In that event, we could be
required to recognize significant taxable income or gain on the sale or
distribution of Comdisco Ventures group stock, and we might not be permitted to
include the operations of Comdisco Ventures group in our consolidated federal
income tax returns. Hopkins & Sutter is of the opinion, however, that the IRS
would not prevail in those assertions under current law.
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. In particular, a legislative proposal made by the Clinton
Administration in February 2000 would, if enacted, tax stockholders 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, effective for tracking stock issued on or after the
date of enactment. While this proposal would not directly apply to Comdisco
Ventures group stock
121
<PAGE>
purchased pursuant to this Offering prior to the date of enactment, it could,
if enacted, impede Comdisco's ability to thereafter distribute or sell Comdisco
Ventures group stock. We cannot predict whether the proposal will be enacted by
Congress and, if enacted, whether it will be in the form proposed by the
Clinton Administration. 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 of these changes, which may or may
not be retroactive, could alter the tax consequences to us or to our
stockholders discussed herein, and could be a "Tax Event" that would entitle
Comdisco to convert each outstanding share of Comdisco Ventures group stock
into a number of shares of Comdisco group stock equal to 110% of the ratio of
the average market values of the Comdisco Ventures group stock and the Comdisco
group stock over a specified trading period prior to such conversion. See
"Description of Comdisco Capital Stock--Description of Comdisco Ventures group
stock," beginning on page 95. This conversion should qualify as a tax-free
recapitalization so that no gain or loss is required to be recognized by us or
by holders of the stock to be converted.
Dividends
In 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 those
circumstances where some stockholders of a corporation receive cash or other
dividends from the corporation while other stockholders 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 that 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. Non-corporate holders of Comdisco Ventures group
stock could be subject to backup withholding at a rate of 31% on the payment of
dividends on or proceeds from the sale of that stock. Backup withholding will
apply only if the stockholder (1) fails to furnish its taxpayer identification
number, which, for an individual would be his or her social security number,
(2) furnishes an incorrect taxpayer identification number, (3) is notified by
the IRS that it has failed to properly report payments of interest or dividends
or (4) under those circumstances, fails to certify under penalties of perjury
that it has furnished a correct taxpayer identification number and has not been
notified by the IRS that it is subject to backup withholding for failure to
report payments of interest or dividends. Stockholders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedures for obtaining that exemption if applicable. The amount of
any backup withholding from a payment to a holder of Comdisco Ventures group
stock will be allowed as a credit against that stockholder's federal income tax
liability and may entitle that holder to a refund, provided that the required
information is furnished to the IRS.
Conversion of Comdisco Ventures Group Stock into Comdisco Group 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 Comdisco Ventures group stock into Comdisco group 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
that 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.
Material 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).
122
<PAGE>
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 that investor and the amount, if any, of tax
withheld with respect to those 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 Ventures group 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 Ventures group 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
Ventures group 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 specified United States
expatriates.
. Comdisco is or has been during specified 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.
Backup withholding. Upon the sale or other disposition of Comdisco
Ventures group stock by a Non-U.S. Holder to or through a United States office
of a broker, that 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 specified
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 specified 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, 2000, will affect the procedures to be followed by a Non-
U.S. Holder in establishing that 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 these regulations.
Federal estate taxes. Comdisco Ventures group 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 that individual's gross estate for
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
123
<PAGE>
UNDERWRITING
We intend to offer the shares of Comdisco Ventures group stock in the
U.S. and Canada through the U.S. underwriters and elsewhere through the
international managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated is
acting as U.S. representative of the U.S. underwriters named below. Subject to
the terms and conditions described in a U.S. purchase agreement among us and
the U.S. underwriters, and concurrently with the sale of 1,500,000 shares of
Comdisco Ventures group stock to the international managers, we have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase from us, the number of shares of Comdisco Ventures group stock
listed opposite their names below.
<TABLE>
<CAPTION>
Number
U.S. Underwriter of Shares
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
---------
Total....................................................... 8,500,000
=========
</TABLE>
We have also entered into an international purchase agreement with the
international managers for sale of the shares of Comdisco Ventures group stock
outside the U.S. and Canada for whom Merrill Lynch International is acting as
lead manager. Subject to the terms and conditions in the international purchase
agreement, and concurrently with the sale of 8,500,000 shares of Comdisco
Ventures group stock to the U.S. underwriters pursuant to the U.S. purchase
agreement, we have agreed to sell to the international managers, and the
international managers severally have agreed to purchase, 1,500,000 shares of
Comdisco Ventures group stock from us. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. purchase agreement and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares of Comdisco Ventures group stock sold under the U.S.
and international purchase agreements if any of these shares are purchased. If
an underwriter defaults, the U.S. and international purchase agreements provide
that the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreements may be terminated. The closings for the
sale of shares of Comdisco Ventures group stock to be purchased by the U.S.
underwriters and the international managers are conditioned on one another.
Generally, we have agreed to indemnify each U.S. underwriter and
international manager against liability arising out of any untrue statement
contained in the registration statement, any preliminary prospectus or the
final prospectus, or the omission of a material fact required to be stated in
the registration statement or such prospectus necessary to make the statements
in the registration statement or such prospectus not misleading. In addition,
we have agreed to indemnify each U.S. underwriter and international manager
against liability arising out of violations of laws or regulations of foreign
jurisdictions where reserved shares have been offered. Each U.S. underwriter
and international manager has agreed to indemnify us against liability with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the registration statement, any preliminary prospectus or
the final prospectus in reliance upon and in conformity with written
information furnished to us by that U.S. underwriter or international manager
through Merrill Lynch expressly for use in the registration statement, such
preliminary prospectus or the prospectus. For more detailed information on the
terms of indemnification contained in the purchase agreements, please see
Exhibits 1.1 and 1.2 to the registration statement.
124
<PAGE>
The underwriters are offering the shares of Comdisco Ventures group
stock, subject to prior sale, when, as and if issued to and accepted by them,
subject to approval of legal matters by their counsel, including the validity
of the shares, and other conditions contained in the purchase agreements, such
as the receipt by the underwriters of officer's certificates and legal
opinions. The underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The U.S. representative has advised us that the U.S. underwriters propose
initially to offer the shares of Comdisco Ventures group stock to the public at
the initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $. per share. The
U.S. underwriters may allow, and the dealers may reallow, a discount not in
excess of $. per share to other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting
discount and proceeds before expenses to Comdisco. The information assumes
either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.............. $ $ $
Underwriting discount.............. $ $ $
Proceeds, before expenses, to
Comdisco.......................... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount,
are estimated at $2,000,000 and are payable by Comdisco.
Over-allotment Option
We have granted options to the U.S. underwriters to purchase up to
1,275,000 additional shares of Comdisco Ventures group stock at the public
offering price less the underwriting discount. The U.S. underwriters may
exercise these options for thirty days from the date of this prospectus solely
to cover any over-allotments. If the U.S. underwriters exercise these options,
each will be obligated, subject to conditions contained in the purchase
agreements, to purchase a number of additional shares of Comdisco Ventures
group stock proportionate to that U.S. underwriter's initial amount reflected
in the above table.
We have also granted options to the international managers, exercisable
for thirty days from the date of this prospectus, to purchase up to 225,000
additional shares of Comdisco Ventures group stock to cover any over-allotments
on terms similar to those granted to the U.S. underwriters.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the U.S. underwriters and the
international managers may sell shares of Comdisco Ventures group stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell shares of
Comdisco Ventures group stock will not offer to sell or sell shares to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, except in the case
of transactions under the intersyndicate agreement. Similarly, the
international managers and any dealer to whom they sell shares of Comdisco
Ventures group stock will not offer to sell or sell shares to U.S. persons or
Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the intersyndicate
agreement.
125
<PAGE>
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of Comdisco Ventures
group stock offered by this prospectus for sale to some of Comdisco Ventures
group's employees and other of our business associates and related persons and
for purchase by Comdisco as a contribution to our retirement plan. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
No Sales of Similar Securities
We have agreed, with exceptions, not to sell or transfer any Comdisco
Ventures group stock for 180 days after the date of this prospectus without
first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Specifically, we have agreed not to directly or indirectly:
. offer, pledge, sell or contract to sell any Comdisco Ventures
group stock;
. sell any option or contract to purchase any Comdisco Ventures
group stock;
. purchase any option or contract to sell any Comdisco Ventures
group stock;
. grant any option, right or warrant for the sale of any Comdisco
Ventures group stock other than options granted pursuant to our
stock-based compensation plans;
. lend or otherwise dispose of or transfer any Comdisco Ventures
group stock;
. request or demand that we file a registration statement related to
the Comdisco Ventures group stock;
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of any Comdisco
Ventures group stock, whether any such swap or transaction is to
be settled by delivery of shares or other securities, in cash or
otherwise; or
. undertake any disposition of shares of Comdisco Ventures group
stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock.
This lockup provision applies to Comdisco Ventures group stock and to
securities convertible into or exchangeable or exercisable for or repayable
with Comdisco Ventures group stock.
Quotation on the Nasdaq National Market
We anticipate the shares to be approved for quotation on the Nasdaq
National Market, subject to notice of issuance, under the symbol "CDOV."
Before this offering, there has been no public market for our Comdisco
Ventures group stock. The initial public offering price will be determined
through negotiations among us and the U.S. representative and lead manager. In
addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price are:
. the valuation multiples of publicly traded companies that the U.S.
representative and the lead manager believe to be comparable to
Comdisco Ventures group;
. Comdisco Ventures group's financial information;
. the history of, and the prospects for, Comdisco Ventures group and
the industry in which Comdisco Ventures group competes;
126
<PAGE>
. an assessment of Comdisco Ventures group's management, its past
and present operations, and the prospects for, and timing of,
Comdisco Ventures group's future revenues;
. the present state of Comdisco Ventures group's development; and
. the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to those of Comdisco Ventures group.
An active trading market for the shares may not develop. It is also
possible that after the offering the Comdisco Ventures group stock will not
trade in the public market at or above the initial public offering price.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares of Comdisco Ventures group stock is
completed, SEC rules may limit underwriters and selling group members from
bidding for and purchasing our Comdisco Ventures group stock. However, the U.S.
representative may engage in transactions that stabilize the price of the
Comdisco Ventures group stock, such as bids or purchases to peg, fix or
maintain that price.
If the underwriters create a short position in Comdisco Ventures group
stock in connection with the offering, i.e., if they sell more shares than are
listed on the cover of this prospectus, the U.S. representative may reduce that
short position by purchasing shares of Comdisco Ventures group stock in the
open market. The U.S. representative may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above. Purchases of the Comdisco Ventures group stock to stabilize its price or
to reduce a short position may cause the price of the Comdisco Ventures group
stock to be higher than it might be in the absence of such purchases.
The U.S. representative may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representative purchases
shares of Comdisco Ventures group stock in the open market to reduce the
underwriters' short position or to stabilize the price of such shares, it may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares. The imposition of a penalty bid may also
affect the price of the shares of Comdisco Ventures group stock in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Comdisco Ventures group stock. In
addition, neither we nor any of the underwriters makes any representation that
the U.S. representative or the lead manager will engage in these transactions
or that these transactions, once commenced, will not be discontinued without
notice.
127
<PAGE>
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
Thomas H. Patrick, a director of Comdisco, Inc., is the Executive Vice
President and Chief Financial Officer of Merrill Lynch & Co., Inc.
128
<PAGE>
LEGAL MATTERS
Jeremiah M. Fitzgerald, Vice President and Chief Legal Officer of
Comdisco and McBride Baker & Coles, Chicago, Illinois, will pass upon the
validity of the issuance of the shares of Comdisco Ventures group stock offered
by this prospectus. As of June 30, 2000, Mr. Fitzgerald held 66,292 shares of
Comdisco group stock and options to purchase 164,415 shares of Comdisco group
stock. McBride Baker & Coles has from time to time represented and may continue
to represent, Comdisco and its affiliates in legal matters. As of June 30,
2000, attorneys at McBride Baker & Coles participating in the representation of
Comdisco in this matter held approximately 2,500 shares of Comdisco group
stock. Hopkins & Sutter will render an opinion to Comdisco with respect to
specified tax matters relating to the issuance of the shares of Comdisco
Ventures group stock offered by this prospectus. Brown & Wood llp will pass
upon the validity of the issuance of the shares of Comdisco Ventures group
stock offered by this prospectus for the underwriters.
EXPERTS
We have included in this prospectus and our registration statement:
. our consolidated financial statements of Comdisco, Inc. as of
September 30, 1999 and 1998 and for each of the years in the three-
year period ended September 30, 1999, and
. the financial statements of Comdisco Ventures group as of September
30, 1999 and 1998 and for each of the years in the three-year period
ended September 30, 1999.
We have relied on the reports of KPMG LLP, independent certified public
accountants, included in this prospectus and our registration statement, and
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Comdisco filed a registration statement on Form S-3 to register the
Comdisco Ventures group stock offered by this prospectus with the SEC. This
prospectus is part of the registration statement and constitutes a prospectus
of Comdisco. The registration statement (including the attached exhibits and
schedules) that we filed with the SEC contains additional relevant information
about Comdisco. The rules and regulations of the SEC allow us to omit some of
the information included in the registration statement from this prospectus.
The full registration statement can be obtained from the SEC as indicated
below, or from us.
We also file reports, proxy statements, and other information with the
SEC. You may read and copy any reports, proxy statements, and other information
we file at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison
Washington, D.C. 20549 Street
New York, New York 10048 Suite 1400
Chicago, Illinois
60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the Commission's Public Reference Room in Washington, D.C. can be
obtained by calling the Commission at 1-800-SEC-0330. Our SEC filings are also
available to the public from commercial documents retrieval services and at the
Internet world wide web site maintained by the SEC at www.sec.gov. Our SEC
filings are also available to the public at the Internet worldwide web site we
maintain at www.comdisco.com.
129
<PAGE>
Comdisco group stock is listed on the New York Stock Exchange. Reports
and other information concerning Comdisco can also be inspected at the office
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York
10005.
INCORPORATION OF INFORMATION COMDISCO FILES WITH THE SEC
The SEC allows us to "incorporate by reference" the information Comdisco
files with them, which means:
. incorporated documents are considered part of this prospectus;
. we can disclose important information to you by referring you to
those documents; and
. information that we file with the SEC will automatically be
considered to update and supersede this prospectus.
We incorporate by reference the documents listed below, which Comdisco
filed with the SEC under the Securities Exchange Act of 1934, as amended:
. Annual Report on Form 10-K for the year ended September 30, 1999
as amended by Form 10-K/A filed with the SEC on February 24, 2000;
. Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
filed with the SEC on August 14, 2000;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
filed with the SEC on May 15, 2000;
. Quarterly Report on Form 10-Q for the quarter ended December 31,
1999, as amended by Form 10-Q/A filed with the SEC on February 29,
2000;
. Current Report on Form 8-K filed with the SEC on March 9, 2000;
. Current Report on Form 8-K filed with the SEC on June 14, 2000;
. Current Report on Form 8-K filed with the SEC on July 27, 2000;
. Current Report on Form 8-K filed with the SEC on August 10, 2000;
and
. the description of our Comdisco group stock and Comdisco Ventures
group stock contained in Comdisco's Registration Statements on
Form 8-A filed with the SEC under the Exchange Act and any
amendments or reports filed for the purpose of updating that
description.
We also incorporate by reference into this prospectus additional
documents that may be filed with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act from the date of this prospectus prior to the
termination of the offering of the securities made by this prospectus. These
include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as prospectuses.
Any statements contained in a previously filed document incorporated by
reference herein is deemed to be modified or superseded for purposes of the
prospectus to the extent that a statement contained herein (or in a
subsequently filed documents which also is incorporated by reference herein)
modifies or supersedes that statement.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC
or the SEC's Internet world wide web site as described on the preceding page
under "Where You Can Find More Information."
We will provide without charge upon written or oral request, a copy of
any or all of the documents that are incorporated by reference into this
prospectus, other than exhibits which are specifically incorporated by
reference into those documents. You should direct your requests in writing or
by telephone at the following address:
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Attention: Corporate Secretary
130
<PAGE>
COMDISCO, INC. AND COMDISCO VENTURES GROUP
FINANCIAL STATEMENTS
For the Years Ended September 30, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
and For the Three and Nine Months Ended June 30, 2000 and 1999 (Unaudited)
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Comdisco, Inc.:
Report of Independent Auditors............................................ F-3
Consolidated Statements of Earnings and Retained Earnings--Years ended
September 30, 1999, 1998 and 1997 and three and nine months ended June
30, 2000 and 1999 (Unaudited)............................................ F-4
Consolidated Balance Sheets--September 30, 1999 and September 30, 1998 and
June 30, 2000 (Unaudited)................................................ F-5
Consolidated Statements of Stockholders' Equity--Years Ended September 30,
1999, 1998 and 1997...................................................... F-6
Consolidated Statements of Cash Flows--Years ended September 30, 1999,
1998 and 1997 and nine months ended June 30, 2000 and 1999 (Unaudited)... F-7
Notes to Comdisco, Inc. Financial Statements.............................. F-9
Comdisco Ventures group:
Report of Independent Auditors............................................ F-30
Statements of Earnings and Division Net Worth--Years ended September 30,
1999, 1998 and 1997 and three and nine months ended June 30, 2000 and
1999 (Unaudited)......................................................... F-31
Balance Sheets--September 30, 1999 and September 30, 1998 and June 30,
2000 (Unaudited)......................................................... F-32
Statements of Cash Flows--Years ended September 30, 1999, 1998 and 1997
and nine months ended June 30, 2000 and 1999 (Unaudited)................. F-33
Notes to Comdisco Ventures Group Financial Statements..................... F-34
</TABLE>
F-1
<PAGE>
COMDISCO, INC. CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors, Comdisco, Inc.:
We have audited the accompanying consolidated balance sheets of Comdisco,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1999. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Comdisco,
Inc. and subsidiaries 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
November 2, 1999
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
COMDISCO, INC. AND SUBSIDIARIES
(in millions, except per share data)
<TABLE>
<CAPTION>
Three Nine
months ended months ended Years ended
June 30, June 30, September 30,
------------ ------------- ---------------------
2000 1999 2000 1999 1999 1998 1997
----- ------ ------ ------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Leasing:
Operating................. $ 414 $ 443 $1,288 $1,481 $1,938 $1,897 $1,635
Direct financing.......... 44 40 130 120 174 162 145
Sales-type................ 75 91 281 442 543 376 336
----- ------ ------ ------ ------ ------ ------
Total leasing........... 533 574 1,699 2,043 2,655 2,435 2,116
Sales....................... 142 565 308 690 891 329 269
Technology services......... 173 133 476 376 522 433 354
Other....................... 105 30 360 66 91 46 80
----- ------ ------ ------ ------ ------ ------
Total revenue........... 953 1,302 2,843 3,175 4,159 3,243 2,819
----- ------ ------ ------ ------ ------ ------
COSTS AND EXPENSES
Leasing:
Operating................. 332 358 1,039 1,195 1,563 1,528 1,297
Sales-type................ 50 53 211 337 406 263 237
----- ------ ------ ------ ------ ------ ------
Total leasing........... 382 411 1,250 1,532 1,969 1,791 1,534
Sales....................... 115 553 243 662 846 275 210
Technology services......... 161 112 424 317 440 362 296
Selling, general and
administrative............. 116 77 375 219 306 249 244
Interest.................... 88 82 259 253 337 326 299
Prism Communication
Services................... 65 11 135 14 36 -- --
Other....................... -- -- -- 150 150 -- 25
----- ------ ------ ------ ------ ------ ------
Total costs and
expenses............... 927 1,246 2,686 3,147 4,084 3,003 2,608
----- ------ ------ ------ ------ ------ ------
Earnings before income
taxes...................... 26 56 157 28 75 240 211
Income taxes................ 9 20 56 10 27 87 80
----- ------ ------ ------ ------ ------ ------
Net earnings before
preferred dividends........ 17 36 101 18 48 153 131
Preferred dividends......... -- -- -- -- -- (2) (8)
----- ------ ------ ------ ------ ------ ------
Net earnings to common
stockholders............... $ 17 $ 36 $ 101 $ 18 $ 48 $ 151 $ 123
===== ====== ====== ====== ====== ====== ======
Net earnings per common
share:
Basic..................... $0.11 $ 0.23 $ .66 $ 0.12 $ .32 $ .99 $ .83
===== ====== ====== ====== ====== ====== ======
Diluted................... $0.10 $ 0.22 $ .62 $ 0.11 $ .30 $ .93 $ .78
===== ====== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED BALANCE SHEETS
COMDISCO, INC. AND SUBSIDIARIES
(in millions, except number of shares and per share data)
<TABLE>
<CAPTION>
June 30, September 30,
----------- --------------
2000 1999 1998
----------- ------ ------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 259 $ 361 $ 63
Cash-legally restricted............................ 40 46 30
Receivables, net................................... 1,052 722 340
Inventory of equipment............................. 130 115 165
Leased assets:
Direct financing and sales-type.................. 2,174 2,107 1,779
Operating (net of accumulated depreciation)...... 3,329 3,516 4,121
------ ------ ------
Net leased assets.............................. 5,503 5,623 5,900
Buildings, equipment and other, net................ 463 229 137
Equity securities.................................. 606 252 80
Other assets....................................... 498 459 348
------ ------ ------
$8,551 $7,807 $7,063
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable...................................... $1,502 $ 820 $1,121
Term notes......................................... 641 550 550
Senior notes....................................... 3,384 3,686 2,768
Accounts payable................................... 155 263 308
Income taxes....................................... 448 382 333
Other liabilities.................................. 651 531 408
Discounted lease rentals........................... 526 515 596
------ ------ ------
7,307 6,747 6,084
------ ------ ------
Stockholders' equity:
Preferred stock $.10 par value. Authorized
100,000,000 shares.............................. -- -- --
Comdisco group stock $.10 par value. Authorized
750,000,000 shares; issued 224,906,304
(223,464,344 and 221,657,318 of Common stock,
$.10 par value, at September 30, 1999 and 1998,
respectively)................................... 22 22 22
Additional paid-in capital....................... 375 302 257
Accumulated other comprehensive income (loss).... 162 58 (13)
Retained earnings................................ 1,223 1,134 1,101
------ ------ ------
1,782 1,516 1,367
Common stock held in treasury, at cost........... (538) (456) (388)
------ ------ ------
Total stockholders' equity..................... 1,244 1,060 979
------ ------ ------
$8,551 $7,807 $7,063
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMDISCO, INC. AND SUBSIDIARIES
(in millions, except per share data)
Years Ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
other
Additional Deferred comprehen- Common
Preferred Common paid-in compens- sive - Retained stock in
stock stock capital ation income earnings treasury Total
--------- ------ ---------- -------- ----------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30,
1996................... $ 89 $ 7 $165 $ (5) $ 5 $ 856 $(318) $ 799
Net earnings............ 131 131
Translation adjustment.. (25) (25)
Total comprehensive
income............... 106
Cash dividends-
preferred.............. (8) (8)
Cash dividends-common
($.10 per share)....... (14) (14)
Stock options
exercised.............. 10 6 16
Reduction of guaranteed
ESOP debt.............. 2 2
Purchase of common
stock.................. (45) (45)
Retire treasury stock... (2) 2 --
Stock split............. 4 (4) --
Income tax benefits
resulting from the
exercise of non-
qualified stock
options................ 9 9
---- --- ---- ---- --- ------ ----- ------
BALANCE AT SEPTEMBER 30,
1997................... 89 11 178 (3) (20) 965 (355) 865
---- --- ---- ---- --- ------ ----- ------
Net earnings............ 153 153
Translation adjustment.. 7 7
Total comprehensive
income............... 160
Cash dividends-
preferred.............. (2) (2)
Cash dividends-common
($.10 per share)....... (15) (15)
Shared Investment
Program................ 77 31 108
Stock options
exercised.............. (4) 24 20
Reduction of guaranteed
ESOP debt.............. 3 3
Purchase of preferred
stock.................. (89) (89)
Purchase of common
stock.................. (88) (88)
Stock split............. 11 (11) --
Income tax benefits
resulting from the
exercise of non-
qualified stock
options................ 17 17
---- --- ---- ---- --- ------ ----- ------
BALANCE AT SEPTEMBER 30,
1998................... -- 22 257 -- (13) 1,101 (388) 979
---- --- ---- ---- --- ------ ----- ------
Net earnings............ 48 48
Translation adjustment.. (21) (21)
Change in unrealized
gain................... 92 92
Total comprehensive
income............... 119
Cash dividends-common
($.10 per share)....... (15) (15)
Stock options
exercised.............. 21 14 35
Purchase of common
stock.................. (82) (82)
Income tax benefits
resulting from the
exercise of non-
qualified stock
options................ 24 24
---- --- ---- ---- --- ------ ----- ------
BALANCE AT SEPTEMBER 30,
1999................... $-- $22 $302 $-- $58 $1,134 $(456) $1,060
==== === ==== ==== === ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMDISCO, INC. AND SUBSIDIARIES
(in millions)
<TABLE>
<CAPTION>
Nine months ended Years ended September
June 30, 30,
------------------ -------------------------
2000 1999 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............. $ 1,436 $ 1,527 $ 2,002 $ 2,013 $ 1,739
Direct financing and sales-
type leasing receipts........ 820 722 958 905 861
Sale of direct financing and
sales-type receivables....... -- -- -- 125 81
Leasing costs, primarily
rentals paid................. (9) (14) (14) (20) (32)
Sales......................... 408 447 818 335 264
Sales costs................... (106) (110) (105) (69) (84)
Technology services receipts.. 445 357 485 408 343
Technology services costs..... (353) (271) (390) (278) (204)
Notes receivable receipts..... 194 35 66 33 16
Other revenue (expense)....... -- (16) 22 29 39
Warrant proceeds.............. 304 36 55 15 16
Selling, general and
administrative expenses...... (299) (220) (309) (249) (225)
Loss on Prism Communication
Services..................... (100) (27) -- -- --
Litigation settlement......... -- -- -- -- 25
Interest...................... (231) (254) (338) (326) (291)
Income taxes.................. (33) (1) (12) (34) (44)
-------- -------- ------- ------- -------
Net cash provided by
operating activities....... 2,476 2,211 3,238 2,887 2,504
-------- -------- ------- ------- -------
Cash flows from investing
activities:
Equipment purchased for
leasing...................... (1,949) (2,127) (2,838) (3,026) (2,940)
Investment in continuity and
network services facilities.. (197) (103) (151) (87) (61)
Notes receivable.............. (459) (225) (324) (57) (28)
Equity investment............. (145) (20) (43) (8) (4)
Acquisition and investment in
Prism Communication
Services..................... (221) (65) (136) (8) --
Other investing activities.... (21) -- 12 6 (15)
-------- -------- ------- ------- -------
Net cash used in investing
activities................. (2,992) (2,540) (3,480) (3,180) (3,048)
-------- -------- ------- ------- -------
Cash flows from financing
activities:
Discounted lease proceeds..... 257 274 341 279 430
Net increase (decrease) in
notes payable................ 682 (114) (301) 97 (103)
Issuance of term notes and
senior notes................. 344 1,145 1,842 1,017 1,151
Maturities of term notes and
senior notes................. (555) (644) (924) (617) (378)
Principal payments on secured
debt......................... (246) (258) (322) (425) (469)
Common stock purchased and
placed in treasury........... (91) (58) (82) (88) (45)
Preferred stock purchased..... -- -- -- (89) --
Dividends paid on common
stock........................ (11) (11) (15) (15) (14)
Dividends paid on preferred
stock........................ -- -- -- (2) (8)
Shared Investment Program..... -- -- -- 109 --
Issuance of Prism
Communication Services common
stock........................ 11 -- -- -- --
Decrease (increase) in legally
restricted cash.............. 6 (57) (16) 15 (18)
Other......................... 17 28 17 38 6
-------- -------- ------- ------- -------
Net cash provided by
financing activities....... 414 305 540 319 552
-------- -------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents........... (102) (24) 298 26 8
Cash and cash equivalents at
beginning of period............ 361 63 63 37 29
-------- -------- ------- ------- -------
Cash and cash equivalents at end
of period...................... $ 259 $ 39 $ 361 $ 63 $ 37
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMDISCO, INC. AND SUBSIDIARIES
(in millions)
<TABLE>
<CAPTION>
Nine months ended Years ended
June 30, September 30,
------------------ ---------------------
2000 1999 1999 1998 1997
-------- -------- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net earnings........................ $ 101 $ 18 $ 48 $ 153 $ 131
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Leasing costs, primarily
depreciation and amortization.... 1,241 1,517 1,954 1,771 1,502
Leasing revenue, primarily
principal portion of direct
financing and sales-type lease
rentals.......................... 690 195 327 452 471
Sale of direct financing and
sales-type receivables........... -- -- -- 125 81
Cost of sales..................... 137 584 641 193 126
Sales revenue..................... -- (306) -- -- --
Principal portion of notes
receivable ...................... 153 22 44 26 13
Technology services costs,
primarily depreciation and
amortization..................... 90 46 50 84 92
Prism depreciation................ 22 2 6 -- --
Selling, general and
administrative expenses.......... 76 (1) 16 -- 19
Interest.......................... 27 -- -- -- 8
Income taxes...................... 23 9 15 45 36
Other expenses.................... -- 150 150 -- --
Other, net........................ (84) (25) (13) 38 25
-------- -------- ------ ------ ------
Net cash provided by operating
activities..................... $ 2,476 $ 2,211 $3,238 $2,887 $2,504
======== ======== ====== ====== ======
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Reduction of discounted lease
rentals in lease portfolio sale.. $ -- $ -- $ 100 $ -- $ --
======== ======== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions, Except Share and Per Share Data)
Note 1 Summary of Significant Accounting Policies
Nature of Operations: Comdisco provides global technology services to
help its customers maximize technology functionality, predictability and
availability. The company offers a complete suite of information technology
services including business continuity, managed network services, and IT
control and predictability solutions. Through its subsidiary, Prism
Communication Services Inc., Comdisco is developing a high-speed, always-on
digital network, which will provide customers with leading-edge connectivity.
Comdisco also offers equipment services to key vertical industries, including
electronics, communications, laboratory and scientific, and computer-integrated
manufacturing. Through its Ventures group, Comdisco provides equipment leasing
and other financing and services to venture capital backed start-up companies.
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 Consolidation: The consolidated financial statements
include the accounts of the company and its wholly-owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
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
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
earnings.
Income Taxes: 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 "Leasing" section on pages F-11 through F-13 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.
Inventory of Equipment: Inventory of equipment is stated at the lower of
cost or market by categories of similar equipment.
F-9
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment 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 stockholders' 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.
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 Consolidated Financial Statements
for financial information concerning derivatives.
Earnings per Common Share: Earnings per common share--basic are computed
by dividing the net earnings to common stockholders by the weighted average
number of common shares outstanding for the period. All shares held in the
Employee Stock Ownership Plan (ESOP) are considered outstanding for both basic
and diluted earnings per share calculations. Earnings per common share--
diluted reflect the maximum dilution that would have resulted from the
exercise of stock options. Earnings per common share--diluted are computed by
dividing the net earnings to common stockholders by the weighted average
number of common shares outstanding and all dilutive stock options (dilutive
stock options are based on the treasury stock method). Anti-dilutive stock
options were immaterial for fiscal 1999, 1998 and 1997.
Stock-based Compensation: The company utilizes the intrinsic value based
method of accounting for its stock-based compensation arrangements.
Reclassifications: Certain reclassifications have been made in the 1997
and 1998 financial statements to conform to the 1999 presentation.
Interim Financial Information: The unaudited financial statements as of
June 30, 2000 and for the three and nine month periods ended June 30, 2000 and
1999 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.
Note 2 Acquisitions and Sale of Assets
On February 28, 1999, the company 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.
F-10
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 consolidated 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 the company 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):
Year Ended September 30, 1999
<TABLE>
<S> <C>
Total revenue..................................................... $4,159
Net earnings...................................................... $ 35
Net earnings per common share:
Basic........................................................... $ .23
Diluted......................................................... $ .22
</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, the company expects to expand its network within existing and into
new regions, which will require significant capital expenditures as well as
sales and marketing expenditures. Accordingly, the company 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, the company 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, the company recorded a 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 the pre-tax charge included $100 million associated
with the company's plan to exit the mainframe residual leasing business, $20
million to exit the medical refurbishing business and $30 million associated
with the realignment of the company's services businesses. On May 3, 1999, the
company 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. The primary
component of the pre-tax charge for selling its mainframe residual leasing
business and its medical refurbishing business was asset writedowns, which
totaled $90 million and $20 million, respectively. The primary components of
the pre-tax charge for realignment of the services business were asset
writedowns totaling $20 million and lease termination fees totaling $5 million,
both as a result of closing facilities. At September 30, 1999, the company had
$4 million included in other liabilities related to the Charge, consisting of
the $150 pre-tax charge, less asset writedowns totaling $130 million, other
costs of $15 million and cash payments of $1 million.
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.
F-11
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
Minimum lease payments receivable....................... $2,162 $1,790
Estimated residual values............................... 219 203
Less: unearned revenue.................................. (274) (214)
------ ------
Net investment in direct financing and sales-type
leases................................................. $2,107 $1,779
====== ======
</TABLE>
F-12
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
Operating leased assets................................. $ 6,054 $ 6,803
Less: accumulated depreciation and amortization......... (2,538) (2,682)
------- -------
Net..................................................... $ 3,516 $ 4,121
======= =======
</TABLE>
Note 5 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 (in millions):
<TABLE>
<CAPTION>
Projected year of lease
Cost at termination
earYlease lease --------------------------------
ommencedc inception 00 01 02 03 04+
---------- --------- ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
1995 and prior...................... $ 854 $ 520 $ 185 $ 125 $ 18 $ 6
1996................................ 781 433 265 70 8 5
1997................................ 1,844 998 356 318 132 40
1998................................ 2,756 712 1,003 508 464 69
1999................................ 2,922 167 642 1,342 394 377
------ ------ ------ ------ ------ ----
$9,157 $2,830 $2,451 $2,363 $1,016 $497
====== ====== ====== ====== ====== ====
</TABLE>
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
earYlease lease ------------------------
ommencedc termination 00 01 02 03 04+
---------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1995 and prior............................ $ 37 $ 30 $ 2 $ 5 $-- $--
1996...................................... 84 43 39 2 -- --
1997...................................... 225 149 44 31 1 --
1998...................................... 437 118 171 70 75 3
1999...................................... 465 51 101 210 67 36
------ ---- ---- ---- ---- ----
$1,248 $391 $357 $318 $143 $ 39
====== ==== ==== ==== ==== ====
</TABLE>
F-13
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Years Ending September 30,
<TABLE>
<CAPTION>
00 01 02 03 04+ Total
------ ------ ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases--leasing.............. $1,322 $ 803 $ 362 $ 96 $ 23 $2,606
Operating leases--ventures............. 129 109 67 11 -- 316
Notes receivable--ventures............. 130 153 107 13 -- 403
Direct financing and sales-type
leases--leasing....................... 989 652 317 118 81 2,157
Direct financing and sales-type
leases--ventures...................... 3 2 -- -- -- 5
Technology services.................... 483 353 232 131 45 1,244
------ ------ ------ ---- ---- ------
Total................................ $3,056 $2,072 $1,085 $369 $149 $6,731
====== ====== ====== ==== ==== ======
</TABLE>
Financing
Note 7 Interest-Bearing Liabilities
Interest-bearing liabilities include the following:
<TABLE>
<CAPTION>
99 98
---- ----
At At
September 30 Average September 30 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>
F-14
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 Issuances 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 notes......... 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 table at right:
<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: The company 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>
F-15
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Committed Lines: The company'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, the company 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, the company had $756 million outstanding under
its committed lines, including $451 million supporting the company's commercial
paper program.
The multi-option revolving credit agreements and the global revolving
credit agreements (collectively, the "Facilities") permit the company 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 the company 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, the company 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 the company can borrow on an
unsecured basis on such terms as the company 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, the company 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 Moodys and A-2 by Standard &
Poors.
Term Notes: At September 30, 1999, the company had $550 million of
receivable backed commercial paper. This floating rate term note is due during
fiscal year 2000.
F-16
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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) The company 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) The company 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.
On October 9, 1998 the company filed a registration statement on Form S-
3 with the Securities and Exchange Commission (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 (the "1998 Shelf"). On January 19, 1999, the company designated
$600 million in Senior Debt Securities as "Senior Medium-Term Notes, Series H"
to be issued under the 1998 Shelf, of which $182 million remained available
for issuance as of September 30, 1999. Pursuant to the 1998 Shelf, the
company, on January 26, 1999, issued $350 million of 6.0% Senior Notes due
January 30, 2002, and, on April 21, 1999, $350 million of 5.95% Notes due
April 30, 2002. On August 26, 1999, the company redesignated $100 million of
the Series H Medium-Term Notes, which together with the remaining $200 million
in securities previously unallocated under the shelf registration, were issued
by the company as $300 million of 7.25% Notes due September 1, 2002.
On September 24, 1999 the company filed a registration statement on Form
S-3 with the SEC for a shelf offering of up to $1.5 billion senior debt
securities on terms to be set at the time of each sale ("1999 Shelf"). As of
September 30, 1999, the entire 1999 Shelf remains available for sale.
There are no sinking fund requirements associated with any of the
company's senior notes.
Discounted Lease Rentals: The company 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, the company 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 the company. 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.
F-17
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments and interest expense on leases that have
been discounted as of September 30, 1999 are as follows (in millions):
Years Ending September 30,
<TABLE>
<CAPTION>
Rentals to be
received by Discounted
financial lease Interest
institutions rentals expense
------------- ---------- --------
<S> <C> <C> <C>
2000.................................... $331 $303 $28
2001.................................... 150 139 11
2002.................................... 54 51 3
2003.................................... 20 19 1
2004.................................... 3 3 --
---- ---- ---
$558 $515 $43
==== ==== ===
</TABLE>
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:
The company 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%. The
company 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 the company'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 the company. The company controls credit risk through credit
approvals, limits and monitoring procedures.
F-18
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Financial Information
Note 8 Receivables
Receivables include the following as of September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in
millions)
<S> <C> <C>
Notes.......................................................... $354 $ 75
Accounts....................................................... 297 215
Unsettled equity transactions.................................. 26 --
Income taxes................................................... 6 6
Other.......................................................... 82 68
---- ----
Total receivables.............................................. 765 364
Allowance for credit losses.................................... (43) (24)
---- ----
Total...................................................... $722 $340
==== ====
</TABLE>
Notes: The company provides loans to early-stage high technology
privately held companies in networking, communications, software and Internet
based industries. The company's loans are generally structured as equipment
loans or subordinated loans. Subordinated loans totaled $250 million and $33
million at September 30, 1999 and 1998, respectively. Interest income on notes
is recorded in the statement of earnings as direct financing income for
equipment loans and as other revenue for subordinated loans.
The amount of each loan varies, but generally does not exceed $5.0
million. The loans bear fixed interest rates with coupons currently ranging
from 8.0% to 13% per annum. In addition, loan processing fees typically ranging
from 1.5% to 2% 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 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-$137 million; 2001-$155 million; 2002-$108 million;
2003 and thereafter-$16 million. Actual cash flows will vary from contractual
maturities due to prepayments and charge-offs.
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
(in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States............................................... $12 $183 $163
Outside United States....................................... 63 57 48
--- ---- ----
$75 $240 $211
=== ==== ====
</TABLE>
F-19
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal............................................. $(3) $ 28 $24
U.S. state and local..................................... 3 2 7
Outside United States.................................... 13 36 8
--- ---- ---
13 66 39
Deferred:
U.S. Federal............................................. 7 33 35
U.S. state and local..................................... (2) 9 2
Outside United States.................................... 9 (21) 4
--- ---- ---
14 21 41
--- ---- ---
Total tax provision.................................... $27 $ 87 $80
=== ==== ===
</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......... .7 3.0 3.0
Foreign income tax rate differential........................ 2.8 2.0 .8
Tax effect of foreign losses utilized....................... (2.2) (4.0) (2.9)
Other, net.................................................. (.3) -- 2.1
---- ---- ----
36.0% 36.0% 38.0%
==== ==== ====
</TABLE>
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.......................................... 44 35
Deferred expenses........................................ (20) 5
Other, net............................................... 101 82
Lease accounting......................................... (839) (873)
Other comprehensive income............................... (60) --
Foreign.................................................. (26) (16)
----- -----
Gross deferred tax liabilities........................... (339) (307)
Less: valuation allowance................................ (28) (12)
----- -----
Net deferred tax liabilities............................... $(367) $(319)
===== =====
</TABLE>
F-20
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For financial reporting purposes, the company has approximately $28
million of foreign net operating loss carryforwards, most of which have no
expiration date. The company has recognized a valuation allowance of $13
million to offset this deferred tax asset. During fiscal 1999, changes in the
valuation allowance included a decrease of $2 million from utilizing foreign
net operating loss carryforwards, increases totalling $3 million from foreign
exchange rate and tax rate changes, and an increase of $15 million relating to
Prism's pre-acquisiton net operating losses. These losses are subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986.
At September 30, 1999, the company has available for U.S. Federal income
tax purposes, the following carryforwards (in millions):
<TABLE>
<CAPTION>
Year scheduled to expire Net operating loss
------------------------ ------------------
<S> <C>
2004................................................. $ 2
2005................................................. 5
2006................................................. 3
2007................................................. 82
2009................................................. 3
2012................................................. 27
2018................................................. 54
----
$176
====
</TABLE>
For U.S. Federal income tax purposes, the company has approximately $120
million of alternative minimum tax ("AMT") credit carryforwards available to
reduce regular taxes in future years. AMT credit carryforwards do not have an
expiration date.
All years prior to fiscal year 1989 are closed to further assessment by
the Internal Revenue Service (the "Service") due to the expiration of the
Statute of Limitations.
The company and the Service have tentatively reached a settlement
agreement for fiscal years 1989-1995. The Service is currently completing their
Revenue Agent's Report for these years. It is anticipated that the company will
be assessed approximately $8 million of tax plus interest thereon. As a result
of the above mentioned settlement, amended federal income tax returns for
fiscal years 1996, 1997, and 1998 will be filed requesting refunds of
approximately $9 million. Additionally, the company has requested interest
netting which will substantially reduce any cash payment of tax and interest.
The Service is expected to commence a routine income tax audit for fiscal
years 1996, 1997, and 1998 during fiscal year 2000.
The company also undergoes audits by foreign, state and local tax
jurisdictions. As of September 30, 1999, no material assessments have been made
by these tax authorities.
Note 10 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.
F-21
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Equity securities, which are included in Other Assets, include the
following as of September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
(In
millions)
<S> <C> <C>
Available-for-sale-securities:
Cost................................................................ $ 49 $45
Unrealized gain..................................................... 152 --
---- ---
Market value........................................................ 201 45
Equity instruments (at cost less valuation adjustments)............... 51 35
---- ---
Carrying value...................................................... $252 $80
==== ===
</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
of portfolio investments are included as changes in the unrealized
appreciation or depreciation of investments in the accumulated comprehensive
income. Net realized gains from the sales of equity investments were $1
million in fiscal 1999 and 1998 and $10 million in fiscal 1997. Gross realized
gains from the sales of equity securities were $9 million in fiscal 1999, $3
million in fiscal 1998, and $15 million 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 million, $14 million and $13
million in fiscal 1999, 1998 and 1997, respectively.
Note 11 Preferred Stock
There are 100,000,000 authorized shares of preferred stock--$.10 par
value, of which none were outstanding at September 30, 1999. The board of
directors establishes and designates the series and fixes the number of shares
and the relative rights, preferences and limitations of the respective series.
Dividends paid on preferred stock were $2 million and $8 million, respectively
in fiscal 1998, and 1997.
On November 4, 1997, the board of directors of the company adopted a new
shareholder rights plan (the "New Rights Plan") to replace the company's
existing plan, which expired on November 17, 1997. Under the New Rights Plan,
stockholders of record on November 17, 1997 received a dividend distribution
of one preferred stock purchase right for each share of the company's common
stock then held. Like the shareholder rights plan it replaced, the New Rights
Plan continues the company's policy of ensuring fair value to all stockholders
in the event of an unsolicited takeover offer for the company. The New Rights
Plan will expire on November 17, 2007. The New Rights Plan is incorporated by
reference in the company's Form 10-K for fiscal 1999.
8.75% Cumulative Preferred Stock: On September 19, 1997, the company
announced the redemption, effective October 20, 1997, of all shares of the
Series A Preferred Stock (2,738,200 shares) at the redemption price per share
of $25, plus accrued and unpaid dividends. On July 13, 1998, the company
announced the redemption, effective July 13, 1998, of all shares of the Series
B Preferred Stock (824,000 shares) at the redemption price of $25, plus
accrued and unpaid dividends.
Note 12 Common Stock
All references in the financial statements and notes to common share
data have been adjusted to reflect the two-for-one stock split distributed in
June, 1998.
F-22
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 2, 1998, the company announced that 106 senior managers of
the company purchased over six million shares of the company's common stock for
approximately $109 million. Under the voluntary program, the senior managers
took out full recourse, personal loans to purchase the shares. The company has
guaranteed repayment of the loans in the event of default. The purchased shares
represented over 4% of the then current total shares outstanding.
The share amounts for basic and diluted earnings per share calculations
was as follows (in thousands):
<TABLE>
<CAPTION>
Years ended September
30,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Average shares issued.......................... 222,454 220,910 218,907
Average shares held in treasury................ (70,376) (69,663) (71,859)
------- ------- -------
Basic shares outstanding....................... 152,078 151,247 147,048
Stock options.................................. 9,709 11,523 10,541
------- ------- -------
Diluted shares outstanding..................... 161,787 162,770 157,589
======= ======= =======
</TABLE>
There are no adjustments to net earnings to common stockholders for basic
and diluted earnings per share calculations for any of the years ended
September 30, 1999, 1998 and 1997.
During fiscal 1999 and 1998, the company entered into a series of forward
purchase agreements on its common stock. These agreements can be settled, at
the option of the company, by paying cash for the forward purchase amount and
receiving the underlying shares of common stock, or on a net basis in shares of
the company's stock.
Information on these forward agreements is as follows:
<TABLE>
<CAPTION>
1999 1998
Average Average
forward price forward price
Amount Shares per share Amount Shares per share
------ ------ ------------- ------ ------ -------------
(in millions except per share data)
<S> <C> <C> <C> <C> <C> <C>
Agreements in place at
September 30........... $61 3 $20.41 $16 1 $13.74
Settlements during
fiscal year............ 59 4 16.26 33 4 9.31
</TABLE>
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>
F-23
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13 Employee Benefit Plans
In fiscal 1988, the company established the Comdisco, Inc. Employee Stock
Ownership Trust (the "Trust"). The Trust borrowed $20 million (the "ESOP Debt")
to purchase 4.6 million shares of common stock held in treasury by the company
at a market price at the date of purchase of $4.42 per share. The outstanding
balance of the ESOP Debt was recorded in term notes payable in the consolidated
balance sheet and a like amount of deferred compensation was recorded as a
reduction of stockholders' equity.
The company has a profit sharing plan which, together with the Employee
Stock Ownership Plan (the "Plans"), covers substantially all domestic
employees. Company contributions to the Plans are based on a percentage of
employees' compensation, as defined. Benefits are accumulated on an individual
employee basis.
The company's stock option plans provide for the granting of incentive
stock options and/or nonqualified options to employees and agents to purchase
shares of common stock.
Additionally, under the 1989 Non-Employee Directors' Stock Option Plan,
each October 1, each individual who is a Non-Employee Director during the
fiscal year shall automatically be granted an option for 9,450 shares of the
company's common stock at the then fair market value.
The company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the company's stock
option plans been determined consistent with FASB Statement of Financial
Accounting Standards No. 123 ("FAS 123"), the company's net earnings available
to common stockholders and earnings per common and common equivalent share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in
millions
except
per share
data)
<S> <C> <C>
Net earnings to common stockholders
As reported.................................................. $ 48 $151
Pro forma.................................................... 42 147
Earnings per common share:
As reported-basic............................................ $.32 $.99
Pro forma-basic.............................................. .27 .97
As reported-diluted.......................................... .30 .93
Pro forma-diluted............................................ .26 .90
</TABLE>
Under the stock option plans, the exercise price of each option equals
the market price of the company's common stock on the date of grant. For
purposes of calculating the compensation cost consistent with FAS 123, the fair
value of each option grant is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for grants in fiscal 1999 and 1998, respectively: dividend yield of 1.0%
for all years; expected volatility of 40 percent and 32 percent; risk free
interest rates of 5.26% and 6.07%; and expected lives of five years.
F-24
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
shares price shares price shares price
------- --------- ------ --------- ------ ---------
(in thousands except weighted- average exercise
price)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 17,983 $ 7 19,185 $ 6 19,096 $ 5
Granted................. 5,001 15 3,274 13 5,282 9
Exercised............... (5,198) 7 (3,953) 5 (4,288) 4
Forfeited............... (809) 9 (523) 7 (905) 6
------- --- ------ --- ------ ---
Outstanding at the end
of year................ 16,977 $10 17,983 $ 7 19,185 $ 6
======= === ====== === ====== ===
Options exercisable at
year-end............... 11,930 $ 8 12,858 $ 6 12,578 $ 5
======= === ====== === ====== ===
Weighted-average fair
value of options
granted during the
year................... $ 5.46 $ 4.72 $ 2.89
======= ====== ======
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 1999 (number of shares in thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------- ----------------
Weighted-
average Weighted- Weighted-
Number remaining average Number average
of contractual exercise of exercise
Range of exercise prices shares life price shares price
------------------------ ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$0 to 6.......................... 4,960 4.0 years $ 4 4,753 $ 6
$6 to 10......................... 5,381 6.5 years 8 5,097 8
$10 to 16........................ 4,554 8.0 years 14 1,424 13
$16 to 30........................ 2,082 8.0 years 18 656 17
------ --------- --- ------ ---
16,977 6.5 years $10 11,930 $ 8
====== ========= === ====== ===
</TABLE>
Note 14 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
-------- ----- -------- -----
(in millions)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents..................... $ 361 $ 361 $ 63 $ 63
Equity securities............................. 252 252 80 80
Notes receivable including noncurrent
portion...................................... 354 354 75 75
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>
F-25
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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.
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 the company for similar debt of the
same maturity.
Off-balance sheet financial instruments were estimated by obtaining
quotes from brokers.
Note 15 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended September
30, 1999 and 1998, is as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>
December September
31, March 31, June 30, 30,
--------- ----------- ----------- ---------
1998 1997 1999 1998 1999 1998 1999 1998
---- ---- ----- ---- ------ ---- ---- ----
Quarter ended
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue..................... $921 $744 $ 952 $777 $1,302 $817 $984 $904
Net earnings (loss) to common
stockholders..................... $ 38 $ 34 $ (56) $ 37 $ 36 $ 40 $ 30 $ 40
Net earnings (loss) per common
share-diluted.................... $.24 $.21 $(.37) $.23 $ .22 $.24 $.19 $.25
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 128-
Earnings Per Share, no potential common shares (the assumed exercise of stock
options) are included in the computation of any diluted per share amount when
a loss exists.
Note 16 Industry Segment and Operations By Geographic Areas
The company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal 1999 which changes the way the
company reports information about its operating segments. The information for
1998 and 1997 has been restated from the prior year's presentation in order to
conform to the 1999 presentation.
The company's operations are conducted through its principal office in
the Chicago area and approximately one hundred offices in North America,
Europe and the Pacific Rim. Coordination of the business units is accomplished
through the Office of the President, which is responsible for overall
corporate control, coordination and strategic planning, regional reporting
structures that coordinate marketing and support efforts across business
units, and through the home office with centralized budgeting and shared
services. In Europe, the local subsidiaries report directly to one European
home office, which in turn reports to the Office of the President.
F-26
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leasing: This segment provides leasing, asset management, equipment
remarketing and equipment refurbishment services. The principal markets for
this segment include North America, Europe and the Pacific Rim. Customers
include major multi-national corporations, independent and national or state-
owned companies, "Fortune 500" corporations or companies of a similar size as
well as smaller organizations.
Technology Services: This segment consists of four business units--
Business Continuity, Professional Services, Network Management and IT CAP
Solutions--that provide platform based hotsite recovery, mobile, workarea and
trade floor recovery, continuity and recovery planning services (services that
emphasize data availability across data centers, networks and work areas),
network assessment, design, implementation and professional management services
and services designed to help companies plan, manage, and accomplish their IT
initiatives through increased control and predictability of spending and
infrastructure to a broad range of industries. The principal markets for this
segment include all major manufacturing and financial services regions of North
America and Europe.
Ventures: Ventures provides venture debt and venture leasing to emerging
technology companies. The existing venture debt and equity portfolio is
diversified across many sectors, including communications, networking,
Internet, life sciences, computer hardware and semiconductors and computer
services. The principal markets for this segment are the high-tech regions in
California and Massachusetts.
Prism Communication Services: The company finalized the acquisition of
Prism during the quarter ended March 31, 1999. Prism is building out a high-
speed, always-on digital network, which will provide customers with leading-
edge connectivity. Prism markets its services to enterprise customers to
provide employees with high-speed remote access to their Local Area Network to
improve employee productivity and reduce operating costs, and to consumer end
users. Prism's services are provided over standard copper telephone lines at
speeds significantly faster than the speed available through a 56.6 Kilobits
per second modem. Prism introduced its services in the New York City area in
January 1999 and has subsequently expanded its build out plans to New Jersey
and Canada.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The company
evaluates the performance of its operating segments based on earnings before
income taxes. Intersegment sales are not significant.
F-27
<PAGE>
COMDISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial information concerning the company's reportable
segments is shown in the following table.
<TABLE>
<CAPTION>
Leasing Services Ventures Prism Total
------- -------- -------- ----- ------
(in millions)
<S> <C> <C> <C> <C> <C>
1999
Revenues.............................. $3,407 $522 $229 $ 1 $4,159
Segment profit (loss)................. (12) 52 71 (36) 75
Total assets.......................... 6,332 479 872 124 7,807
Capital expenditures.................. 2,748 151 490 91 3,480
Depreciation and amortization......... 1,860 50 88 6 2,004
1998
Revenues.............................. $2,696 $433 $114 $-- $3,243
Segment profit........................ 140 71 29 -- 240
Total assets.......................... 6,403 379 281 -- 7,063
Capital expenditures.................. 2,920 87 173 -- 3,180
Depreciation and amortization......... 1,711 84 60 -- 1,855
1997
Revenues.............................. $2,370 $354 $ 95 $-- $2,819
Segment profit........................ 128 58 25 -- 211
Total assets.......................... 5,841 308 201 -- 6,350
Capital expenditures.................. 2,867 61 120 -- 3,048
Depreciation and amortization......... 1,459 92 43 -- 1,594
</TABLE>
The following table presents revenue by geographic location based on the
location of the company's local office:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
North America................................ $3,254 $2,584 $2,249
Europe....................................... 628 592 537
Pacific Rim.................................. 277 67 33
------ ------ ------
Total........................................ $4,159 $3,243 $2,819
====== ====== ======
</TABLE>
The following table presents total assets by geographic location based on
the location of the asset:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C>
North America................................ $6,272 $5,556 $5,334
Europe....................................... 1,029 1,181 852
Pacific Rim.................................. 506 326 164
------ ------ ------
Total........................................ $7,807 $7,063 $6,350
====== ====== ======
</TABLE>
F-28
<PAGE>
COMDISCO VENTURES GROUP FINANCIAL STATEMENTS
NOTE: The financial statements included in this prospectus with respect
to Comdisco Ventures group are being presented to supply additional information
to potential investors in Comdisco Ventures group stock. The unaudited
financial statements have been prepared assuming that:
. the tracking stock structure approved by Comdisco's stockholders
on April 20, 2000 and implemented by the filing of our restated
charter was in place during the periods reported on in these
financial statements.
. Comdisco, Inc. has two series of common stock--the Comdisco group
stock and the Comdisco Ventures group stock.
. Comdisco has allocated, for financial reporting purposes, all of
its consolidated assets, liabilities, revenue, expenses and cash
flow between Comdisco group and Comdisco Ventures group.
Comdisco Ventures group is an integrated business of Comdisco, Inc. and
is not a separate legal entity. Holders of Comdisco Ventures group Stock and
holders of Comdisco group stock are stockholders of Comdisco and are subject to
all of the risks associated with an investment in Comdisco and all of its
businesses, assets and liabilities. Such allocation does not affect title to
the assets or responsibility for the liabilities of Comdisco or any of its
subsidiaries. The results of operations or financial condition of one group
could affect the results of operations or financial condition of the other
group. Accordingly, the financial statements of Comdisco Ventures group should
be read in conjunction with Comdisco's consolidated financial statements and
the notes to the consolidated financial statements included in this prospectus
and in conjunction with Comdisco's consolidated financial statements and
related notes included in Comdisco's Annual Report on Form 10-K, as amended by
Form 10-K/A, for the year ended September 30, 1999.
Earnings per share is not presented for Comdisco Ventures group as it has
not been a "stand-alone" entity and, as a result, the presentation of earnings
per share is not applicable. Comdisco, Inc. presents earnings per share
historically, and will in the future, present in its financial statements the
earnings per share for each outstanding series of its common stock.
Certain reclassifications have been made in the 1999 financial statements
to conform to the 2000 presentation.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Comdisco, Inc.:
We have audited the accompanying balance sheets of Comdisco Ventures
group (a division of Comdisco, Inc., "the Company") as of September 30, 1999
and 1998, and the related statements of earnings and division net worth, 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
group is a division of Comdisco, Inc.; accordingly the financial statements of
Comdisco Ventures group 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
group 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
F-30
<PAGE>
COMDISCO VENTURES GROUP
STATEMENTS OF EARNINGS AND DIVISION NET WORTH
(in thousands)
<TABLE>
<CAPTION>
Three months
ended Nine months ended
June 30, June 30, Years ended September 30,
------------------ ----------------- --------------------------
2000 1999 2000 1999 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Leasing:
Operating............. $ 50,687 $ 30,917 $133,524 $ 82,886 $116,678 $ 83,147 $ 61,544
Direct financing...... 123 180 355 772 1,389 1,073 2,771
Sales-type............ -- -- 1,858 -- 336 866 4,305
-------- -------- -------- -------- -------- -------- --------
Total leasing....... 50,810 31,097 135,737 83,658 118,403 85,086 68,620
Sales................... 2,812 1,958 7,676 3,843 6,142 7,136 6,942
Interest income on
notes.................. 14,745 6,330 38,456 12,754 22,580 6,655 3,139
Warrant sale proceeds
and capital gains...... 80,341 20,000 267,565 37,000 80,731 14,938 16,435
Other................... 923 178 1,820 507 683 483 195
-------- -------- -------- -------- -------- -------- --------
Total revenue......... 149,631 59,563 451,254 137,762 228,539 114,298 95,331
-------- -------- -------- -------- -------- -------- --------
Cost and expenses
Leasing:
Operating............. 39,267 23,143 101,641 62,271 87,860 59,884 42,740
Sales-type............ -- -- 1,134 -- 254 479 3,615
-------- -------- -------- -------- -------- -------- --------
Total leasing....... 39,267 23,143 102,775 62,271 88,114 60,363 46,355
Sales................... 1,613 1,319 4,385 2,693 4,460 3,980 4,423
Selling, general and
administrative......... 21,465 5,718 63,388 8,806 18,166 5,793 5,436
Interest................ 17,385 6,601 41,304 15,165 23,373 10,835 7,670
Bad debt expense........ 16,000 800 61,801 2,400 23,200 4,786 6,250
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............. 95,730 37,581 273,653 91,335 157,313 85,757 70,134
-------- -------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 53,901 21,982 177,601 46,427 71,226 28,541 25,197
Income taxes............ 21,493 8,765 70,818 18,512 28,402 11,381 10,047
-------- -------- -------- -------- -------- -------- --------
Net earnings............ $ 32,408 $ 13,217 $106,783 $ 27,915 $ 42,824 $ 17,160 $ 15,150
======== ======== ======== ======== ======== ======== ========
Division net worth at
beginning of period.... $433,179 $119,608 $199,649 $ 71,080 $ 71,080 $ 53,920 $ 38,770
Net earnings............ 32,408 13,217 106,783 27,915 42,824 17,160 15,150
Other comprehensive
income--unrealized
gains, net of tax...... (26,497) 10,376 132,658 44,206 85,745 -- --
-------- -------- -------- -------- -------- -------- --------
Total comprehensive
income............. 5,911 23,593 239,441 72,121 128,569 17,160 15,150
-------- -------- -------- -------- -------- -------- --------
Division net worth at
end of period.......... $439,090 $143,201 $439,090 $143,201 $199,649 $ 71,080 $ 53,920
======== ======== ======== ======== ======== ======== ========
</TABLE>
Explanatory Note: Earnings per share is not presented because Comdisco
Ventures group has not been a "stand-alone entity" and, as a result, the
presentation of earnings per share is not applicable. If Comdisco issues a
separate series of common stock, it will present in its financial statements
the earnings per share for each outstanding series of its common stock.
See accompanying notes to financial statements.
F-31
<PAGE>
COMDISCO VENTURES GROUP
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,
June 30, -----------------
2000 1999 1998
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash.............................................. $ 34,049 $ -- $ --
Equity securities................................. 523,094 197,335 16,995
Receivables, net.................................. 642,231 367,339 66,425
Inventory of equipment............................ 3,137 1,762 1,120
Leased assets:
Direct financing and sales-type................. 4,658 5,106 7,344
Operating (net of accumulated depreciation)..... 458,635 283,241 182,403
---------- -------- --------
Net leased assets............................... 463,293 288,347 189,747
Other assets...................................... 25,569 17,069 6,956
---------- -------- --------
$1,691,373 $871,852 $281,243
========== ======== ========
LIABILITIES AND DIVISION NET WORTH
Inter-group payable............................... $1,033,040 $559,575 $189,281
Accounts payable.................................. 1,587 329 561
Deferred income taxes............................. 160,244 72,265 4,116
Other liabilities................................. 57,412 40,034 16,205
---------- -------- --------
1,252,283 672,203 210,163
---------- -------- --------
Division net worth:
Accumulated net earnings........................ 220,687 113,904 71,080
Accumulated other comprehensive income.......... 218,403 85,745 --
---------- -------- --------
Total division net worth...................... 439,090 199,649 71,080
---------- -------- --------
$1,691,373 $871,852 $281,243
========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
COMDISCO VENTURES GROUP
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30, Years ended September 30,
-------------------- -------------------------------
2000 1999 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............ $ 142,239 $ 76,541 $ 117,504 $ 91,632 $ 80,051
Leasing costs,
primarily rentals
paid................ (405) (137) (90) (1,269) (111)
Sales................ 7,482 4,455 6,671 7,220 6,104
Cost of sales........ -- -- (113) (980) (423)
Warrant proceeds..... 261,666 36,454 54,453 14,938 16,435
Promissory note
receipts............ 190,980 35,117 66,912 32,685 15,753
Other revenue........ 1,820 -- 15,231 6,883 3,334
Selling, general, and
administrative
expenses............ (42,192) (5,466) (7,546) (6,794) (5,435)
--------- --------- --------- --------- ---------
Net cash provided
by operating
activities...... 561,590 146,964 253,022 144,315 115,708
--------- --------- --------- --------- ---------
Cash flows from
investing activities:
Equipment purchased
for leasing......... (282,488) (146,355) (205,624) (114,188) (91,297)
Purchase of property
and equipment....... -- (115) (324) (140) (249)
Equity investments... (112,276) (20,326) (39,641) (7,945) (4,294)
Issuance of
promissory notes.... (454,144) (225,026) (323,876) (57,213) (34,319)
Other................ -- -- (5,558) 2,366 16,273
--------- --------- --------- --------- ---------
Net cash used in
investing
activities...... (848,908) (391,822) (575,023) (177,120) (113,886)
--------- --------- --------- --------- ---------
Cash flows from
financing activities:
Net change in inter-
group payable....... 321,367 244,858 322,001 32,931 (1,948)
Principal payments on
nonrecourse debt.... -- -- -- (126) 126
--------- --------- --------- --------- ---------
Net cash provided
by financing
activities...... 321,367 244,858 322,001 32,805 (1,822)
--------- --------- --------- --------- ---------
Net increase in
cash and cash
equivalents..... 34,049 -- -- -- --
Cash and cash
equivalents at
beginning of period... -- -- -- -- --
--------- --------- --------- --------- ---------
Cash and cash
equivalents at end of
period................ $ 34,049 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
RECONCILIATION OF NET
EARNINGS TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Net earnings......... $106,783 $27,915 $ 42,824 $ 17,160 $ 15,150
Adjustments to
reconcile net
earnings to net cash
provided by
operating
activities:
Leasing costs,
primarily
depreciation and
amortization...... 102,370 62,134 88,024 59,094 46,244
Leasing revenue.... -- -- 2,238 6,231 11,425
Principal portion
of promissory
notes............. 152,524 22,363 44,332 26,030 12,614
Cost of sales...... 4,385 2,693 4,347 3,000 4,000
Selling, general,
and administrative
expenses.......... 82,997 5,740 33,820 3,785 6,251
Income taxes....... 70,818 18,512 28,402 11,381 10,047
Interest........... 41,304 15,165 23,373 10,835 7,670
Other--net......... 409 (7,558) (14,338) 6,799 2,307
--------- --------- --------- --------- ---------
Net cash provided
by operating
activities........ $ 561,590 $ 146,964 $ 253,022 $ 144,315 $ 115,708
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
(1) Summary of Significant Accounting Policies
Nature of Operations
Formed in 1987 as a division of Comdisco, Inc., Comdisco Ventures group
(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 intergroup 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 technology 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.
F-34
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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 changes in
unrealized gains and losses reported in other comprehensive income. 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 June 30, 2000 and for the three
and nine month periods ended June 30, 2000 and 1999 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 those companies completed initial public
offerings.
F-35
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 investments (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 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 sold. 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
-------- -------
(in thousands)
<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
Unsettled equity transactions............................. 26,278 --
Other..................................................... 7,321 3,781
-------- -------
Total receivables......................................... 383,852 72,425
Allowance for credit losses............................... (16,513) (6,000)
-------- -------
Total................................................. $367,339 $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
F-36
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
-------- ------- ------
(in thousands)
<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>
(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
F-37
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
------ ------
(in
thousands)
<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>
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
----------
(in
thousands)
<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
-------- --------
(in thousands)
<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>
F-38
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
--------
(in
thousands)
<S> <C> <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
-------------------- --------- ------- ------- -------- -------
(in thousands)
<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>
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
-------------------- ----------- ------- ------ ------- ------
(in thousands)
<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>
F-39
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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
------- ------- -------
(in thousands)
<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>
Deferred tax assets and liabilities at September 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Investments....................................... $ 3,504 $ 3,504
Accounts receivable............................... 1,968 848
Lease accounting.................................. (18,420) (11,858)
Deferred income................................... (2,450) 3,390
Accumulated other comprehensive income............ (56,867) --
--------- --------
Gross deferred tax assets (liabilities)............. (72,265) (4,116)
Less: valuation allowance....................... -- --
--------- --------
Net deferred tax assets (liabilities)............... $ (72,265) $ (4,116)
========= ========
</TABLE>
F-40
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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
-------------
(in
thousands)
<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
-------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Equity securities.................. $197,335 $197,335 $16,995 $16,995
Receivables including noncurrent
portion........................... 367,339 367,339 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.
. Receivables are estimated by discounting future cash flows using
the current rates at which similar loans would be made to
borrowers with similar business profiles.
F-41
<PAGE>
COMDISCO VENTURES GROUP
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(10) Comprehensive Income
Comprehensive income for the years ended September 30, 1999, 1998, and
1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during the
period........................................ $223,343 $ 14,938 $ 16,435
Reclassification adjustment for gains included
in earnings before income taxes............... (80,731) (14,938) (16,435)
-------- -------- --------
Net unrealized gains, before income taxes........ 142,612 -- --
Income taxes..................................... (56,867) -- --
-------- -------- --------
Net unrealized gains............................. 85,745 -- --
-------- -------- --------
Other comprehensive income....................... 85,745 -- --
Net earnings..................................... 42,824 17,160 15,150
-------- -------- --------
Total comprehensive income................... $128,569 $ 17,160 $ 15,150
======== ======== ========
</TABLE>
Accumulated other comprehensive income presented below and in the
accompanying balance sheets consists of the accumulated net unrealized gain on
available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
-------------
<S> <C>
September 30, 1996............................................... $ --
Change in unrealized gain on available-for-sale securities ...... --
-------
September 30, 1997............................................... --
Change in unrealized gain on available-for-sale securities ...... --
-------
September 30, 1998............................................... --
Change in unrealized gain on available-for-sale securities....... 85,745
-------
September 30, 1999............................................... $85,745
=======
</TABLE>
Net unrealized gains in available-for-sale securities are shown net of
deferred taxes of $56,867 at the end of fiscal 1999.
F-42
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
10,000,000 Shares
COMDISCO, INC.
Comdisco Ventures Group Stock
---------------
PROSPECTUS
---------------
Merrill Lynch & Co.
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This preliminary prospectus +
+is not an offer to sell these securities and it is not soliciting an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternative Page for International Prospectus]
Subject to Completion
Preliminary Prospectus Dated September 1, 2000
PROSPECTUS
10,000,000 Shares
Comdisco, Inc.
Comdisco Ventures Group Stock
------------
We are offering Comdisco Ventures group stock, a new series of our common
stock intended to reflect the performance of Comdisco Ventures group, our
venture financing business. The international managers are offering 1,500,000
shares outside the U.S. and Canada and the U.S. underwriters are offering
8,500,000 shares in the U.S. and Canada.
We anticipate that the price to the public will be between $14.00 and
$16.00 per share. Currently, no public market exists for Comdisco Ventures
group stock. We intend to list our Comdisco Ventures group stock on the Nasdaq
National Market, under the symbol "CDOV."
Investing in Comdisco Ventures group stock involves risks. See "Risk
Factors," beginning on page 31.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to Comdisco............ $ $
</TABLE>
The international managers may also purchase up to an additional 225,000
shares of Comdisco Ventures group stock at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional 1,275,000 shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of Comdisco Ventures group stock will be ready for delivery on
or about , 2000.
------------
Merrill Lynch International
------------
The date of this prospectus is , 2000.
<PAGE>
[Alternative Page for International Prospectus]
UNDERWRITING
We intend to offer the shares of Comdisco Ventures group stock outside
the U.S. and Canada through the international managers and in the U.S. and
Canada through the U.S. underwriters. Merrill Lynch International is acting as
lead manager for the international managers named below. Subject to the terms
and conditions described in an international purchase agreement among us and
the international managers, and concurrently with the sale of 8,500,000 shares
of Comdisco Ventures group stock to the U.S. underwriters, we have agreed to
sell to the international managers, and the international managers severally
have agreed to purchase from us, the number of shares of Comdisco Ventures
group stock listed opposite their names below.
<TABLE>
<CAPTION>
Number
International Manager of Shares
--------------------- ---------
<S> <C>
Merrill Lynch International...................................
..................................................
---------
Total.................................................... 1,500,000
=========
</TABLE>
We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares of Comdisco Ventures group stock in the
U.S. and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is
acting as U.S. representative. Subject to the terms and conditions in the U.S.
purchase agreement, and concurrently with the sale of 1,500,000 shares of
Comdisco Ventures group stock to the international managers pursuant to the
international purchase agreement, we have agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase,
8,500,000 shares of Comdisco Ventures group stock from us. The initial public
offering price per share and the total underwriting discount per share are
identical under the international purchase agreement and the U.S. purchase
agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the shares of Comdisco Ventures group stock sold under the
international and U.S. purchase agreements if any of these shares are
purchased. If an underwriter defaults, the U.S. and international purchase
agreements provide that the purchase commitments of the nondefaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings for the sale of shares of Comdisco Ventures group stock to be
purchased by the international managers and the U.S. underwriters are
conditioned on one another.
Generally, we have agreed to indemnify each international manager and
U.S. underwriter against liability arising out of any untrue statement
contained in the registration statement, any preliminary prospectus or the
final prospectus, or the omission of a material fact required to be stated in
the registration statement or such prospectus necessary to make the statements
in the registration statement or such prospectus not misleading. In addition,
we have agreed to indemnify each international manager and U.S. underwriter
against liability arising out of violations of laws or regulations of foreign
jurisdictions where reserved shares have been offered. Each international
manager and U.S. underwriter has agreed to indemnify us against liability with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the registration statement, any preliminary prospectus or
the final prospectus in reliance upon and in conformity with written
information furnished to us by that international manager or U.S. underwriter
through Merrill Lynch expressly for use in the registration statement, such
preliminary prospectus or the prospectus. For more detailed information on the
terms of indemnification contained in the purchase agreements, please see
Exhibits 1.1 and 1.2 to the registration statement.
The underwriters are offering the shares of Comdisco Ventures group
stock, subject to prior sale, when, as and if issued to and accepted by them,
subject to approval of legal matters by their counsel, including the validity
of the shares, and other conditions contained in the purchase agreements, such
as the receipt by the underwriters of officer's certificates and legal
opinions. The underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
124
<PAGE>
[Alternative Page for International Prospectus]
Commissions and Discounts
The lead manager has advised us that the international managers propose
initially to offer the shares of Comdisco Ventures group stock to the public at
the initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $. per share. The
international managers may allow, and the dealers may reallow, a discount not
in excess of $. per share to other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting
discount and proceeds before expenses to Comdisco. The information assumes
either no exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.............. $ $ $
Underwriting discount.............. $ $ $
Proceeds, before expenses, to
Comdisco.......................... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount,
are estimated at $2,000,000 and are payable by Comdisco.
Over-allotment Option
We have granted options to the international managers to purchase up to
225,000 additional shares of Comdisco Ventures group stock at the public
offering price less the underwriting discount. The international managers may
exercise these options for thirty days from the date of this prospectus solely
to cover any over-allotments. If the international managers exercise these
options, each will be obligated, subject to conditions contained in the
purchase agreements, to purchase a number of additional shares of Comdisco
Ventures group stock proportionate to that international manager's initial
amount reflected in the above table.
We have also granted options to the U.S. underwriters, exercisable for
thirty days from the date of this prospectus, to purchase up to 1,275,000
additional shares of Comdisco Ventures group stock to cover any over-allotments
on terms similar to those granted to the international managers.
Intersyndicate Agreement
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the international managers and
the U.S. underwriters may sell shares of Comdisco Ventures group stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the intersyndicate
agreement, the international managers and any dealer to whom they sell shares
of Comdisco Ventures group stock will not offer to sell or sell shares to U.S.
or Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the intersyndicate
agreement. Similarly, the U.S. underwriters and any dealer to whom they sell
shares of Comdisco Ventures group stock will not offer to sell or sell shares
to persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of Comdisco Ventures
group stock offered by this prospectus for sale to some of Comdisco Ventures
group's employees and other of our business associates and related persons and
for purchase by Comdisco as a contribution to our retirement plan. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
125
<PAGE>
[Alternative Page for International Prospectus]
No Sales of Similar Securities
We have agreed, with exceptions, not to sell or transfer any Comdisco
Ventures group stock for 180 days after the date of this prospectus without
first obtaining the written consent of Merrill Lynch International.
Specifically, we have agreed not to directly or indirectly:
. offer, pledge, sell or contract to sell any Comdisco Ventures
group stock;
. sell any option or contract to purchase any Comdisco Ventures
group stock;
. purchase any option or contract to sell any Comdisco Ventures
group stock;
. grant any option, right or warrant for the sale of any Comdisco
Ventures group stock;
. lend or otherwise dispose of or transfer any Comdisco Ventures
group stock;
. request or demand that we file a registration statement related to
the Comdisco Ventures group stock;
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of any Comdisco
Ventures group stock, whether any such swap or transaction is to
be settled by delivery of shares or other securities, in cash or
otherwise; or
. undertake any disposition of shares of Comdisco Ventures group
stock reserved for issuance for the benefit of Comdisco group or
to the holders of Comdisco group stock.
This lockup provision applies to Comdisco Ventures group stock and to
securities convertible into or exchangeable or exercisable for or repayable
with Comdisco Ventures group stock.
Quotation on the Nasdaq National Market
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "CDOV."
Before this offering, there has been no public market for our Comdisco
Ventures group stock. The initial public offering price will be determined
through negotiations among us and the U.S. representative and lead manager. In
addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price are
. the valuation multiples of publicly traded companies that the U.S.
representative and the lead manager believe to be comparable to
Comdisco Ventures group,
. Comdisco Ventures group's financial information,
. the history of, and the prospects for, Comdisco Ventures group and
the industry in which Comdisco Ventures group competes,
. an assessment of Comdisco Ventures group's management, its past
and present operations, and the prospects for, and timing of,
Comdisco Ventures group's future revenues,
. the present state of Comdisco Ventures group's development, and
. the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to those of Comdisco Ventures group.
An active trading market for the shares may not develop. It is also
possible that after the offering the Comdisco Ventures group stock will not
trade in the public market at or above the initial public offering price.
126
<PAGE>
[Alternative Page for International Prospectus]
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares of Comdisco Ventures group stock is
completed, SEC rules may limit underwriters and selling group members from
bidding for and purchasing our Comdisco Ventures group stock. However, the U.S.
representative may engage in transactions that stabilize the price of the
Comdisco Ventures group stock, such as bids or purchases to peg, fix or
maintain that price.
If the underwriters create a short position in the Comdisco Ventures
group stock in connection with the offering, i.e., if they sell more shares
than are listed on the cover of this prospectus, the U.S. representative may
reduce that short position by purchasing shares of Comdisco Ventures group
stock in the open market. The U.S. representative may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above. Purchases of the Comdisco Ventures group stock to stabilize its price or
to reduce a short position may cause the price of the Comdisco Ventures group
stock to be higher than it might be in the absence of such purchases.
The U.S. representative may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representative purchases
shares of Comdisco Ventures group stock in the open market to reduce the
underwriter's short position or to stabilize the price of such shares, it may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares. The imposition of a penalty bid may also
affect the price of the shares of Comdisco Ventures group stock in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Comdisco Ventures group stock. In
addition, neither we nor any of the underwriters makes any representation that
the U.S. representative or the lead manager will engage in these transactions
or that these transactions, once commenced, will not be discontinued without
notice.
UK Selling Restrictions
Each international manager has agreed that
. it has not offered or sold and will not offer or sell any shares
of Comdisco Ventures group stock to persons in the United Kingdom,
except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
. it has complied and will comply with all the applicable provisions
of the Financial Services Act of 1986 with respect to anything
done by it in relation to the Comdisco Ventures group stock in,
from or otherwise involving the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with
the issuance of Comdisco Ventures group stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 as
amended by the Financial Services Act (Investment Advertisements)
(Exemptions) Order 1997 or is a person to whom such document may
otherwise lawfully be issued or passed on.
No Public Offering Outside the United States
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of
127
<PAGE>
[Alternative Page for International Prospectus]
this prospectus or any other material relating to the our company or shares of
our Comdisco Ventures group stock in any jurisdiction where action for that
purpose is required. Accordingly, the shares of our common stock may not be
offered or sold, directly or indirectly, and neither this prospectus nor any
other offering material or advertisements in connection with the shares of
Comdisco Ventures group stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares of Comdisco Ventures group stock offered by this
prospectus may be required to pay stamp taxes and other charges in accordance
with the laws and practices of the country of purchase in addition to the
offering price on the cover pages of this prospectus.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
Thomas H. Patrick, a director of Comdisco, Inc., is the Executive Vice
President and Chief Financial Officer of Merrill Lynch & Co., Inc.
128
<PAGE>
[Alternative Page for International prospectus]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
10,000,000 Shares
COMDISCO, INC.
Comdisco Ventures Group Stock
---------------
PROSPECTUS
---------------
Merrill Lynch International
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than underwriting
discounts and commissions, we will pay in connection with the sale of the
securities being registered. All the amounts shown are estimates, except for
the SEC registration fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee.......................................... $ 48,576
Nasdaq National Market listing fee............................ 10,000
Blue Sky fees and expenses.................................... 5,000
Printing and engraving expenses............................... 350,000
Legal fees and expenses....................................... 1,000,000
Accounting fees and expenses.................................. 515,000
Transfer Agent and registrar fees and expenses................ 5,000
Miscellaneous................................................. 66,424
----------
Total......................................................... $2,000,000
==========
</TABLE>
Item 15. Indemnification of Officers and Directors.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
were or are, or are threatened to be made, parties to any threatened, pending
or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his or her conduct was illegal. A Delaware corporation may indemnify officers
and directors against expenses (including attorneys' fees) in connection with
the defense or settlement of an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director
reasonably incurred.
In accordance with the Delaware Law, our restated certificate of
incorporation contains a provision to limit the personal liability of the
directors of Comdisco for violations of their fiduciary duty. This provision
eliminates each director's liability to Comdisco or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
Comdisco 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 Delaware law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their
fiduciary duty of care, including any such actions involving gross negligence.
Pursuant to most of Comdisco's employee benefit plans, including, without
limitation, its long-term incentive plans and stock option plans, directors,
officers and employees of Comdisco are indemnified against all loss, cost,
liability or expense resulting from any claim, action, suit or proceeding in
which such persons are involved by reason of any action taken or failure to act
under such plans.
II-1
<PAGE>
Pursuant to underwriting agreements filed as exhibits to registration
statements relating to underwritten offerings of securities issued or
guaranteed by Comdisco, the underwriters have agreed to indemnify Comdisco,
each officer and director of Comdisco and each person, if any, who controls
Comdisco within the meaning of the Securities Act of 1933, against specified
liabilities, including liabilities under said Act.
Comdisco is insured for liabilities it may incur pursuant to its restated
certificate of incorporation relating to the indemnification of its directors,
officers and employees. In addition, directors, officers and key employees are
insured against losses which may arise out of their employment and which are
not recoverable under the indemnification provisions of Comdisco's restated
certificate of incorporation.
Item 16. Exhibits.
(a) Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of U.S. Underwriting Agreement between Comdisco, Inc. and
the U.S. Underwriters.
1.2* Form of International Underwriting Agreement between Comdisco,
Inc. and the International Underwriters.
4.1 The rights of holders of Comdisco Ventures group stock are
defined in the Fourth Article of the Amended and Restated
Certificate of Incorporation of Comdisco, Inc. (filed as Exhibit
4.1 to Comdisco, Inc.'s Form 10-Q for the Quarterly Period ended
March 31, 2000 and incorporated herein by reference).
4.2 The Policy Statement regarding Comdisco Ventures group stock
matters of Comdisco, Inc.
4.3 Amended and Restated Rights Agreement of Comdisco, Inc. (filed
as Exhibit 4.1 to Comdisco, Inc's Current Report on Form 8-K
filed with the SEC on June 14, 2000).
4.4* Form of Temporary Certificate of Comdisco Ventures group stock.
5.1* Opinion of Jeremiah M. Fitzgerald, Vice President and Chief
Legal Officer of Comdisco, Inc., as to the legality of the
Comdisco Ventures group stock being registered.
8.1* Tax Opinion of Hopkins & Sutter.
10.1 Form of Comdisco Ventures group Management Incentive Plan (filed
as Annex III to Comdisco, Inc's Proxy Statement on Schedule 14A,
dated March 20, 2000 and incorporated herein by reference).
10.2 Form of Amended and Restated 1998 Long-Term Stock Ownership
Incentive Plan (filed as Annex IV to Comdisco, Inc's Proxy
Statement on Schedule 14A, dated March 20, 2000 and incorporated
herein by reference).
10.3 Form of Amended and Restated 1999 Non-Employee Directors' Stock
Option Plan (filed as Annex V to Comdisco, Inc's Proxy Statement
on Schedule 14A, dated March 20, 2000 and incorporated herein by
reference).
10.4 Form of Amended and Restated U.S. Employee Stock Purchase Plan
(filed as Annex VI to Comdisco, Inc's Proxy Statement on
Schedule 14A, dated March 20, 2000 and incorporated herein by
reference).
23.1* Consent of Jeremiah M. Fitzgerald, Vice President and Chief
Legal Officer of Comdisco, Inc. (included in the opinion of
counsel filed as Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3* Consent of Hopkins & Sutter (included in the opinion of counsel
filed as
Exhibit 8.1).
24.1* Powers of Attorney.
</TABLE>
--------
*previously filed
II-2
<PAGE>
(b) Financial Statement Schedules
None
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes that:
1. For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
2. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Comdisco, Inc., certifies that is has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and has duly caused
this Amendment No. 3 to Registration Statement (No. 333-34590) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Village of
Rosemont, State of Illinois, on September 1, 2000.
Comdisco, Inc.
/s/ John J. Vosicky
By: _______________________________
John J. Vosicky,
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to Registration Statement (No. 333-34590) has been signed by
the following persons in the capacities indicated on September 1, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ * President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
(Nicholas K. Pontikes)
/s/ John J. Vosicky Executive Vice President, Chief Financial
___________________________________________ Officer and Director (Principal
(John J. Vosicky) Financial Officer)
/s/ * Senior Vice President and Controller
___________________________________________ (Principal Accounting Officer)
(David J. Keenan)
/s/ * Director
___________________________________________
(Robert A. Bardagy)
/s/ * Director
___________________________________________
(C. Keith Hartley)
/s/ * Director
___________________________________________
(Harry M. Jansen Kraemer, Jr.)
/s/ * Director
___________________________________________
(Carolyn N. Murphy)
/s/ * Director
___________________________________________
(Thomas H. Patrick)
/s/ * Director
___________________________________________
(William N. Pontikes)
/s/ * Director
___________________________________________
(Rick Kash)
/s/ * Director
___________________________________________
(Philip A. Hewes)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ * Director
___________________________________________
(James Voelker)
</TABLE>
/s/ John J. Vosicky
*By: ___________________________________
John J. Vosicky, Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of U.S. Underwriting Agreement between Comdisco, Inc. and the
U.S. Underwriters.
1.2* Form of International Underwriting Agreement between Comdisco, Inc.
and the International Underwriters.
4.1 The rights of holders of Comdisco Ventures group stock are defined
in the Fourth Article of the Amended and Restated Certificate of
Incorporation of Comdisco, Inc. (filed as Exhibit 4.1 to Comdisco,
Inc.'s Form 10-Q for the Quarterly Period ended March 31, 2000 and
incorporated herein by reference).
4.2 The Policy Statement regarding Comdisco Ventures group stock matters
of Comdisco, Inc.
4.3 Amended and Restated Rights Agreement of Comdisco, Inc. (filed as
Exhibit 4.1 to Comdisco, Inc.'s Current Report on Form 8-K filed
with the SEC on June 14, 2000).
4.4* Form of Temporary Certificate of Comdisco Ventures group stock.
5.1* Opinion of Jeremiah M. Fitzgerald, Vice President and Chief Legal
Officer of Comdisco, Inc., as to the legality of the Comdisco
Ventures group stock being registered.
8.1* Form of Tax Opinion of Hopkins & Sutter.
10.1 Form of Comdisco Ventures group Management Incentive Plan (filed as
Annex III to Comdisco, Inc's Proxy Statement on Schedule 14A, dated
March 20, 2000 and incorporated herein by reference).
10.2 Form of Amended and Restated 1998 Long-Term Stock Ownership
Incentive Plan (filed as Annex IV to Comdisco, Inc's Proxy Statement
on Schedule 14A, dated March 20, 2000 and incorporated herein by
reference).
10.3 Form of Amended and Restated 1999 Non-Employee Directors' Stock
Option Plan (filed as Annex V to Comdisco, Inc's Proxy Statement on
Schedule 14A, dated March 20, 2000 and incorporated herein by
reference).
10.4 Form of Amended and Restated U.S. Employee Stock Purchase Plan
(filed as Annex VI to Comdisco, Inc's Proxy Statement on Schedule
14A, dated March 20, 2000 and incorporated herein by reference).
23.1* Consent of Jeremiah M. Fitzgerald, Vice President and Chief Legal
Officer of Comdisco, Inc. (included in the opinion of counsel filed
as Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3* Consent of Hopkins & Sutter (included in the opinion of counsel
filed as Exhibit 8.1).
24.1* Powers of Attorney.
</TABLE>
--------
*previously filed
