UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
-----------------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to __________
------------------------
Commission file number 1-7725
I.R.S. Employer Identification number 36-2687938
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone: (847) 698-3000
Name of each Number of shares
Title of exchange on outstanding as of
each class which registered March 31, 2000
---------- ---------------- --------------
Common stock, New York Stock Exchange 152,278,647
$.10 par value Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No .
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Comdisco, Inc. and Subsidiaries
<TABLE>
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INDEX Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Comdisco, Inc.
Consolidated Statements of Earnings and Retained Earnings (Unaudited)--
Three and Six Months Ended March 31, 2000 and 1999......................4
Consolidated Balance Sheets --
March 31, 2000 (Unaudited) and September 30, 1999.......................5
Consolidated Statements of Cash Flows (Unaudited) --
Six Months Ended March 31, 2000 and 1999................................6
Notes to Consolidated Financial Statements (Unaudited)...................8
Explanatory Note: The financial statements and Management's Discussion and
Analysis of Financial Condition of both Comdisco Group and Comdisco Ventures
are being presented to supply additional information to potential investors
in the Comdisco Ventures Stock. See Note 10 of Notes to Consolidated
Financial Statements on page 16 and introductory paragaraghs in both the
Comdisco Group and Comdisco Ventures Management's Discussion and Analysis of
Financial Condition for the intention of the Comdisco Ventures Stock and the
risks associated with the investment. Comdisco Ventures will not be a
separate legal entity but rather will be a part of Comdisco. Accordingly,
holders of Comdisco Ventures 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 its businesses, assets and liabilities.
Furthermore, holders of Comdisco Ventures Stock will only have the rights
specified in the Comdisco's restated charter and will not have any legal
rights related to specific assets of any specific group. See Note of 1 of
Notes to Combined Financial Statements of Comdisco Group and Note 1 of Notes
to Financial Statements of Comdisco Ventures.
Comdisco Group
Combined Statements of Earnings (Unaudited) --
Three and Six Months Ended March 31, 2000 and 1999.....................17
Combined Balance Sheets --
March 31, 2000 (Unaudited) and September 30, 1999......................18
Combined Statements of Cash Flows (Unaudited) --
Six Months Ended March 31, 2000 and 1999...............................19
Notes to Combined Financial Statements (Unaudited)......................21
Comdisco Ventures
Statements of Earnings and Division Net Worth (Unaudited) --
Three and Six Months Ended March 31, 2000 and 1999.....................28
Balance Sheets --
March 31, 2000 (Unaudited) and September 30, 1999......................29
Statements of Cash Flows (Unaudited) --
Six Months Ended March 31, 2000 and 1999...............................30
Notes to Financial Statements (Unaudited)...............................32
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Comdisco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
INDEX (CONTINUED). Page
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Comdisco, Inc. .........................................................36
Comdisco Group..........................................................43
Comdisco Ventures.......................................................49
Risk Factors............................................................54
Item 3. Quantitative and Qualitative Disclosures about Market Risk...............59
Item 4. Submission of Matters to a Vote of Security Holders.....................59
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................................60
SIGNATURES.......................................................................63
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(in millions except per share data)
<TABLE>
<CAPTION>
Three Months End Six Months Ended
March 31, March 31,
--------- --------- --------- ---------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Leasing
Operating ..................................................... $ 440 $ 507 $ 874 $ 1,038
Direct financing .............................................. 43 41 86 80
Sales-type .................................................... 128 191 206 351
------- ------- ------- -------
Total leasing .............................................. 611 739 1,166 1,469
Sales .............................................................. 98 67 166 125
Technology services ................................................ 156 125 303 243
Other .............................................................. 148 21 255 36
------- ------- ------- -------
Total revenue .............................................. 1,013 952 1,890 1,873
------- ------- ------- -------
Costs and expenses
Leasing
Operating ..................................................... 356 407 707 837
Sales-type .................................................... 102 157 162 284
------- ------- ------- -------
Total leasing .............................................. 458 564 869 1,121
Sales .............................................................. 78 58 128 109
Technology services ................................................ 138 105 263 205
Selling, general and administrative ................................ 143 73 258 142
Interest ........................................................... 87 87 171 171
Prism Communication Services ....................................... 42 3 70 3
Other .............................................................. -- 150 -- 150
------- ------- ------- -------
Total costs and expenses ...................................... 946 1,040 1,759 1,901
------- ------- ------- -------
Earnings (loss) before income taxes ................................ 67 (88) 131 (28)
Income taxes (benefit) ............................................. 24 (32) 47 (10)
------- ------- ------- -------
Net earnings (loss) ................................................ $ 43 $ (56) $ 84 $ (18)
======= ======= ======= =======
Retained earnings at beginning of period ........................... $ 1,172 $ 1,135 $ 1,134 $ 1,101
Net earnings (loss) ................................................ 43 (56) 84 (18)
Cash dividends paid on common stock ................................ (5) (4) (8) (8)
------- ------- ------- -------
Retained earnings at end of period ................................. 1,210 1,075 1,210 1,075
======= ======= ======= =======
Net earnings (loss) per common share:
Earnings (loss) per common share--basic ..................... $ .28 $ (.37) $ .55 $ (.12)
======= ======= ======= =======
Earnings (loss) per common share--diluted ................... $ .26 $ (.37) $ .52 $ (.12)
======= ======= ======= =======
Common shares outstanding
Average common shares outstanding--basic .................... 151 151 152 152
======= ======= ======= =======
Average common shares outstanding--diluted .................. 163 151 163 152
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except number of shares)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
-------- -------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ................... $ 87 $ 361
Cash - legally restricted ................... 35 46
Receivables, net ............................ 962 722
Inventory of equipment ...................... 112 115
Leased assets:
Direct financing and sales-type ........... 2,172 2,107
Operating (net of accumulated depreciation) 3,466 3,516
------- -------
Net leased assets ....................... 5,638 5,623
Buildings, furniture and other, net ......... 441 229
Equity securities ........................... 636 252
Other assets ................................ 504 459
------- -------
$ 8,415 $ 7,807
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable ............................... $ 1,157 $ 820
Term notes payable .......................... 550 550
Senior notes ................................ 3,683 3,686
Accounts payable ............................ 164 263
Income taxes ................................ 467 382
Other liabilities ........................... 609 531
Discounted lease rentals .................... 512 515
------- -------
7,142 6,747
------- -------
Stockholders' equity:
Preferred stock $.10 par value
Authorized 100,000,000 shares ........... -- --
Common stock $.10 par value
Authorized 750,000,000 shares;
issued 224,116,824 shares ............... 22 22
(223,464,344 at September 30, 1999)
Additional paid-in capital ................ 361 302
Accumulated other comprehensive income .... 189 58
Retained earnings ......................... 1,210 1,134
------- -------
1,782 1,516
Common stock held in treasury, at cost .... (509) (456)
------- -------
Total stockholders' equity ............ 1,273 1,060
------- -------
$ 8,415 $ 7,807
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------- -------
Cash flows from operating activities:
<S> <C> <C>
Operating lease and other leasing receipts ............................................ $ 1,009 $ 1,042
Direct financing and sales-type leasing receipts ...................................... 544 471
Leasing costs, primarily rentals paid ................................................. (8) (9)
Sales ................................................................................. 208 169
Sales costs ........................................................................... (51) (58)
Technology services receipts .......................................................... 284 239
Technology services costs ............................................................. (230) (185)
Note receivable receipts .............................................................. 130 19
Other revenue ......................................................................... 195 8
Selling, general and administrative expenses .......................................... (192) (152)
Loss on Prism Communication Services .................................................. (53) --
Interest .............................................................................. (165) (171)
Income taxes .......................................................................... (27) (16)
------- -------
Net cash provided by operating activities ........................................... 1,644 1,357
------- -------
Cash flows from investing activities:
Equipment purchased for leasing ....................................................... (1,449) (1,468)
Investment in continuity and network service facilities ............................... (175) (42)
Notes receivable ...................................................................... (290) (140)
Acquisition and investment in Prism Communication Services ............................ (167) (45)
Other investing activities ............................................................ (118) (53)
------- -------
Net cash used in investing activities ............................................... (2,199) (1,748)
------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................................................. 166 215
Net increase in notes payable ......................................................... 337 320
Issuance of term notes and senior notes ............................................... 72 719
Maturities and repurchases of term notes and senior notes ............................ (75) (319)
Principal payments on secured debt .................................................... (169) (163)
Common stock purchased and placed in treasury ......................................... (61) (31)
Dividends paid on common stock ........................................................ (8) (8)
Issuance of Prism Communication Services common stock ................................. 10 --
Increase in legally restricted cash ................................................... (11) (13)
Other, net ............................................................................ 20 (26)
------- -------
Net cash provided by financing activities ........................................... 281 694
------- -------
Net increase (decrease) in cash and cash equivalents ..................................... (274) 303
Cash and cash equivalents at beginning of period ......................................... 361 63
------- -------
Cash and cash equivalents at end of period ............................................... $ 87 $ 366
======= =======
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</TABLE>
<PAGE>
Comdisco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------- -------
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
<S> <C> <C>
Net earnings (loss) ....................................... $ 84 $ (18)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily
depreciation and amortization ....................... 860 1,112
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ....... 458 38
Cost of sales ......................................... 74 51
Technology services costs, primarily
depreciation and amortization ...................... 34 20
Interest 5 --
Income taxes (benefit) ................................ 21 (26)
Other expenses ........................................ -- 150
Other - net ........................................... 108 30
------- -------
Net cash provided by operating activities $ 1,644 $ 1,357
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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Comdisco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2000 and 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. See Note 7 of Notes to Consolidated Financial Statements for
a description of the charge recorded in the quarter ended March 31, 1999
associated with the company's shift in corporate strategy. For further
information, refer to the consolidated financial statements and notes thereto
included in the company's Annual Report on Form 10-K, as amended by Form 10-K/A,
for the year ended September 30, 1999.
The balance sheet at September 30, 1999 has been derived from the audited
financial statements included in the company's Annual Report on Form 10-K, as
amended by Form 10-K/A, for the year ended September 30, 1999.
Certain reclassifications have been made in the 1999 financial statements to
conform to the 2000 presentation.
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.
2. Receivables
Receivables include the following as of March 31, 2000 and September 30, 1999
(in millions):
March 31, September 30,
2000 1999
------- -------
Notes ....................... $ 538 $ 354
Accounts .................... 346 297
Unsettled equity transactions 78 26
Income taxes ................ 6 6
Other ....................... 82 82
------- -------
Total receivables ........... 1,050 765
Allowance for credit losses (88) (43)
------- -------
$ 962 $ 722
======= =======
Notes consist of loans, primarily to privately held companies in networking,
communications, software, Internet-based and other industries. The company's
loans are generally structured as loans secured by equipment or subordinated
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loans. Interest income on loans is recorded in the Statements of Earnings as
other revenue.
At March 31, 2000 and September 30, 1999, Comdisco Ventures had venture debt of
approximately $524 million and $343 million, respectively. As part of a venture
debt transaction, the company usually receives warrants to purchase an equity
interest in the borrower at a negotiated exercise price, based generally on the
borrower's most recent venture capital transaction. 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.
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the six months ended March 31, 2000 and 1999 were as follows (in
millions):
March 31,
2000 1999
---- ----
Balance at beginning of period....... $ 43 $ 24
Provision for credit losses ......... 67 8
Net credit losses ................... (22) (2)
---- ----
Balance at end of period ............ $ 88 $ 30
==== ====
3. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of property,
plant and equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the asset.
The company capitalizes costs associated with the design and implementation of
the Prism Communication Services ("Prism") network, including internally and
externally developed software. Capitalized external software costs include the
actual costs to purchase existing software from vendors. Capitalized internal
software costs generally include personnel costs incurred in the enhancement and
implementation of purchased software packages.
Customer premise equipment consists of communications equipment that will be
installed at customer premises for the duration of their service agreement with
the company.
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Property, plant and equipment consist of the following assets (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----- -----
<S> <C> <C>
Technology services property, plant and equipment
- -------------------------------------------------
Land .......................................................................... $ 10 $ 8
Buildings ..................................................................... 65 62
Leasehold improvements ........................................................ 118 110
Computers and telecom equipment ............................................... 58 58
Furniture, fixtures and office equipment ...................................... 34 32
----- -----
Total ....................................................... 285 270
Less: Accumulated depreciation and amortization ............................... (171) (162)
----- -----
Technology services property, plant and
equipment, net ................................................... 114 108
Prism property, plant and equipment
- -----------------------------------
Network, communication and customer premise equipment ......................... 159 27
Uninstalled customer premise equipment ........................................ 6 3
Computers and software ........................................................ 30 10
Leasehold improvements ........................................................ 58 24
Furniture, fixtures and office equipment ...................................... 5 1
Construction work-in-progress ................................................. 3 1
----- -----
Total ............................................................ 261 66
Less: Accumulated depreciation and amortization ............................... (8) (3)
----- -----
Prism property, plant and equipment, net ......................... 253 63
Other property, plant and equipment, net ...................................... 74 58
----- -----
Total property, plant and equipment, net ......................... $ 441 $ 229
===== =====
</TABLE>
4. Equity Securities
The company, primarily Comdisco Ventures, provides financing, through the
purchase of equity securities, to privately held companies, generally in
networking, communications, software, Internet-based and other industries. For
equity investments, 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 fiscal year 2000, certain of
these investments
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in privately held companies became available-for-sale securities when the
issuers completed initial public offerings.
Equity securities include the following as of March 31, 2000 and September 30,
1999 (in millions):
March September
31, 30,
2000 1999
---- ----
Available-for-sale-securities:
Cost ............................................... $ 44 49
Unrealized gain .................................... 405 152
---- ----
Market value ......................................... 449 201
Equity investments (at cost less
valuation adjustments) ............................ 187 51
---- ----
Carrying value ..................................... $636 $252
==== ====
Realized gains or losses are recorded upon disposition of equity securities
based upon the difference between the proceeds and the cost basis determined
using the specific identification method. Changes in the valuation of
available-for-sale securities are included as changes in the unrealized holding
gains in accumulated comprehensive income. Net realized gains from the sales of
equity securities were $123 million during the first six months of fiscal 2000.
During the six months ended March 31, 1999, the company did not realize any
gains from the sale of equity securities. Net realized gains are included in
other revenue.
The company records the proceeds received from the sale or disposition of
warrants received in conjunction with its lease or other financings as income
when sold. These proceeds were $94 million during the first six months of fiscal
2000 compared to $17 million in the year earlier period. These amounts are
included in other revenue.
5. Interest-Bearing Liabilities
At March 31, 2000, the company had $1.7 billion of available domestic and
international borrowing capacity under various lines of credit from commercial
banks and commercial paper facilities.
The average daily borrowings outstanding during the six months ended March 31,
2000 were approximately $5.4 billion, with a related weighted average interest
rate of 6.28%. This compares to average daily borrowings during the first six
months of fiscal 1999 of approximately $5.3 billion, with a related weighted
average interest rate of 6.40%.
6. Senior Notes
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 (later reduced to $500 million as described below) in Senior Debt
Securities as "Senior Medium-Term Notes, Series H" to be issued under the 1998
Shelf, of which $37 million remained available for issuance as of March 31,
2000. 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
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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 (the "1999 Shelf"). On March 2,
2000, the company designated $500 million in Senior Debt Securities as "Senior
Medium-Term Notes, Series I" to be issued under the 1999 Shelf. As of March 31,
2000, the entire 1999 Shelf remains available for sale.
The company plans to continue to be active in issuing senior debt during fiscal
2000, primarily to support the anticipated growth of the leased assets and the
implementation of the Prism network, and, where appropriate, to refinance
maturities of interest-bearing liabilities.
7. Stockholders' Equity
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.
Other comprehensive earnings (loss) consists of the following (in millions):
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
-------------------- -----------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Foreign currency translation adjustments ....................... $ (15) $ (25) $ (31) $ (25)
Unrealized gains on securities:
Unrealized holding gains arising
during the period ........................................... 150 41 470 36
Reclassification adjustment for gains
included in earnings before income
taxes ....................................................... (131) (10) (217) (17)
----- ----- ----- -----
Net unrealized gains, before income taxes ...................... 19 31 253 19
Income taxes ................................................... (7) (11) (91) (6)
----- ----- ----- -----
Net unrealized gains ........................................... 12 20 162 13
----- ----- ----- -----
Other comprehensive income (loss) .............................. (3) (5) 131 (12)
Net earnings (loss) ............................................ 43 (56) 84 (18)
----- ----- ----- -----
Total comprehensive income (loss) .............................. $ 40 $ (61) $ 215 $ (30)
===== ===== ===== =====
</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.
On April 25, 2000, the Board of Directors declared a quarterly cash dividend of
$.025 per common share to be paid on June 12, 2000 to holders of record on May
12, 2000.
During the quarter ended March 31, 2000, the company purchased 1,603,200 shares
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of its common stock at an aggregate cost of approximately $28 million. During
the six months ended March 31, 2000, the company purchased 3,162,900 shares of
its common stock at an aggregate cost of approximately $61 million.
8. Acquisition and Sales of Assets
On February 28, 1999, the company completed the acquisition of Prism for a cash
purchase price of approximately $53 million, of which approximately $45 million
was paid in fiscal 1999. Prism is a provider of dedicated high-speed
connectivity and other services to small businesses, telecommuters and other
power users.
The Prism acquisition has been accounted for by the purchase method of
accounting and, accordingly, the results of operations of Prism from the period
February 28, 1999 are included in the accompanying consolidated financial
statements. Assets acquired and liabilities assumed were recorded at their fair
values.
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 company expects to expand the Prism 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 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. 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 fiscal quarter ended September 30, 1999.
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9. Industry Segment and Operations by Geographic Areas
During fiscal 1999, the company adopted SFAS No.131, "Disclosures about Segments
of an Enterprise and Related Information." The company evaluates the performance
of its operating segments based on earnings before income taxes. Intersegment
sales are not significant. Summarized financial information concerning the
company's reportable segments for the three- and six-months ended March 31, 2000
and 1999 is shown in the following tables (in millions):
Three months ended
March 31, 2000 Leasing Services Prism Ventures Total
- --------------------------- ------ ------ ------ ------ ------
Revenues .................... $ 696 $ 156 $ 1 $ 160 $1,013
Segment profit (loss) ....... 27 18 (41) 63 67
Capital expenditures ........ 503 120 91 336 1,050
Depreciation and amortization 414 23 6 34 477
Three months ended
March 31, 1999 Leasing Services Prism Ventures Total
- ----------------------------- ----- ----- ----- ----- -----
Revenues .................... $ 785 $ 125 $ -- $ 42 $ 952
Segment profit (loss) ....... (89) (10) (3) 14 (88)
Capital expenditures ........ 590 6 45 128 769
Depreciation and amortization 539 17 -- 21 577
Six months ended
March 31, 2000 Leasing Services Prism Ventures Total
- ----------------------------- ------ ------ ------ ------ ------
Revenues .................... $1,284 $ 303 $ 1 $ 302 $1,890
Segment profit (loss) ....... 36 40 (69) 124 131
Capital expenditures ........ 1,277 175 167 580 2,199
Depreciation and amortization 789 34 9 62 894
Six months ended
March 31, 1999 Leasing Services Prism Ventures Total
- ----------------------------- ------- ------- ------- ------- -------
Revenues .................... $1,552 $ 243 $ -- $ 78 $1,873
Segment profit (loss) ....... (57) 8 (3) 24 (28)
Capital expenditures ........ 1,425 42 45 236 1,748
Depreciation and amortization 1,073 20 -- 39 1,132
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The following table presents total assets for each of the company's reportable
segments (in millions):
March September
31, 30,
2000 1999
------ ------
Leasing .................... $5,927 $6,332
Services ................... 632 479
Prism ...................... 334 124
Ventures ................... 1,522 872
------ ------
Total ...................... $8,415 $7,807
====== ======
The following tables present revenue by geographic location based on the
location of the company's local office (in millions):
Three months ended Six months ended
March 31, March 31,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
North America ..... $ 792 $ 655 $1,499 $1,309
Europe ............ 185 163 325 335
Pacific Rim ....... 36 134 66 229
------ ------ ------ ------
Total ............. $1,013 $ 952 $1,890 $1,873
====== ====== ====== ======
The following table presents total assets by geographic location based on the
location of the asset (in millions):
March September
31, 30,
2000 1999
------ ------
North America .......... $6,850 $6,272
Europe ................. 999 1,029
Pacific Rim ............ 566 506
------ ------
Total .................. $8,415 $7,807
====== ======
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10. Subsequent Event
On April 20, 2000 the company's stockholders approved the company's tracking
stock proposal. As part of the proposal, the company filed an amended and
restated certificate of incorporation with the Secretary of State of Delaware on
May 4, 2000. The amended and restated certificate of incorporation, among other
things:
o increases the total authorized shares of common stock from 750,000,000 to
1,800,000,000;
o authorizes the board of directors to issue common stock in multiple series,
with the initial two series of common stock designated as Comdisco Stock
and Ventures Tracking Stock;
o re-classifies each outstanding share of existing common stock as one a
share of Comdisco Stock; and initially authorizes 750,000,000 shares of
Comdisco Stock and 750,000,000 shares of Ventures Tracking Stock.
The company intends Ventures Tracking Stock to reflect the performance of
Comdisco Ventures, its venture financing business division.
The company intends Comdisco Stock to reflect the performance of Comdisco Group,
which consists of its other businesses and its retained interest in Comdisco
Ventures.
In furtherance of the tracking stock structure, the company has allocated, for
financial reporting purposes, all of Comdisco's consolidated assets,
liabilities, revenue, expenses and cash flow between Comdisco Group and Comdisco
Ventures. The company also will publish financial statements for each of
Comdisco Group and Comdisco Ventures, together with consolidated financial
statements of Comdisco covering all of Comdisco Group and Comdisco Ventures.
The company has included in this Quarterly Report on Form 10-Q separate
financial statements for Comdisco Group and Comdisco Ventures prepared in
accordance with generally accepted accounting principles for interim financial
statements as if the tracking stock was in place during the periods reported on
in those financial statements.
As of the date of filing of this report, no Ventures Tracking Stock has been
issued and, consequently, Comdisco Group's retained interest in Comdisco
Ventures is reflected at 100%.
-16-
<PAGE>
COMDISCO GROUP
COMBINED STATEMENTS OF EARNINGS (UNAUDITED)
(in millions)
For the Three and Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue
Leasing
Operating ............................................................... $ 395 $ 480 $ 791 $ 985
Direct financing ........................................................ 43 41 86 80
Sales-type .............................................................. 126 191 204 351
------ ------ ------ ------
Total leasing ........................................................ 564 712 1,081 1,416
Sales ........................................................................ 95 66 161 123
Technology services .......................................................... 156 125 303 243
Other ........................................................................ 38 7 43 13
------ ------ ------ ------
Total revenue ........................................................ 853 910 1,588 1,795
------ ------ ------ ------
Costs and expenses
Leasing
Operating ............................................................... 322 386 645 798
Sales-type .............................................................. 101 157 161 284
------ ------ ------ ------
Total leasing ........................................................ 423 543 806 1,082
Sales ........................................................................ 76 58 125 108
Technology services .......................................................... 138 105 263 205
Selling, general and administrative .......................................... 95 70 170 136
Interest ..................................................................... 75 83 147 163
Prism Communication Services ................................................. 42 3 70 3
Other ........................................................................ -- 150 -- 150
------ ------ ------ ------
Total costs and expenses ................................................ 849 1,012 1,581 1,847
------ ------ ------ ------
Earnings (loss) before income taxes benefit and
retained interest in Comdisco Ventures ..................................... 4 (102) 7 (52)
Income taxes benefit ......................................................... 2 38 3 19
------ ------ ------ ------
Earnings (loss) before retained interest in Comdisco Ventures ................ 6 (64) 10 (33)
Net earnings of Comdisco Ventures ............................................ 37 8 74 15
------ ------ ------ ------
Net earnings (loss) .......................................................... $ 43 (56) 84 (18)
====== ====== ====== ======
Explanatory Note: Earnings per share is not presented because Comdisco Group is
not 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 all
outstanding series of its common stock.
</TABLE>
See accompanying notes to combined financial statements.
-17-
<PAGE>
Comdisco Group
COMBINED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------ ------
<S> <C> <C>
ASSETS (unaudited) (audited)
Cash and cash equivalents ................... $ 87 $ 361
Cash - legally restricted ................... 35 46
Receivables, net ............................ 436 355
Inter-group receivable ...................... 847 559
Inventory of equipment ...................... 109 113
Leased assets:
Direct financing and sales-type ........... 2,166 2,102
Operating (net of accumulated depreciation) 3,081 3,233
------ ------
Net leased assets ....................... 5,247 5,335
Buildings, furniture and other, net ......... 441 228
Retained interest in Comdisco Ventures ...... 433 200
Other assets ................................ 538 497
------ ------
$8,173 $7,694
====== ======
LIABILITIES AND DIVISION NET WORTH
Notes payable ............................... $1,157 $ 820
Term notes payable .......................... 550 550
Senior notes ................................ 3,683 3,686
Accounts payable ............................ 164 262
Income taxes ................................ 289 310
Other liabilities ........................... 545 491
Discounted lease rentals .................... 512 515
------ ------
6,900 6,634
------ ------
Division net worth:
Accumulated other comprehensive income ..... 189 58
Division equity............................. 1,084 1,002
------ ------
Division net worth ........................ 1,273 1,060
------ ------
$8,173 $7,694
====== ======
See accompanying notes to combined financial statements.
</TABLE>
-18-
<PAGE>
Comdisco Group
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended March 31,2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Operating lease and other leasing receipts ............................................ $ 926 $ 991
Direct financing and sales-type leasing receipts ...................................... 544 471
Leasing costs, primarily rentals paid ................................................. (8) (9)
Sales ................................................................................. 202 166
Sales costs ........................................................................... (51) (58)
Technology services receipts .......................................................... 284 239
Technology services costs ............................................................. (230) (185)
Note receivable receipts .............................................................. 2 --
Other revenue ......................................................................... -- (11)
Selling, general and administrative expenses .......................................... (173) (149)
Loss on Prism Communication Services .................................................. (53) --
Interest .............................................................................. (165) (171)
Income taxes .......................................................................... (27) (16)
------- -------
Net cash provided by operating activities ........................................... 1,251 1,268
------- -------
Cash flows from investing activities:
Equipment purchased for leasing ....................................................... (1,273) (1,380)
Investment in continuity and network service facilities ............................... (175) (42)
Notes receivable ...................................................................... (4) --
Acquisition and investment in Prism Communication Services ............................ (167) (45)
Other investing activities ............................................................ -- (45)
------- -------
Net cash used in investing activities ............................................... (1,619) (1,512)
------- -------
Cash flows from financing activities:
Discounted lease proceeds ............................................................. 166 215
Net increase (decrease) in notes payable .............................................. 337 320
Issuance of term notes and senior notes ............................................... 72 719
Maturities and repurchases of term notes and senior notes ............................ (75) (319)
Principal payments on secured debt .................................................... (169) (163)
Decrease (increase) in inter-group receivable ......................................... (187) (148)
Common stock purchased and placed in treasury ......................................... (61) (31)
Dividends paid on common stock ........................................................ (8) (8)
Issuance of Prism Communication Services common stock ................................. 10 --
Increase in legally restricted cash ................................................... (11) (13)
Other, net ............................................................................ 20 (25)
------- -------
Net cash provided by financing activities ........................................... 94 547
------- -------
Net increase (decrease) in cash and cash equivalents ..................................... (274) 303
Cash and cash equivalents at beginning of period ......................................... 361 63
------- -------
Cash and cash equivalents at end of period ............................................... $ 87 $ 366
======= =======
</TABLE>
-19-
<PAGE>
Comdisco Group
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
(in millions)
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
Net earnings (loss) ....................................... $ 84 $ (18)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Leasing costs, primarily
depreciation and amortization ....................... 798 1,073
Leasing revenue, primarily principal portion of
direct financing and sales-type lease rentals ....... 353 38
Cost of sales ......................................... 73 51
Technology services costs, primarily
depreciation and amortization 34 20
Earnings from retained interest in Comdisco Ventures .... (74) (15)
Interest .............................................. (19) (9)
Income taxes (benefit) ................................ (28) (36)
Other expenses ........................................ -- 150
Other - net ........................................... 30 14
------- -------
Net cash provided by operating activities $ 1,251 $ 1,268
======= =======
</TABLE>
See accompanying notes to combined financial statements.
-20-
<PAGE>
Comdisco Group
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2000 and 1999
1. Basis of Presentation
The accompanying unaudited combined financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures
required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. See Note 7 of Notes to Consolidated Financial Statements for a
description of the charge recorded in the quarter ended March 31, 1999
associated with the company's shift in corporate strategy.
In addition, the accompanying unaudited combined financial statements have been
prepared assuming that:
o the tracking stock structure approved by the company's stockholders on
April 20, 2000 and implemented by the filing of the company's amended and
restated certificate of incorporation with the Secretary of State of
Delaware on May 4, 2000 was in place during the periods reported on in
these financial statements.
o the company, which is comprised of Comdisco, Inc. and its subsidiaries,
has two series of common stock - the Comdisco Stock and the Comdisco
Ventures Stock.
o the Comdisco Ventures Stock is intended to track the performance of the
company's venture financing operations.
o the Comdisco Stock is intended to track the performance of the rest of the
company's business, including Comdisco Group's retained interest in
Comdisco Ventures.
o no Comdisco Ventures Stock has been issued, and Comdisco Group holds a 100
percent retained interest in Comdisco Ventures during all periods reported
on in these financial statements.
o the company has allocated, for financial reporting purposes, all of its
consolidated assets, liabilities, revenue, expenses and cash flow between
Comdisco Group and Comdisco Ventures.
Notwithstanding these financial reporting allocations, holders of Comdisco
Ventures Stock and holders of Comdisco Stock are stockholders of the company and
are subject to all of the risks associated with an investment in the company and
all of its businesses, assets and liabilities. Such allocation does not affect
title to the assets or responsibility for the liabilities of the company 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 each group should be read in
conjunction with company's consolidated financial statements included herein and
with the notes to the consolidated and group financial statements included
herein and in conjunction with the company's consolidated financial statements
and notes thereto included in the company's Annual Report on Form 10-K, as
amended by Form 10-K/A, for the year ended September 30, 1999.
Certain reclassifications have been made in the 1999 financial statements to
conform to the 2000 presentation.
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.
-21-
<PAGE>
2. Receivables
Receivables include the following as of March 31, 2000 and September 30, 1999
(in millions):
March September
31, 30,
2000 1999
----- -----
Notes ....................... $ 14 $ 11
Accounts .................... 334 289
Unsettled equity transactions 42 --
Income taxes ................ 6 6
Other ....................... 67 76
----- -----
Total receivables ........... 463 382
Allowance for credit losses . (27) (27)
----- -----
Balance at end of period .... $ 436 $ 355
===== =====
Changes in the allowance for credit losses for the six months ended March 31,
2000 and 1999 were as follows (in millions):
March March
31, 31,
2000 1999
---- ----
Balance at beginning of period $ 27 $ 17
Provision for credit losses .. 21 6
Net credit losses ............ (21) --
---- ----
Balance at end of period ..... $ 27 $ 23
==== ====
3. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of property,
plant and equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the asset.
The company capitalizes costs associated with the design and implementation of
the Prism Communication Services ("Prism") network, including internally and
externally developed software. Capitalized external software costs include the
actual costs to purchase existing software from vendors. Capitalized internal
software costs generally include personnel costs incurred in the enhancement and
implementation of purchased software packages.
Customer premise equipment consists of communications equipment that will be
installed at customer premises for the duration of their service agreement with
the company.
-22-
<PAGE>
Property, plant and equipment consist of the following assets at March 31, 2000
and September 30, 1999 (in millions):
March 31, September 30,
2000 1999
----- -----
Technology services property, plant and equipment
- -----------------------------------------------------
Land ................................................ $ 10 8
Buildings ........................................... 65 62
Leasehold improvements .............................. 118 110
Computers and telecom equipment ..................... 58 58
Furniture, fixtures and office equipment ............ 34 32
----- -----
Total .................................. 285 270
Less: Accumulated depreciation and amortization ..... (171) (162)
----- -----
Technology services property, plant and
equipment, net .................................. 114 108
Prism property, plant and equipment
- -----------------------------------------------------
Network, communication and customer premise equipment 159 27
Uninstalled customer premise equipment .............. 6 3
Computers and software .............................. 30 10
Leasehold improvements .............................. 58 24
Furniture, fixtures and office equipment ............ 5 1
Construction work-in-progress ....................... 3 1
----- -----
Total .................................. 261 66
Less: Accumulated depreciation and amortization ..... (8) (3)
----- -----
Prism property, plant and equipment, net 253 63
Other property, plant and equipment, net ............ 74 57
----- -----
Total property, plant and equipment, net $ 441 $ 228
===== =====
4. Interest-Bearing Liabilities
At March 31, 2000, the company had $1.7 billion of available domestic and
international borrowing capacity under various lines of credit from commercial
banks and commercial paper facilities.
The average daily borrowings outstanding during the six months ended March 31,
2000 were approximately $4.7 billion, with a related weighted average interest
rate of 6.10%. This compares to average daily borrowings during the first six
months of fiscal 1999 of approximately $5.0 billion, with a related weighted
average interest rate of 6.34%.
-23-
<PAGE>
5. Senior Notes
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 (later reduced to $500 million as described below) in Senior Debt
Securities as "Senior Medium-Term Notes, Series H" to be issued under the 1998
Shelf, of which $37 million remained available for issuance as of March 31,
2000. 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"). On March 2, 2000,
the company designated $500 million in Senior Debt Securities as "Senior
Medium-Term Notes, Series I" to be issued under the 1999 Shelf. As of March 31,
2000, the entire 1999 Shelf remains available for sale.
The company plans to continue to be active in issuing senior debt during fiscal
2000, primarily to support the anticipated growth of the leased assets and the
expansion of the Prism network and, where appropriate, to refinance maturities
of interest-bearing liabilities.
6. Comprehensive Income
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130-
Reporting Comprehensive Income, which requires presentation of comprehensive
earnings (net earnings (loss) plus all changes in net assets from non-owner
sources) and its components in the financial statements.
Other comprehensive earnings (loss) consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
---------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Foreign currency translation adjustments ......... $ (15) $ (25) $ (31) $ (25)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period ............................. (23) 2 18 (37)
Reclassification adjustment for gains
included in earnings before income
taxes ......................................... (33) -- (30) --
----- ----- ----- -----
Net unrealized gains (losses), before income taxes (56) 2 (12) (37)
Income tax benefit................................ 23 1 15 16
----- ----- ----- -----
Net unrealized losses ............................ (33) 3 (3) (21)
----- ----- ----- -----
Other comprehensive loss ......................... (48) (22) (28) (46)
Appreciation in equity of retained interest
in Comdisco Ventures ........................... 45 17 159 34
Net earnings (loss) .............................. 43 (56) 84 (18)
----- ----- ----- -----
Total comprehensive income (loss) ................ $ 40 $ (61) 215 $ (30)
===== ===== ===== =====
</TABLE>
-24-
<PAGE>
7. Acquisition and Sale of Assets
On February 28, 1999, the company completed the acquisition of Prism for a cash
purchase price of approximately $53 million, of which approximately $45 million
was paid in fiscal 1999. Prism is a provider of dedicated high-speed
connectivity and other services to small businesses, telecommuters and other
power users.
The Prism acquisition has been accounted for by the purchase method of
accounting and, accordingly, the results of operations of Prism from the period
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 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 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. 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 fiscal quarter ended September 30, 1999.
-25-
<PAGE>
8. Industry Segment and Operations by Geographic Areas
During fiscal 1999, the company adopted SFAS No.131, "Disclosures about Segments
of an Enterprise and Related Information." The company evaluates the performance
of its operating segments based on earnings before income taxes. Intersegment
sales are not significant. Summarized financial information concerning the
company's reportable segments for the three- and six-months ended March 31, 2000
and 1999 is shown in the following tables (in millions):
Three months ended
March 31, 2000 Leasing Services Prism Total
- ----------------------------- ---- ---- ---- ----
Revenues .................... $696 $156 $ 1 $853
Segment profit (loss) ....... 27 18 (41) 4
Capital expenditures ........ 503 120 91 714
Depreciation and amortization 414 23 6 443
Three months ended
March 31, 1999 Leasing Services Prism Total
- ----------------------------- ----- ----- ----- -----
Revenues .................... $785 $125 $ -- $910
Segment profit (loss) ....... (89) (10) (3) (102)
Capital expenditures ........ 590 6 45 641
Depreciation and amortization 539 17 -- 556
Six months ended
March 31, 2000 Leasing Services Prism Total
- ----------------------------- ------ ------ ------ ------
Revenues .................... $1,284 $ 303 $ 1 $1,588
Segment profit (loss) ....... 36 40 (69) 7
Capital expenditures ........ 1,277 175 167 1,619
Depreciation and amortization 789 34 9 832
Six months ended
March 31, 1999 Leasing Services Prism Total
- ----------------------------- ------- ------- ------- -------
Revenues .................... $1,552 $ 243 $ -- $1,795
Segment profit (loss) ....... (57) 8 (3) (52)
Capital expenditures ........ 1,425 42 45 1,512
Depreciation and amortization 1,073 20 -- 1,093
-26-
<PAGE>
The following table presents total assets for each of the company's reportable
segments (in millions):
March September
31, 30,
2000 1999
------ ------
Leasing .............................. $6,774 $6,891
Services ............................. 632 479
Prism ................................ 334 124
Retained interest in Comdisco Ventures 433 200
------ ------
Total ................................ $8,173 $7,694
====== ======
The following tables present revenue by geographic location based on the
location of the company's local office (in millions):
Three months ended Six months ended
March 31, March 31,
----------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
North America $ 632 $ 613 $1,167 $1,231
Europe ...... 185 163 325 335
Pacific Rim . 36 134 66 229
------ ------ ------ ------
Total ....... $ 853 $ 910 $1,558 $1,795
====== ====== ====== ======
The following table presents total assets by geographic location based on the
location of the asset (in millions). The retained interest in Comdisco Ventures
is included in the North America amounts.
March September
31, 30,
2000 1999
------ ------
North America $6,608 $6,159
Europe ...... 999 1,029
Pacific Rim . 566 506
------ ------
Total ....... $8,173 $7,694
====== ======
-27-
<PAGE>
Comdisco Ventures
STATEMENTS OF EARNINGS AND DIVISION NET WORTH
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Leasing
Operating ................................................... $ 44,955 $ 26,643 $ 82,837 $ 51,969
Direct financing ............................................ 121 403 232 592
Sales-type .................................................. 1,858 -- 1,858 --
------- ------- ------- -------
Total leasing ............................................ 46,934 27,046 84,927 52,561
Sales ............................................................ 2,546 616 4,864 1,885
Interest income on notes ......................................... 11,952 4,110 23,711 6,424
Warrant sale proceeds and capital gains .......................... 98,499 10,000 187,224 17,000
Other ............................................................ 489 178 897 329
------- ------- ------- -------
Total revenue ............................................ 160,420 41,950 301,623 78,199
------- ------- ------- -------
Costs and expenses
Leasing
Operating ................................................... 34,081 20,723 62,375 39,128
Sales-type .................................................. 1,133 -- 1,133 --
------- ------- ------- -------
Total leasing ............................................ 35,214 20,723 63,508 39,128
Sales ............................................................ 1,764 338 2,772 1,374
Selling, general and administrative .............................. 23,501 1,526 41,923 3,088
Interest ......................................................... 13,128 4,550 23,919 8,564
Bad debt expense ................................................. 24,001 800 45,801 1,600
------- ------- ------- -------
Total costs and expenses .................................... 97,608 27,937 177,923 53,754
------- ------- ------- -------
Earnings before income taxes ..................................... 62,812 14,013 123,700 24,445
Income taxes ..................................................... 25,640 5,587 49,325 9,747
------- ------- -------- -------
Net earnings .................................................... $ 37,172 $ 8,426 $ 74,375 $ 14,698
======= ======= ======== =======
Division net worth at beginning of period ........................ $351,007 $ 93,726 $ 199,649 $ 71,080
Net earnings ..................................................... 37,172 8,426 74,375 14,698
Other comprehensive income - Unrealized gains, net of tax ........ 45,000 17,456 159,155 33,830
------- ------- -------- -------
Total comprehensive income .................................. 82,172 25,882 233,530 48,528
------- ------- -------- -------
Division net worth at end of period .............................. $433,179 $119,608 $433,179 $119,608
======= ======= ======== =======
See accompanying notes to financial statements.
Explanatory Note: Earnings per share is not presented because Comdisco Ventures
is not 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 all
outstanding series of its common stock.
</TABLE>
-28-
<PAGE>
Comdisco Ventures
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---- ----
(unaudited) (audited)
<S> <C> <C>
ASSETS
Equity securities ................................................ $ 581,136 $ 197,335
Receivables, net ................................................. 526,286 367,339
Inventory ........................................................ 3,237 1,762
Leased assets:
Direct financing and sales-type ................................ 5,471 5,106
Operating (net of accumulated depreciation) .................... 385,299 283,241
---------- -------
Net leased assets ............................................ 390,770 288,347
Other assets ..................................................... 20,434 17,069
---------- -------
$1,521,863 $ 871,852
========== =======
LIABILITIES AND DIVISION NET WORTH
Inter-group payable .............................................. $ 846,613 $ 559,575
Accounts payable ................................................. 515 329
Income taxes ..................................................... 177,817 72,265
Other liabilities ................................................ 63,739 40,034
---------- -------
1,088,684 672,203
---------- -------
Division net worth:
Division equity ................................................. 188,279 113,904
Accumulated other comprehensive income........................... 244,900 85,745
---------- -------
Total division net worth........................................ 433,179 199,649
---------- -------
$1,521,863 $ 871,852
========== =======
See accompanying notes to financial statements.
</TABLE>
-29-
<PAGE>
Comdisco Ventures
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Operating lease and other leasing receipts .. $ 83,471 $ 51,471
Leasing costs, primarily rentals paid ....... (150) (99)
Sales ....................................... 6,207 2,944
Warrant proceeds ............................ 194,782 18,970
Promissory note receipts .................... 128,173 18,573
Selling, general and administrative expenses (18,971) (3,095)
--------- ---------
Net cash provided by operating activities . 393,512 88,764
--------- ---------
Cash flows from investing activities:
Equipment purchased for leasing ............. (176,223) (88,172)
Purchase of property and equipment .......... (66) (59)
Equity investments .......................... (117,842) (8,326)
Issuance of promissory notes ................ (286,359) (139,996)
--------- ---------
Net cash used in investing activities ..... (580,490) (236,553)
--------- ---------
Cash flows from financing activities:
Net change in inter-group payable ........... 186,978 147,789
--------- ---------
Net cash provided by financing activities . 186,978 147,789
--------- ---------
Net increase in cash and cash equivalents ...... -- --
--------- ---------
Cash and cash equivalents at beginning of period -- --
--------- ---------
Cash and cash equivalents at end of period ..... $ -- $ --
========= =========
</TABLE>
-30-
<PAGE>
Comdisco Ventures
STATEMENTS OF CASH FLOWS (UNAUDITED) - Continued (in thousands)
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Reconciliation of net earnings to net
cash provided by operating activities:
Net earnings ............................................. $ 74,375 $ 14,698
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Leasing costs, primarily
depreciation and amortization ....................... 63,238 39,128
Cost of sales ......................................... 2,772 --
Principal portion of promissory notes ................. 104,993 12,149
Selling, general, and administrative expenses ......... 68,753 1,600
Interest .............................................. 23,919 8,564
Income taxes .......................................... 49,325 9,534
Other - net ........................................... 6,137 3,091
-------- --------
Net cash provided by operating activities $393,512 $ 88,764
======== ========
See accompanying notes to financial statements.
</TABLE>
-31-
<PAGE>
Comdisco Ventures
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2000 and 1999
1. Basis of Presentation
The accompanying unaudited combined financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures
required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
In addition, the accompanying unaudited financial statements have been prepared
assuming that:
o the tracking stock structure approved by the company's stockholders on April
20, 2000 and implemented by the filing of the company's amended and restated
certificate of incorporation with the Secretary of State of Delaware on May 4,
2000 was in place during the periods reported on in these financial statements.
o the company, which is comprised of Comdisco, Inc. and its subsidiaries, has
two series of common stock - the Comdisco Stock and the Comdisco Ventures Stock.
o the Comdisco Ventures Stock is intended to track the performance of the
company's venture financing operations. o the Comdisco Stock is intended to
track the performance of the rest of the company's business, including Comdisco
Group's retained interest in Comdisco Ventures.
o no Comdisco Ventures Stock has been issued, and Comdisco Group holds a 100
percent retained interest in Comdisco Ventures during all periods reported on in
these financial statements.
o the company has allocated, for financial reporting purposes, all of its
consolidated assets, liabilities, revenue, expenses and cash flow between
Comdisco Group and Comdisco Ventures.
Notwithstanding these financial reporting allocations, holders of Comdisco
Ventures Stock and holders of Comdisco Stock are stockholders of the company and
are subject to all of the risks associated with an investment in the company and
all of its businesses, assets and liabilities. Such allocation does not affect
title to the assets or responsibility for the liabilities of the company 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 each group should be read in
conjunction with company's consolidated financial statements included herein and
with the notes to the consolidated and group financial statements included
herein and in conjunction with the company's consolidated financial statements
and notes thereto included in the company's Annual Report on Form 10-K, as
amended by Form 10-K/A, for the year ended September 30, 1999.
Certain reclassifications have been made in the 1999 financial statements to
conform to the 2000 presentation.
-32-
<PAGE>
2. Equity Securities
Comdisco Ventures provides finaning to privately held companies, generally in
networking, communications, software, Internet-based and other industrie,
through the purchase of equity securities. For equity investments, which are
non-quoted investments, Comdisco Ventures' policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. Comdisco Ventures identifies and records
impairment losses on equity securities when events and circumstances indicate
that such assets might be impaired. During fiscal year 2000, certain of these
investments in privately held companies became available-for-sale securities
when the issuers completed initial public offerings.
Equity securities include the following as of March 31, 2000 and September 30,
1999 (in thousands):
March September
31, 30,
2000 1999
-------- ---------
Available-for-sale-securities:
Cost ......................... $ 24,820 $ 7,735
Unrealized gain .............. 407,319 142,612
-------- --------
Market value ................... 432,139 150,347
Equity investments (at cost less
valuation adjustments) ...... 148,997 46,988
-------- --------
Carrying value ............... $581,136 $197,335
======== ========
Realized gains or losses ("capital gains") are recorded upon disposition of
equity securities based upon the difference between the proceeds and the cost
basis determined using the specific identification method. Changes in the
valuation of available-for-sale securities are included as changes in the
unrealized holding gains in accumulated comprehensive income. Comdisco Ventures
records the proceeds received from the sale or disposition of warrants ("warrant
sale proceeds") received in conjunction with its lease or other financings as
income when sold. Revenue from the sale of equity investments (warrant sale
proceeds and capital gains) for the three and six months ended March 31, 2000
and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Proceeds from the sale of equity securities....... $ 57,712 $ -- $ 113,542 $ --
Less: cost of equity securities .................. (5,615) -- (8,934) --
--------- --------- --------- ---------
Capital gains .................................... 52,097 -- 104,608
Warrant sale proceeds ............................ 46,402 10,000 82,616 17,000
--------- --------- --------- ---------
Total ............................................ $ 98,499 $ 10,000 $ 187,224 $ 17,000
========= ========= ========= =========
</TABLE>
-33-
<PAGE>
See "Risk Factors" for a discussion of the factors that may affect proceeds from
the sale of warrants and capital gains.
Comdisco Ventures formed Hybrid Venture Partners, LP ("Hybrid Fund"), in October
1999 to originate venture debt and direct equity financing products. Comdisco
Ventures committed $250 million as a limited partner to Hybrid Fund, all of
which has been invested in, or committed to, customers. Comdisco Ventures has
closed Hybrid Fund and it will not seek additional capital commitments.
3. Receivables
Receivables include the following as of March 31, 2000 and September 30, 1999
(in thousands):
March September
31, 30,
2000 1999
--------- ---------
Notes receivable ................... $ 524,183 $ 343,105
Accounts ........................... 12,225 7,148
Unsettled equity transactions....... 36,180 26,278
Other .............................. 14,811 7,321
--------- ---------
Total receivables .................. 587,399 383,852
Allowance for credit losses ........ (61,113) (16,513)
--------- ---------
Balance at end of period ........... $ 526,286 $ 367,339
========= =========
Notes receivable ("venture debt") consist of loans to privately held companies
in networking, communications, software, Internet-based and other industries.
Comdisco Ventures' venture debt is generally structured as loans secured by
equipment and other assets or subordinated loans.
At March 31, 2000 and September 30, 1999, Comdisco Ventures had venture debt of
approximately $524.2 million and $343.1 million, respectively. As part of a
venture debt transaction, Comdisco Ventures receives warrants to purchase an
equity interest in the borrower at a negotiated exercise price, generally based
on the borrower's most recent venture capital transaction. 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.
-34-
<PAGE>
Changes in the allowance for credit losses (combined notes and accounts
receivable) for the six months ended March 31, 2000 and 1999 were as follows (in
thousands):
March March
31, 31,
2000 1999
-------- --------
Balance at beginning of period......... $ 16,513 $ 6,000
Provision for credit losses ........... 45,801 1,600
Net credit losses ..................... (1,201) (950)
-------- --------
Balance at end of period .............. $ 61,113 $ 6,650
======== ========
4. Comprehensive Income
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130-
Reporting Comprehensive Income, which requires presentation of comprehensive
earnings (net earnings plus all changes in net assets from non-owner sources)
and its components in the financial statements.
Other comprehensive earnings consists of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising
during the period .................... $ 173,343 $ 39,033 $ 451,931 $ 73,266
Reclassification adjustment for gains
included in earnings before income
taxes ................................ (98,499) (10,000) (187,224) (17,000)
--------- --------- --------- ----------
Net unrealized gains, before income taxes 74,844 29,033 264,707 56,266
Income taxes ............................ (29,844) (11,577) (105,552) (22,436)
--------- --------- --------- ----------
Net unrealized gains .................... 45,000 17,456 159,155 33,830
--------- --------- --------- ----------
Other comprehensive income .............. 45,000 17,456 159,155 33,830
Net earnings ............................ 37,172 8,426 74,375 14,698
--------- --------- --------- ----------
Total comprehensive income .............. $ 82,172 $ 25,882 $ 233,530 $ 48,528
========= ========= ========= ==========
</TABLE>
-35-
<PAGE>
Comdisco, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
The company believes certain statements herein constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the company intends that
such forward-looking statements be subject to the safe harbors created thereby.
The words and phrases "looking ahead," "we are confident," "should be," "will
be," "predicted," "believe," "expect" and "anticipate" and similar expressions
identify forward-looking statements. These forward-looking statements reflect
the company's current views with respect to future events and financial
performance, but are subject to many uncertainties and factors relating to the
company's operations and business environment which may cause the actual results
of the company to be materially different from any future results expressed or
implied by such forward-looking statements. Examples of such uncertainties
include, but are not limited to, those risk factors set forth generally
throughout this Management's Discussion and Analysis of Financial Condition and
Results of Operations and specifically under "Risk Factors that May Affect
Future Results" and should be read in conjunction with the company's Annual
Report on Form 10-K dated December 21, 1999 and filed with the Securities and
Exchange Commission on December 22, 1999, under Business-Forward-Looking
Information.
Overview
The industry in which the company operates has become service oriented, with the
business driven by service capabilities. Accordingly, Comdisco has aligned into
four primary business lines: technology services; global leasing (referred to as
"Leasing") in areas such as electronics, communications, medical, laboratory and
scientific equipment and other high technology equipment (including information
technology equipment); Prism (as defined and described in "Business"),
(services, leasing and Prism are collectively referred to as "Comdisco Group");
and Comdisco Ventures.
Net Earnings
Net earnings for the three months ended March 31, 2000 were $43 million, or $.26
per diluted common share, as compared to a net loss of $56 million, or $.37 per
share, for the three months ended March 31, 1999. Net earnings for the six
months ended March 31, 2000 were $84 million, or $.52 per share, as compared to
a net loss of $18 million, or $.12 per share, in the year earlier period. The
net loss for the three and six months ended March 31, 1999 was due to $150
million of pre-tax charges related to the divestiture of low-margin businesses
and the realignment of the company's service businesses (see "Business" for a
discussion of this pre-tax charge).
Excluding the charges and the Prism losses (see "Business" for discussion), the
company had net earnings of $69 million, or $.42 per share, compared to $41
million , or $.26 per share, for the three months ended March 31, 2000 and 1999,
respectively. Excluding the charges and the Prism losses, the company had net
earnings of $128 million, or $.78 per share, compared to $80 million, or $.50
per share, for the six months ended March 31, 2000 and 1999, respectively. The
increase for the three and six months ended March 31, 2000 compared to the year
earlier periods is primarily due to increased earnings by Comdisco Ventures,
offset by lower earnings contributions from Comdisco Group, primarily from
leasing activities.
-36-
<PAGE>
Business
Comdisco Group:
Services: The company's technology services business attained record revenues
for the three and six months ended March 31, 2000. However higher costs,
primarily associated with higher personnel costs and continued investment in new
service development, negatively impacted margins on the company's technology
services business. Costs associated with the development and implementation of
the company's network services infrastructure had a negative impact on the
network services earnings contribution. Technology services had pretax earnings
of $18 million in the quarter ended March 31, 2000, compared to $20 million
(excluding the services component of the pretax charge-see below) in the
quarter ended March 31, 1999 and $22 million in the quarter ended December 31,
1999. Revenue from continuity contracts, which is recognized monthly during the
noncancelable continuity contract and is therefore recurring and predictable,
was approximately $92 million, $80 million and $89 million during the three
months ended March 31, 2000 and 1999, and December 31, 1999, respectively,
representing approximately 59%, 64% and 60% 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. See "Risk Factors" for a discussion of the factors that may affect
earnings contributions from services.
Leasing: Leasing had pretax earnings of $27 million in the quarter ended March
31, 2000, compared to $31 million (excluding the leasing component of the pretax
charge--see below) in the quarter ended March 31, 1999. The decrease in pretax
earnings contribution from leasing is due to the Sale, offset by higher
remarketing contributions. Cost of equipment placed on lease was $528 million
during the quarter ended March 31, 2000. This compares to cost of equipment
placed on lease of $689 million and $780 million during the quarters ended March
31, 1999 and December 31, 1999, respectively. During the six months ended March
31, 2000 and 1999, cost of equipment placed on lease totaled $1.3 billion and
$1.5 billion, respectively. The residual leasing business of the company in the
areas of electronics, communications, medical, laboratory and scientific had
worldwide cost of equipment placed on lease of $232 million and $613 million in
the three and six months ended March 31, 2000, respectively, compared to $181
million and $397 million in the year earlier periods. See below for a discussion
of remarketing and "Risk Factors" for a discussion of leasing.
In addition to originating new equipment lease financing, the company remarkets
used equipment from its lease portfolio. Remarketing is the sale or re-lease of
equipment either at original lease termination or during the original lease.
These transactions may be with existing lessees or, when equipment is returned,
with new customers. Remarketing activities are comprised of earnings from
follow-on leases and gross profit on equipment sales. Remarketing activity, an
important factor in quarterly earnings, increased in the current quarter as
compared to both the first quarter of fiscal 2000 and the second 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 the
company's lease portfolio. In addition, remarketing activity will be critical in
the residual leasing business.
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 portfolio and medical refurbishing
business. In conjunction with this repositioning, the company recorded a pretax
charge of $150 million 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. The sale of the mainframe portfolio (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, the company
completed the sale of substantially its entire vendor lease portfolio in
September 1999.
Prism: 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
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<PAGE>
available through a 56.6 Kilobits per second modem. Prism introduced its
services in the New York City area in January 1999 and is in the process of
implementing a nationwide rollout of its network and services.
In January 2000, Prism began offering carrier-grade voice and high-speed data
services simultaneously over existing telephone lines to customers in the New
York metropolitan area. Prism believes it is the first competitive local
exchange carrier to offer such services. In January and April 2000, Prism
introduced its high-speed Internet service to the Philadelphia and Providence
markets, respectively.
On April 19, 2000, Prism introduced RED TurboSM, a high-speed connectivity
solution that offers users a choice in bandwidth allocation. RED Turbo allows
for speeds up to 4 megabits per second (Mbps), which may be allocated
symmetrically (i.e., 2 Mbps upstream/2 Mbps downstream) or dynamically (i.e.,
all 4 Mbps upstream, or all downstream). With RED Turbo, Prism believes it is
one of the first CLEC's to offer dynamically allocated broadband access at these
speeds.
Prism has entered into an agreement with Nortel Networks ("Nortel") to purchase
up to $460 million of switches, integrated line cards, customer premise
equipment and ancillary technology to establish a national, facilities-based
network. Based on its financial commitments to date, Prism will deploy the
largest amount of Nortel's digital modem technology in the United States, and
because of this relationship with Nortel, Prism expects to further benefit from
advances in Nortel's future network technology, such as its optical Internet
platform. Prism believes its network architecture, centered on Nortel's
integrated voice and data approach, offers cost benefits and could reduce
provisioning time lags. As part of the Nortel strategic relationship Nortel
purchased for cash common stock of Prism valued at $10 million.
Prism entered into an agreement to purchase a 20-year indefeasible right to use
("IRU") approximately 2,500 miles of dark fiber from Williams Communications,
Inc. ("Williams"). This purchase will allow Prism to transport data and voice
traffic, utilizing dense wave division multiplexing ("DWDM") and high speed
SONET technology, over its own dedicated fibers covering the Eastern half of the
United States for the foreseeable future. Prism also agreed to purchase a
minimum of approximately $110 million of network capacity from Williams over the
next 20 years to convey voice and data traffic in areas not covered by its dark
fiber IRU purchase. In return, Prism issued to Williams $10 million of common
stock and will pay for the remainder of its obligation to Williams with cash as
capacity is used or as Prism accepts segments of the dark fiber IRU. With this
transaction and the Nortel relationship, Prism believes it can achieve carrier
class network reliability and performance, a world class benchmark for all
telecommunications companies.
Comdisco Ventures:
The second quarter of fiscal 2000 was a record quarter for Comdisco Ventures,
with record revenues from leasing, interest income on venture debt and from the
sale of equity investments. For the three months ended March 31, 2000 and 1999,
Comdisco Ventures recorded revenue of $160 million and $42 million, which
represented increases of 281% and 52%, respectively, over the prior year
periods. For the six months ended March 31, 2000 and 1999, Comdisco Ventures
recorded revenue of $302 million and $78 million, which represented increases of
287% and 38%, respectively, over the prior year periods. Revenue from the sale
of equity investments (warrant sale proceeds and capital gains) for the three
and six months ended March 31, 2000 and 1999 were as follows (in millions):
-38-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---------- -----------
<S> <C> <C> <C> <C>
Proceeds from the sale of equity securities $ 57 $ -- $ 113 $ --
Less: cost of equity securities ........... (6) -- (9) --
---- ---- ---- ----
Capital gains ............................. 51 -- 104 --
Warrant sale proceeds ..................... 47 10 83 17
---- ---- ---- ----
Total ..................................... $ 98 $ 10 $ 187 $ 17
==== ==== ==== ====
</TABLE>
See "Risk Factors" for a discussion of the factors that may affect proceeds from
the sale of warrants and capital gains. The company's general policy has been to
sell its equity positions in an orderly manner as soon as reasonably possible
after a liquidity event. The company's disposition policy is not intended to,
and does not, assure that Comdisco Ventures will maximize its return on any
particular holding. In addition, Comdisco Ventures 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 Ventures formed Hybrid Venture Partners, LP ("Hybrid Fund"), in October
1999 to originate venture debt and direct equity financing products. Comdisco
Ventures committed $250 million as a limited partner to Hybrid Fund, all of
which has been invested in, or committed to, customers. Comdisco Ventures has
closed Hybrid Fund and will not seek additional capital commitments.
On April 20, 2000, the Comdisco stockholders approved an amended and restated
certificate of incorporation that, among other things, would permit the company
to create a separate series of its common stock, the Comdisco Ventures tracking
stock, which would track the performance of the company's venture financing
business. As of the date of filing of this Form 10-Q, no shares of the Comdisco
Ventures tracking stock were outstanding.
Three months ended March 31, 2000
Total revenue for the three months ended March 31, 2000 was $1.01 billion
compared to $952 million in the prior year quarter and $877 million in the
quarter ended December 31, 1999. The increase in total revenue in the current
quarter compared to the prior year quarter is primarily due to increased revenue
by Comdisco Ventures, offset by lower leasing revenue. Total leasing revenue of
$611 million for the quarter ended March 31, 2000 represented a decrease of 17%
compared to the year earlier period. Total leasing revenue was $555 million in
the first quarter of fiscal 2000. The decrease in the current quarter's leasing
revenues compared to the prior year quarter was primarily due to the sales of
the mainframe and vendor lease portfolios. Approximately $124 million of
mainframe and vendor leasing revenue was included in the revenue reported for
the quarter ended March 31, 1999. The increase in leasing revenue in the current
quarter compared to the first quarter of fiscal 2000 can be attributed to
increased revenue from remarketing activities.
-39-
<PAGE>
Operating lease revenue minus operating lease cost was $84 million, or 19.1% of
operating lease revenue (collectively, the "Operating Lease Margin"), and $100
million, or 19.7% of operating lease revenue, in the three months ended March
31, 2000 and 1999, respectively. The Operating Lease Margin was $83 million, or
19.1% in the quarter ended December 31, 1999. The company 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
quarter compared to the year earlier period was due to the sales of the
mainframe and vendor lease portfolios. In addition, the growth of the operating
lease portfolio is expected to slow as the mix of leases results in more direct
financing leases rather than operating leases. See "Risk Factors" for a
discussion of factors that could affect the Operating Lease Margin.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $98 million in the second quarter of fiscal year 2000
compared to $67 million in the year earlier quarter. Margins on sales were and
20% and 13% in the quarters ended March 31, 2000 and 1999, respectively. The
increase in revenue in the current quarter is due to remarketing, primarily
communications equipment, which also had above average margins on their
remarketing transactions in the current quarter.
Revenue from technology services for the three months ended March 31, 2000 and
1999 was $156 million and $125 million, respectively, a 25% increase. Cost of
technology services for the three months ended March 31, 2000 and 1999 was $138
million and $105 million, respectively, a 31% increase. The increase in cost of
technology services is attributed to the development and implementation of the
company's network services infrastructure.
Other revenue for the three months ended March 31, 2000 and 1999 was $148
million and $21 million, respectively. Revenue from the sale of equity positions
by Comdisco Ventures was $98 million and $10 million in the three months ended
March 31, 2000 and 1999, respectively. During the current quarter the company
realized an additional $33 million of revenues from the sale of other
available-for-sale investments. Prism revenue from subscribers was approximately
$1 million in the quarter ended March 31, 2000.
Total costs and expenses for the quarter ended March 31, 2000 were $946 million
compared to $1.04 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 sales of the mainframe and vendor lease portfolios, offset by
higher expenses incurred by Prism in the current year quarter.
Selling, general and administrative expenses totaled $143 million in the quarter
ended March 31, 2000 compared to $73 million in the quarter ended March 31, 1999
and $115 million in the quarter ended December 31, 1999. 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 incentive
compensation costs as a result of gains realized on the sale of equity
positions. The increase in the current quarter compared the quarter ended
December 31, 1999 is primarily due to an increase in the company's bad debt
expense. The company expects selling, general and administrative expenses to
increase throughout fiscal 2000 primarily because of higher revenue from
Comdisco Ventures, which will increase incentive compensation costs, and higher
personnel costs.
Interest expense for the three months ended March 31, 2000 and 1999 totaled $87
million. Increases in interest expense resulting from a higher average daily
borrowings in the current quarter compared to the prior year quarter were offset
by lower interest rates in the current period.
-40-
<PAGE>
Prism expenses for the three months ended March 31, 2000 totaled $42 million,
compared to $3 million in the year earlier quarter and $27 million in the first
quarter of fiscal 2000. The prior year amount includes the expenses incurred by
Prism from February 28, 1999 (date of acquisition) to March 31, 1999. Network
and product costs were $17 million for the three months ended March 31, 2000
compared to $9 million in the first 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 $14 million and $13 million for the three months
ended March 31, 2000 and December 31, 1999, 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 $6 million for the current quarter compared to $3 million for the
first quarter of fiscal 2000.
Prism has incurred losses in every month since its inception and the company
expects to substantially increase its operating expenditures in an effort to
rapidly expand its network infrastructure and service areas. Prism expects to
incur substantial operating losses, net losses and net operating cash outflows
during its network build-out and during the initial penetration of each new
market. Its losses and net operating cash outflows are expected to continue and
to increase as it expands its operations.
Six months ended March 31, 2000
Total revenue was $1.89 billion and $1.87 billion for the six months ended March
31, 2000 and 1999, respectively. Total leasing revenue was $1.17 billion and
$1.47 billion for the six months ended March 31, 2000 and 1999, respectively.
The decrease in total leasing revenue compared to the prior year period was
primarily due to the sales of the mainframe and vendor lease portfolios.
Operating lease revenue minus operating lease cost was $167 million, or 19.1% of
operating lease revenue, and $201 million, or 19.4% of operating lease revenue,
in the six months ended March 31, 2000 and 1999, respectively. The decrease in
operating lease revenue minus operating lease cost in the current year period
compared to the year earlier period was due to the sales of the mainframe and
vendor lease portfolios. The company expects 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. See "Risk Factors" for a discussion of
factors that could affect the Operating Lease Margin.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $166 million in the six months ended March 31, 2000,
compared to $125 million in the year earlier period. Margins on sales were and
23% and 13% in the six months ended March 31, 2000 and 1999, respectively. The
increase in revenue in the current period is due to remarketing, primarily
communications equipment, which also had above average margins on their
remarketing transactions in the current period.
Revenue from technology services for the six months ended March 31, 2000 and
1999 was $303 million and $243 million, respectively, a 25% increase. Cost of
technology services for the three months ended March 31, 2000 and 1999 was $263
million and $205 million, respectively, a 28% increase.
Other revenue for the six months ended March 31, 2000 and 1999 was $255 million
and $36 million, respectively. Revenue from the sale of available-for-sale
securities by Comdisco Ventures was $187 million and $17 million in the six
months ended March 31, 2000 and 1999, respectively. During the six months ended
March 31, 2000, approximately fifty-nine companies in the equity securities
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portfolio were acquired/merged or completed an initial public offering, compared
to eighteen companies in the year earlier period. During the current period the
company realized an additional $30 million of revenues from the sale other
available-for-sale securities. Prism revenue from subscribers was approximately
$1 million in the six months ended March 31, 2000.
Total costs and expenses for the six months ended March 31, 2000 were $1.76
billion compared to $1.90 billion in the prior year period. The decrease is due
to the sales of the mainframe and vendor lease portfolios.
Selling, general and administrative expenses totaled $258 million in six months
ended March 31, 2000 compared to $142 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
and an increase in incentive compensation costs as a result of gains realized on
the sale of equity positions held in the Comdisco Ventures portfolio.
Interest expense for the six months ended March 31, 2000 and 1999 totaled $171
million. Increases in interest costs resulting from higher average daily
borrowings in the current period compared to the prior year period were offset
by lower interest rates in the current period.
Prism expenses for the six months ended March 31, 2000 totaled $70 million,
compared to $3 million in the year earlier period. The prior year amount
includes expenses incurred by Prism from February 28, 1999 (date of acquisition)
to March 31, 1999. Network and product costs were $26 million for the six months
ended March 31, 2000. Sales, marketing, general and administrative expenses were
$27 million for the six months ended March 31, 2000. Depreciation and
amortization was approximately $9 million for the current period.
Financial Condition
The company's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. The company utilizes a variety of financial instruments
to fund its short and long-term needs.
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 six months
ended March 31, 2000 and 1999 was $1.64 billion and $1.36 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. The company expects this trend
to continue, with cash flow from leasing and remarketing reinvested in the
equipment portfolio.
Risk Factors That May Affect Future Results
See "Risk Factors" included in this Report.
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Comdisco Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read along with the Comdisco, Inc. consolidated
financial statements, Comdisco Ventures financial statements and Risk Factors
included in this Quarterly Report on Form 10-Q. Comdisco Group financial
statements should be read in conjunction with Comdisco's audited consolidated
financial information contained in Comdisco's 1999 Annual Report on form 10-K,
as amended by Form 10K/A.
Historical results and percentage relationships may not necessary be indicative
of operating results for any future periods. The financial statements of
Comdisco Group include the balance sheets, statements of earnings, cash flow and
group equity of the following businesses of Comdisco:
o Comdisco's technology services businesses, including: continuity services,
managed network services, desktop management services and web hosting and
availability;
o Comdisco's global leasing and remarketing businesses in areas such as
electronics, communications and laboratory and scientific equipment as well as
the leasing of information technology equipment and industrial automation
equipment; and
o Prism Communication Services, Inc.
The Comdisco Group financial statements also include its retained interest in
Comdisco Ventures, currently 100 percent.
The Comdisco Group financial statements and Comdisco Ventures financial
statements comprise all of the accounts included in the consolidated financial
statements of Comdisco. The separate business financial statements give effect
to all allocation and related party transaction policies as adopted by the board
of directors of Comdisco. The Comdisco Group financial statements have been
prepared in a manner which management believes is reasonable and appropriate.
Comdisco Group's retained interest in 100% of the division net worth of Comdisco
Ventures is reflected as "Retained interest in Comdisco Ventures" in Comdisco
Groups balance sheets. Similarly, Comdisco Group's retained interest in 100% of
the division net earnings of Comdisco Ventures is reflected as "Net earnings
related to retained interest in Comdisco Ventures" in its combined statements of
earnings.
Business
Services: The company's technology services business attained record revenues
for the three and six months ended March 31, 2000. However higher costs,
primarily associated with higher personnel costs and continued investment in new
service development, negatively impacted margins on the company's technology
services business. Costs associated with the development and implementation of
the company's network services infrastructure had a negative impact on the
network services earnings contribution. Technology services had pretax earnings
of $18 million in the quarter ended March 31, 2000, compared to $20 million
(excluding the services component of the pretax charge-see below) in the
quarter ended March 31, 1999 and $22 million in the quarter ended December 31,
1999. Revenue from continuity contracts, which is recognized monthly during the
noncancelable continuity contract and is therefore recurring and predictable,
was approximately $92 million, $80 million and $89 million during the three
months ended March 31, 2000 and 1999, and December 31, 1999, respectively,
representing approximately 59%, 64% and 60% of technology services revenue.
Included in the $150 million pre-tax charge (as discussed below), is $30 million
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associated with the relocation of some of its continuity services facilities
worldwide. See "Risk Factors" for a discussion of the factors that may affect
earnings contributions from services.
Leasing: Leasing had pretax earnings of $27 million in the quarter ended March
31, 2000, compared to $31 million (excluding the leasing component of the pretax
charge--see below) in the quarter ended March 31, 1999. The decrease in pretax
earnings contribution from leasing is due to the Sale, offset by higher
remarketing contributions. Cost of equipment placed on lease was $431 million
during the quarter ended March 31, 2000. This compares to cost of equipment
placed on lease of $639 million and $701 million during the quarters ended March
31, 1999 and December 31, 1999, respectively. During the six months ended March
31, 2000 and 1999, cost of equipment placed on lease totaled $1.1 billion and
$1.4 billion, respectively. The residual leasing business of the company in the
areas of electronics, communications, medical, laboratory and scientific had
worldwide cost of equipment placed on lease of $232 million and $613 million in
the three and six months ended March 31, 2000, respectively, compared to $181
million and $397 million in the year earlier periods. See below for a discussion
of remarketing and "Risk Factors" for a discussion of leasing.
In addition to originating new equipment lease financing, the company remarkets
used equipment from its lease portfolio. Remarketing is the sale or re-lease of
equipment either at original lease termination or during the original lease.
These transactions may be with existing lessees or, when equipment is returned,
with new customers. Remarketing activities are comprised of earnings from
follow-on leases and gross profit on equipment sales. Remarketing activity, an
important factor in quarterly earnings, increased in the current quarter as
compared to both the first quarter of fiscal 2000 and the second 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 the
company's lease portfolio. In addition, remarketing activity will be critical in
the residual leasing business.
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 portfolio and medical refurbishing
business. In conjunction with this repositioning, the company recorded a pretax
charge of $150 million 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. The sale of the mainframe portfolio (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, the company
completed the sale of substantially its entire vendor lease portfolio in
September 1999.
Prism: 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 is in the process of
implementing a nationwide rollout of its network and services.
In January 2000, Prism began offering carrier-grade voice and high-speed data
services simultaneously over existing telephone lines to customers in the New
York metropolitan area. Prism believes it is the first competitive local
exchange carrier to offer such services. In January and April 2000, Prism
introduced its high-speed Internet service to the Philadelphia and Providence
markets, respectively.
On April 19, 2000, Prism introduced RED TurboSM, a high-speed connectivity
solution that offers users a choice in bandwidth allocation. RED Turbo allows
for speeds up to 4 megabits per second (Mbps), which may be allocated
symmetrically (i.e., 2 Mbps upstream/2 Mbps downstream) or dynamically (i.e.,
all 4 Mbps upstream, or all downstream). With RED Turbo, Prism believes it is
one of the first CLEC's to offer dynamically allocated broadband access at these
speeds.
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Prism has entered into an agreement with Nortel Networks ("Nortel") to purchase
up to $460 million of switches, integrated line cards, customer premise
equipment and ancillary technology to establish a national, facilities-based
network. Based on its financial commitments to date, Prism will deploy the
largest amount of Nortel's digital modem technology in the United States, and
because of this relationship with Nortel, Prism expects to further benefit from
advances in Nortel's future network technology, such as its optical Internet
platform. Prism believes its network architecture, centered on Nortel's
integrated voice and data approach, offers cost benefits and could reduce
provisioning time lags. As part of the Nortel strategic relationship Nortel
purchased for cash common stock of Prism valued at $10 million.
Prism entered into an agreement to purchase a 20-year indefeasible right to use
("IRU") approximately 2,500 miles of dark fiber from Williams Communications,
Inc. ("Williams"). This purchase will allow Prism to transport data and voice
traffic, utilizing dense wave division multiplexing ("DWDM") and high speed
SONET technology, over its own dedicated fibers covering the Eastern half of the
United States for the foreseeable future. Prism also agreed to purchase a
minimum of approximately $110 million of network capacity from Williams over the
next 20 years to convey voice and data traffic in areas not covered by its dark
fiber IRU purchase. In return, Prism issued to Williams $10 million of common
stock and will pay for the remainder of its obligation to Williams with cash as
capacity is used or as Prism accepts segments of the dark fiber IRU. With this
transaction and the Nortel relationship, Prism believes it can achieve carrier
class network reliability and performance, a world class benchmark for all
telecommunications companies.
Three months ended March 31, 2000
Total revenue for the three months ended March 31, 2000 was $853 million
compared to $910 million in the prior year quarter and $735 million in the
quarter ended December 31, 1999. Total leasing revenue of $564 million for the
quarter ended March 31, 2000 represented a decrease of 21% compared to the year
earlier period. Total leasing revenue was $517 million in the first quarter of
fiscal 2000. The decrease in total revenue and leasing revenue in the current
quarter compared to the prior year quarter is primarily due to the sales of the
mainframe and vendor lease portfolios. Approximately $124 million of mainframe
and vendor leasing revenue was included in the revenue reported for the period
ended March 31, 1999. The increase in total revenue in the current quarter
compared to the first quarter of fiscal 2000 is primarily due to increased
revenue from remarketing activities and realized gains from the sale of equity
investments. The increase in the current quarter's leasing revenues compared to
the first quarter of fiscal 2000 is primarily due to increased revenue from
remarketing activities.
Operating lease revenue minus operating lease cost was $73 million, or 18.5% of
operating lease revenue (collectively, the "Operating Lease Margin"), and $94
million, or 19.6% of operating lease revenue, in the three months ended March
31, 2000 and 1999, respectively. The Operating Lease Margin was $73 million, or
18.4% in the quarter ended December 31, 1999. The company 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
quarter compared to the year earlier period was due to the sales of the
mainframe and vendor lease portfolios. In addition, the growth of the operating
lease portfolio is expected to slow as the mix of leases written results in more
direct financing leases rather than operating leases. See "Risk Factors that May
Affect Future Results" for a discussion of factors that could affect the
Operating Lease Margin.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $95 million in the second quarter of fiscal year 2000
compared to $66 million in the year earlier quarter. Margins on sales were and
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20% and 12% in the quarters ended March 31, 2000 and 1999, respectively. The
increase in revenue in the current quarter is due to remarketing, primarily
communications equipment, which also had above average margins on their
remarketing transactions in the current quarter.
Revenue from technology services for the three months ended March 31, 2000 and
1999 was $156 million and $125 million, respectively, a 25% increase. Cost of
technology services for the three months ended March 31, 2000 and 1999 was $138
million and $105 million, respectively, a 31% increase. The increase in cost of
technology services is attributed to the development and implementation of the
company's network services infrastructure.
Other revenue for the three months ended March 31, 2000 and 1999 was $38 million
and $7 million, respectively. Other revenue for the first quarter of fiscal 2000
was $5 million. The increase in other revenues in the current quarter compared
to the year earlier period can be attributed $33 million in realized gains from
the sale of certain available-for-sale securities. Prism revenue from
subscribers was approximately $1 million in the quarter ended March 31, 2000.
Total costs and expenses for the quarter ended March 31, 2000 were $849 million
compared to $1.01 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 sales of the mainframe and vendor lease portfolios, offset by
higher expenses incurred by Prism in the current quarter.
Selling, general and administrative expenses totaled $95 million in the quarter
ended March 31, 2000 compared to $70 million in the quarter ended March 31, 1999
and $75 million in the quarter ended December 31, 1999. The principal reason for
the increase in the current year quarter compared to both the year earlier
period and the first quarter of fiscal 2000 is an increase in bad debt expense.
Comdisco Group expects selling, general and administrative expenses to increase
throughout the remainder of the fiscal year. Although, Comdisco Group is taking
steps to control its selling, general and administrative expenses, Comdisco
Group continues to invest in its infrastructure to increase revenue and support
the increase in business volume.
Interest expense for the three months ended March 31, 2000 and 1999 totaled $75
million and $83 million, respectively. The decrease in the current quarter
compared to the prior year period is due to lower average daily borrowings by
Comdisco Group and lower interest rates in the current period compared to the
year earlier period.
Prism expenses for the three months ended March 31, 2000 totaled $42 million,
compared to $3 million in the year earlier quarter and $27 million in the first
quarter of fiscal 2000. The prior year amount only includes the expenses
incurred by Prism from February 28, 1999 (date of acquisition) to March 31,
1999. Network and product costs were $17 million for the three months ended
March 31, 2000 compared to $9 million in the first 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 $14 million and $13 million for the three months
ended March 31, 2000 and December 31, 1999, 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 $6 million for the current quarter compared to $3 million for
first quarter of fiscal 2000. Prism has incurred losses in every month since its
inception and the company expects to substantially increase its operating
expenditures in an effort to rapidly expand its network infrastructure and
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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.
Six months ended March 31, 2000
Total revenue was $1.59 billion and $1.80 billion for the six months ended March
31, 2000 and 1999, respectively. Total leasing revenue was $1.08 billion and
$1.42 billion for the six months ended March 31, 2000 and 1999, respectively.
The decrease in the current period's leasing revenues compared to the prior year
period was primarily due to the sales of the mainframe and vendor lease
portfolios.
Operating lease revenue minus operating lease cost was $146 million, or 18.5% of
operating lease revenue (collectively, the "Operating Lease Margin"), and $187
million, or 19.0% of operating lease revenue, in the six months ended March 31,
2000 and 1999, respectively. The decrease in operating lease revenue minus
operating lease cost in the current year period compared to the year earlier
period was due to the sales of the mainframe and vendor lease portfolios. The
company expects 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. See "Risk Factors" for a discussion of factors that could affect the
Operating Lease Margin.
Revenue from sales, which includes remarketing by selling and buy/sell
activities, totaled $161 million in the six months ended March 31, 2000,
compared to $123 million in the year earlier period. Margins on sales were and
22% and 12% in the six months ended March 31, 2000 and 1999, respectively. The
increase in revenue in the current period is due to remarketing, primarily
communications equipment, which also had above average margins on their
remarketing transactions in the current period.
Revenue from technology services for the six months ended March 31, 2000 and
1999 was $303 million and $243 million, respectively, a 25% increase. Cost of
technology services for the three months ended March 31, 2000 and 1999 was $263
million and $205 million, respectively, a 28% 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 the company's web hosting and availability
services.
Other revenue for the six months ended March 31, 2000 and 1999 was $43 million
and $13 million, respectively. During the current period the company realized
$30 million of revenues from the sale of certain available-for-sale securities
not held in the Comdisco Ventures portfolio. Prism revenue from subscribers was
approximately $1 million in the six months ended March 31, 2000.
Total costs and expenses for the six months ended March 31, 2000 were $1.58
billion compared to $1.85 billion in the prior year period. The decrease is due
to the sales of the mainframe and vendor lease portfolios.
Selling, general and administrative expenses totaled $170 million in six months
ended March 31, 2000 compared to $136 million in the prior year period. The
principal reason for the increase in the current year quarter compared to the
year earlier period is due to an increase in bad debts.
Interest expense for the six months ended March 31, 2000 and 1999 totaled $147
million compared to $163 million in the prior year period.
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Prism expenses for the six months ended March 31, 2000 totaled $70 million,
compared to $3 million in the year earlier period. The prior year amount only
includes the expenses incurred by Prism from February 28, 1999 (date of
acquisition) to March 31, 1999. Network and product costs were $26 million for
the six months ended March 31, 2000. Sales, marketing, general and
administrative expenses were $27 million for the six months ended March 31,
2000. Depreciation and amortization was approximately $9 million for the current
period.
Financial Condition
Comdisco Group's current financial resources and estimated cash flows from
operations are considered adequate to fund anticipated future growth and
operating requirements. Comdisco Group utilizes a variety of financial
instruments to fund its short and long-term needs.
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 six months
ended March 31, 2000 and 1999 was $1.25 billion and $1.27 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 Comdisco Group's investment in its lease portfolio. Comdisco Group expects
this trend to continue, with cash flow from leasing and remarketing reinvested
in the equipment portfolio.
Risk Factors That May Affect Future Results See "Risk Factors" included in this
Report.
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Comdisco Ventures
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read along with the Comdisco, Inc. consolidated
financial statements, Comdisco Group financial statements and Risk Factors
included in this Quarterly Report on Form 10-Q. Comdisco Ventures financial
statements should be read in conjunction with Comdisco's audited consolidated
financial information contained in Comdisco's 1999 Annual Report on form 10-K,
as amended by Form 10K/A.
Historical results and percentage relationships may not necessary be indicative
of operating results for any future periods. The financial statements of
Comdisco Ventures include the balance sheets, statements of earnings, cash flow
and group equity of Comdisco's venture financing businesses.
The Comdisco Group financial statements include its retained interest in
Comdisco Ventures, currently 100 percent.
The Comdisco Group financial statements and Comdisco Ventures financial
statements comprise all of the accounts included in the consolidated financial
statements of Comdisco. The separate business financial statements give effect
to all allocation and related party transaction policies as adopted by the board
of directors of Comdisco. The Comdisco Group financial statements have been
prepared in a manner which management believes is reasonable and appropriate.
Comdisco Group's retained interest in 100% of the division net worth of Comdisco
Ventures is reflected as "Retained interest in Comdisco Ventures" in Comdisco
Groups balance sheets. Similarly, Comdisco Group's retained interest in 100% of
the division net earnings of Comdisco Ventures is reflected as "Net earnings
related to retained interest in Comdisco Ventures" in its combined statements of
earnings.
Overview
Comdisco Ventures is a provider of venture leases, venture debt and direct
equity financing to venture capital-backed companies. Comdisco Ventures'
relationships with leading venture capital firms help it identify what it
believes are the best positioned companies in the most attractive high growth
industries. Comdisco Ventures offers a broad range of innovative equity-linked
financing products, which complement equity from venture capital firms and debt
from venture-oriented banks and asset-based lenders. Comdisco Ventures also
plans to offer a number of additional services to its network of customers.
Comdisco Ventures is a division of Comdisco.
Net Earnings
Net earnings for the three months ended March 31, 2000 were $37.2 million, as
compared to $8.4 million for the three months ended March 31, 1999. Net earnings
for the six months ended March 31, 2000 were $74.4 million, as compared to $14.7
million in the year earlier period. The principal reasons for the increase in
net earnings during the three and six months ended March 31, 2000 compared to
the year earlier periods are the significant increase in warrant sale proceeds
and capital gains, increased interest income on notes, and increased revenues
from leasing.
Three Months Ended March 31, 2000
The second quarter of fiscal 2000 was a record quarter for Comdisco Ventures,
with record revenues from leasing, interest income on venture debt and the sale
of equity investments. Total revenue for the three months ended March 31, 2000
was $160.4 million compared to $42.0 million in the prior year quarter and
$141.2 million in the quarter ended December 31, 1999.
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Total leasing revenue of $46.9 million for the quarter ended March 31, 2000
represented an increase of 74% over $27.0 million recorded for the quarter ended
March 31, 1999. Total leasing revenue was $38.0 million in the first quarter of
fiscal 2000. Cost of equipment placed on lease was $96.5 million during the
quarter ended March 31, 2000, compared to $49.5 million and $79.2 million during
the quarters ended March 31, 1999 and December 31, 1999, respectively. These
increases are the result of increases in both number of customers and average
lease size.
Operating lease revenue minus operating lease cost was $10.9 million, or 24.2%
(collectively, the "Operating Lease Margin"), and $5.9 million, or 22.2% of
operating lease revenue, in the three months ended March 31, 2000 and 1999,
respectively. The Operating Lease Margin was $9.6 million, or 25.3% in the
quarter ended December 31, 1999. The decrease in the Operating Lease Margin in
the current year period compared to the first 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 on venture debt was $12.0 million in the quarter ended March 31,
2000 compared to $4.1 million and $11.8 million during the quarters ended March
31, 1999 and December 31, 1999, respectively. During the quarter ended March 31,
2000, Comdisco Ventures funded loans totaling $157.8 million, compared to $72.6
million and $128.6 million in the quarters ended March 31, 1999 and December 31,
1999, respectively.
Revenue from the sale of equity holdings (warrant sale proceeds and capital
gains) for the quarter ended March 31, 2000 and 1999 were $98.5 million and
$10.0 million, respectively. Revenue from the sale of equity holdings was $88.7
million in the quarter ended December 31, 1999. 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 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 quarter ended March 31, 2000, approximately twenty-four
companies were acquired/merged or completed an initial public offering, compared
to fourteen companies in the year earlier period. See Note 2 of Notes to
Financial Statements for information on equity securities and revenue from the
sale of equity securities. The company's general policy has been to sell its
equity positions in an orderly manner as soon as reasonably possible after a
liquidity event. The company's disposition policy is not intended to, and does
not, assure that Comdisco Ventures will maximize its return on any particular
holding. In addition, Comdisco Ventures 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.
During the quarter ended March 31, 2000, Comdisco Ventures funded equity
financings totaling $81.6 million, compared to $4.7 million and $36.2 million in
the quarters ended March 31, 1999 and December 31, 1999, respectively..
Total costs and expenses for the quarter ended March 31, 2000 were $97.6 million
compared to $27.9 million in the prior year period. Total costs and expenses
were $80.3 million in the quarter ended December 31, 1999. The increase in total
costs and expenses in the current quarter compared to the prior year's quarter
and the first 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 expenses.
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Selling, general and administrative expenses totaled $23.5 million in the
quarter ended March 31, 2000 compared to $1.5 million in the quarter ended March
31, 1999 and $18.4 million in the quarter ended December 31, 1999. 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.
Interest expense for the three months ended March 31, 2000 was $13.1 million
compared to $4.6 million in the prior year period and $10.8 million in the
quarter ended December 31, 1999. 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' business.
Bad debt expense for the three months ended March 31, 2000 totaled $24.0 million
compared to $0.8 million in the quarter ended March 31, 1999 and $21.8 million
in the quarter ended December 31, 1999. The increase in the current quarter
compared to the prior year period reflects the increase in the reserve related
to increased venture lease, venture debt and direct equity financing volume.
The effective income tax rate was 41% in the quarter ended March 31, 2000
compared to 40% and 39% in the quarters ended March 31, 1999 and December 31,
1999, respectively. The effective income tax rate approximates the statutory
rate.
Six Months Ended March 31, 2000
Total revenue was $301.6 million and $78.2 million for the six months ended
March 31, 2000 and 1999, respectively. Total leasing revenue of $84.9 million
for the six months ended March 31, 2000 represented an increase of 62% over
$52.6 million recorded in the year earlier period.
Operating lease revenue minus operating lease cost was $20.5 million, or 24.7%
and $12.8 million, or 24.7% of operating lease revenue, in the six months ended
March 31, 2000 and 1999, respectively.
Interest income on venture debt was $23.7 million for the six months ended March
31, 2000 as compared to $6.4 million for the year earlier period. During the six
months ended March 31, 2000 and 1999, Comdisco Ventures funded loans totaling
$286.4 million and $140.0 million, respectively.
Revenue from the sale of equity holdings (warrant sale proceeds and capital
gains) for the six months March 31, 2000 and 1999 were $187.2 million and $17.0
million, respectively. During the six months ended March 31, 2000, approximately
fifty-nine companies were acquired/merged or completed an initial public
offering, compared to eighteen companies in the year earlier period. The
company's general policy has been to sell its equity positions in an orderly
manner as soon as reasonably possible after a liquidity event. The company's
disposition policy is not intended to, and does not, assure that Comdisco
Ventures will maximize its return on any particular holding. In addition,
Comdisco Ventures 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.
During the six months ended March 31, 2000 and 1999, Comdisco Ventures funded
equity financings totaling $117.8 million and $8.3 million, respectively.
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Total costs and expenses for the six months ended March 31, 2000 were $177.9
million compared to $53.8 million in the prior year period. The increase in
total costs and expenses reflects the growth in business activities.
Selling, general and administrative expenses totaled $41.9 million during the
first six months of fiscal 2000 compared to $3.1 million in the prior year
period. The increase is due to higher incentive compensation costs.
Interest expense for the six months ended March 31, 2000 was $23.9 million
compared to $8.6 million in the prior year period. The increase is due to higher
inter-group borrowings.
Bad debt expense for the six months ended March 31, 2000 totaled $45.8 million
compared to $1.6 million for the prior year period. The increase reflects the
growth in business volume.
The effective income tax rate was 40% during the six months ended March 31, 2000
and 1999. The effective income tax rate approximates the statutory rate.
Liquidity and Capital Resources
Since inception, Comdisco Ventures' operating activities, including capital
expenditures for equipment and venture debt originations, have been funded
primarily by cash flow from operations and by inter-group loans from Comdisco.
Total net cash provided by Comdisco was $187.0 million during the six months
ended March 31, 2000, compared to $147.8 million during the prior year period.
The increase in fiscal 2000 is primarily due to increased business opportunities
in venture leases, venture debt and direct equity financings.
Comdisco Ventures' 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:
o demand for Comdisco Ventures' financings or its cash flow from operations is
less than or more that expected;
o development plans or projections change or prove inaccurate;
o Comdisco Ventures makes any acquisitions or commitments in excess of the
current plan; or o Comdisco Ventures accelerates or otherwise alters the
schedule or targets of its business plan implementation.
While Comdisco has been the primary source of funds for Comdisco Ventures,
Comdisco has made no formal commitments about its ability or willingness to
continue to provide funds beyond fiscal year 2000. If Comdisco Ventures were
otherwise unable to obtain funding, from Comdisco or otherwise, on acceptable
terms, Comdisco Ventures' ability to fund its expansion or respond to
competitive pressures would be significantly impaired.
Other Matters
Following the approval of the tracking stock proposal, the company granted
options under the Comdisco Ventures Management Incentive Plan to senior
management of Comdisco Ventures. The exercise price per share is based on the
net book value of Comdisco Ventures, which is less than the fair market value of
Comdisco Ventures as determined by an independent appraisal. As a result of
these grants, there will be significant stock-based compensation expense in
future periods.
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Risk Factors That May Affect Future Results See "Risk Factors" included in this
Report.
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RISK FACTORS
This Report contains forward-looking statements that involve risks and
uncertainties. The company's actual revenues and results of operations could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this Report.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
These forward-looking statements reflect the company's current views with
respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the company's operations and business
environment which may affect the accuracy of forward-looking statements and
cause the actual results of the company to be materially different from any
future results expressed or implied by such forward-looking statements.
The company's actual revenues and results of operations could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the "Risk Factors." As a result of
these and other factors, in some future quarter the company's operating results
may fall below the expectations of securities analysts and investors. In such an
event, the trading price of the company's common stock would likely be
materially and adversely affected. Many of the factors that will determine
results of operations are beyond the company's ability to control or predict.
OPERATING RESULTS ARE SUBJECT TO QUARTERLY FLUCTUATIONS
The company's operating results are subject to quarterly fluctuations resulting
from a variety of factors, including earnings contributions from Comdisco
Ventures, remarketing activities and services, product announcements by
manufacturers, economic conditions and variations in the financial mix of leases
written. The financial mix of leases written is a result of a combination of
factors, including, but not limited to, changes in customer demands and/or
requirements, new product announcements, price changes, changes in delivery
dates, changes in maintenance policies and the pricing policies of equipment
manufacturers, and price competition from other lessors and finance companies.
Comdisco Ventures earnings contributions are impacted by volatility in the
public markets.
THE COMPANY'S GROWTH STRATEGY DEPENDS ON PRODUCT AND MARKET DEVELOPMENT
The markets for the company's principal products are characterized by rapidly
changing technology, evolving industry standards, and declining prices. The
company'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 the company's
competitors and market acceptance.
THE COMPANY'S SUCCESS DEPENDS IN PART ON ANTICIPATING AND ADAPTING TO NEW
TECHNOLOGICAL DEVELOPMENTS AND CHANGING MARKET CONDITIONS
Lower margins on large systems transactions (mainframes and related peripherals,
including DASD and tape drives) have resulted in lower margins on leasing.
Although the company has sold its mainframe residual leasing business, which may
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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 the company'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
the company's global equipment leasing businesses, 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 the company is devoting resources to its remarketing
activities, there can be no assurance that the company will achieve the
appropriate level of activity necessary to meet or match the company's prior and
desired operating results.
THE COMPANY'S GROWTH STRATEGY DEPENDS IN PART ON THE COMMUNICATIONS INDUSTRY. IF
THAT INDUSTRY DOES POORLY, THE COMPANY'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 the
company with an industry in which leasing is an attractive alternative to
ownership. The company'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 the company's credit losses above
historical levels.
THE COMPANY'S SUCCESS IS HIGHLY DEPENDENT ON DEVELOPING AND EXPANDING ITS
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 THE COMPANY'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, the company has
limited meaningful historical data in which to base its planned operating
expenses. Accordingly, a significant portion of the company's expense levels
(investment in continuity facilities and hardware, consultants, experts and back
office personnel) are based in part on its expectations as to future services
revenues, and are, to a large extent, fixed. Conversely, the company's revenue
base has become more diverse with the growth of other technology services
revenue. To attain its services earnings contribution goals for fiscal 2000, the
company must: meet its obligations under the agreements underlying transactions
in process at September 30, 1999 (also referred to by the company as its "sales
backlog"); expand its contract subscription base (through new contract signings
and contract renewals); increase its revenues from other technology services,
develop, promote and sell additional service products, such as IT CAP Solutions,
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advanced recovery services, availability options, remote computing services and
web hosting; and contain costs. The company must also successfully compete with
organizations offering similar services. The company's ability to obtain new
business and realize revenue on its sales backlog depends on its ability to
anticipate technological changes, develop services to meet customer requirements
and achieve delivery of services that meet customer requirements. In addition,
there can be no assurance that the company will be able to maintain and/or
increase its margins on technology services in fiscal 2000.
One impact of the company's changing business model is the lengthening of the
sales cycle--the length of time between initial sales contact and final delivery
of contracts--as compared to its traditional leasing business. This increase in
sales cycle results in an increase in negotiations in progress which ultimately
impacts the timing of revenue, earnings and volume recognition.
COMDISCO VENTURES CUSTOMERS ARE IN AN EARLY STAGE OF DEVELOPMENT AND MAY BE
UNABLE TO COMPLETE THEIR BUSINESS PLANS. EQUITY INSTRUMENTS HELD BY COMDISCO
VENTURES ARE RISKY INVESTMENTS AND THE PUBLIC MARKET FOR THESE COMPANIES IS
EXTREMELY VOLATILE. TO THE EXTENT THESE COMPANIES DO NOT MEET THEIR PLANS OR THE
COMPANY IS UNABLE TO DISPOSE OF ITS EQUITY SECURITIES, THE COMPANY'S BUSINESS
AND FINANCIAL RESULTS MAY SUFFER.
The company has made loans to and equity investments in various privately held
companies. These companies typically are in an early stage of development with
limited operating histories, and limited or no revenues and may be expected to
incur substantial losses. Accordingly, investments in these companies may not
result in any return and the company may lose its entire investment and/or
principal balance.
Equity instruments held by the company are subject to lockup agreements
restricting its ability to sell until several months after an initial public
offering. The public market for high technology and other emerging growth
companies is extremely volatile. Such volatility may adversely affect the
ability of the company to dispose of the equity securities and the value of
those securities on the date of sale.
The company has established working relationships with successful venture
capital organizations. There can be no assurance that these relationships can be
maintained or sustained. To the extent that the company is unable to maintain
these relationships, its ability to identify potential customers may be
substantially impaired.
The current economic environment has been sustained over a number of years and
is currently the longest continuous period of economic growth in the last thirty
years. This environment has encouraged entrepreneurs to conceive, develop and
bring to market new products and services. The company targets these early-stage
companies for its services and products. A slow down in economic growth could
materially affect the market in which the company operates. Furthermore, a slow
down would impact potential investors in any limited partnerships the company
may form, and this in turn, would have a material impact on Comdisco Ventures
liquidity and access to funds.
Many of the companies to which the company provides financing are dependent on
third parties for liquidity. Any significant change in the availability of funds
would have a material impact on the company's customer base, and, potentially,
its loan collectability, as well as, the fair market value of its equity
instruments.
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If companies with which Comdisco Ventures has effected transactions are not
successful or the markets become unfavorable, Comdisco Ventures' customers may
not be able to complete securities offering and Comdisco Ventures may not be
able to generate gains or receive proceeds from the sale of securities.
Fluctuations in future periods may be greater that those experienced in past
periods as a result of Ventures' focus on companies related to the Internet and
telecommunications. Furthermore, for those customers whose securities are not
publicly traded, the realizable value of Comdisco Ventures' interests may
ultimately prove to be lower than the carrying value currently reflected in the
consolidated and the separate Comdisco Ventures' financial statements.
In the past Comdisco Ventures financed its operations with cash flow from
operations and inter-group loans from Comdisco. Comdisco Ventures may need to
obtain funding from outside sources and may not be able to obtain funding from
outside sources. Furthermore, even if funding is available, such financing may
not be on terms as favorable as those obtained from Comdisco.
Comdisco Ventures depends on certain important employees and the loss of those
employees could harm and disrupt Ventures' business.
THE COMPANY'S PRISM SUBSIDIARY IS A START UP COMPANY WITH AN AGGRESSIVE BUSINESS
PLAN IN A NEW AND UNPROVEN INDUSTRY.
Prism is a start up company that has incurred operating losses since inception
and the company expects that Prism's operating losses will continue to increase
as it introduces its services throughout New York City and the Northeast
corridor. In addition, Prism will require substantial additional capital to
support its data network, to expand its services, to increase its sales and
marketing efforts and to support the 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 the company is unable to adjust operating expense levels and/or capital
expenditures of Prism accordingly, the company'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:
o its ability to successfully market its existing and planned services to
current and new customers;
o its ability to generate customer demand for its services in target markets;
o the development of its target market and market opportunities;
o market pricing for its services and for competing services;
o the extent of increasing competition;
o ability to acquire funds to expand its network;
o the ability of its equipment and service suppliers to meet its needs;
o trends in regulatory, legislative and judicial developments;
o its ability to manage growth of its operations;
o its ability to access regions and enter into suitable interconnection
agreements with traditional telephone companies;
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o 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;
o its ability to improve its technology infrastructure to respond to
technological change and new industry standards;
o 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;
o its ability to rapidly expand the geographic coverage of its services; o its
ability to attract, retain and motivate qualified persons; o its ability to
rapidly install high-speed access lines; o its ability to effectively manage
growth of operations; and o 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: o 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;
o the amount and timing of capital expenditures and other costs relating to the
expansion of its networks and the marketing of its services;
o 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;
o the ability to develop and commercialize new services by Prism or its
competitors; o the ability to deploy on a timely basis its services to
adequately satisfy end-user demand; o the ability to successfully operate its
networks; o the rate at which customers subscribe to its services; o decreases
in the prices for its services due to competition, volume-based pricing and
other factors; o the mix of line orders between consumer end-users, and business
end-users(which typically have higher margins);
o the success of its relationship with Williams, Nortel and other potential
strategic partners; o the development and operation of Prism's billing and
collection systems and other operational systems and processes;
o the rendering of accurate and verifiable bills by Prism's traditional
telephone suppliers and resolution of billing disputes;
o the incorporation of enhancements, upgrades and new software and hardware
products into its network and operation processes that may cause unanticipated
disruptions; and
o the interpretation and enforcement of regulatory developments and court
rulings concerning the 1996 Telecommunications Act, interconnection agreements
and the anti-trust laws.
ECONOMIC CONDITIONS AND OTHER FACTORS MAY NEGATIVELY IMPACT THE COMPANY'S
OPERATIONS
With respect to economic conditions, a recession can cause customers to put off
new investments and increase the company'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.
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Due to all of the foregoing factors, in some future quarter the company's
operating results may fall below the expectations of securities analysts and
investors. In such an event, the trading price of the company's common stock
would likely be materially and adversely affected.
The company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, further
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the company's market risk during the
three months ended March 31, 2000. For additional information, refer to page 33
of the company's Annual Report to Stockholders for the fiscal year ended
September 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
At a special meeting of stockholders on April 20, 2000, the company's
stockholders approved the company's tracking stock proposal, which authorized
the company to:
(1) amend and restate its current certificate of incorporation to:
o increase the total authorized shares of common stock from 750,000,000 to
1,800,000,000;
o authorize the board of directors to issue common stock in multiple series,
with the initial two series of common stock being Comdisco Stock and Ventures
Tracking Stock; and
o re-classify each outstanding share of existing common stock as one share of
Comdisco Stock.
(2) establish the Comdisco Ventures Management Incentive Plan.
(3) amend and restate its 1998 Long-Term Stock Ownership Incentive Plan,
its 1999 Non-Employee Directors Stock Option Plan and its U.S. Employee
Stock Purchase Plan to allow the company to issue Comdisco Stock,
Ventures Tracking Stock and any other series of common stock
subsequently designated by the board of directors under those plans.
The breakdown on the stockholder vote on the tracking stock proposal was as
follows:
For: 87,440,314
Against: 21,129,580
Abstentions: 234,363
The votes in favor of the proposal represented 57% of the total shares
outstanding at the record date.
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Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
3.01 Amended and Restated Certificate of Incorporation of
Registrant filed with the Secretary of State of Delaware
on May 4, 2000
3.02 By-Laws of Registrant dated November 4, 1997
Incorporated by reference to Exhibit 3.1 filed
with the company's Current Report on Form 8-K
dated November 12, 1997, as filed with the
Commission November 14, 1997 File No. 1-7725.
4.01 Indenture Agreement between Registrant and Citibank,
N.A., as Trustee dated as of June 15, 1992
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated September 1, 1992, as filed with the
Commission on September 2, 1992, File No. 1-7725,
the copy of Indenture, dated as of June 15, 1992,
between Registrant and Citibank, N.A., as Trustee
(said Indenture defines certain rights of
security holders).
4.02 Indenture Agreement between Registrant and Chemical
Bank, N.A., as Trustee, dated as of April 1, 1988
Incorporated by reference to Exhibit 4.5 filed
with the company's Form 8 dated February 21,
1991, File No. 1-7725, the copy of Indenture
dated as of April 1, 1988, between Registrant and
Manufacturers Hanover Trust Company (said
Indenture defines certain rights of security
holders).
4.03 First Supplemental Indenture between Registrant and
Chemical Bank, N.A., as Trustee, dated as of January 1,
1990
Incorporated by reference to Exhibit 4.8 filed
with the company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1990, File No.
1-7725, the copy of the First Supplemental
Indenture dated as of January 1, 1990, between
Registrant and Manufacturers Hanover Trust
Company, as Trustee (said Indenture defines
certain rights of security holders).
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Exhibit No. Description of Exhibit
4.04 Rights Agreement, dated as of November 17, 1997, between
the Registrant and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, which includes as Exhibit A
thereto the Certificate of Designation, Preferences and
Right of Series C Junior Participating Preferred Stock
and as Exhibit B thereto the Form of Rights Certificate.
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated November 5, 1997, as filed with the
Commission November 6, 1997 File No. 1-7725.
4.05 Indenture Agreement between Registrant and The Fuji
Bank and Trust Company, as Trustee, dated as of
February 1, 1995
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated May 15, 1995, as filed with the Commission
on May 15, 1995, File No. 1-7725, the copy of the
Indenture dated as of February 1, 1995 between
the Registrant and The Fuji Bank and Trust
Company, as Trustee (said Indenture defines
certain rights of security holders).
4.06 Indenture Agreement between Registrant and The Fuji
Bank and Trust Company, as Trustee, dated as of
December 15, 1998
Incorporated by reference to Exhibit 4.1 filed
with the company's Current Report on Form 8-K
dated January 19, 1999, as filed with the
Commission on January 20, 1999, File No. 1-7725,
the copy of the Indenture dated as of December
15, 1998 between the Registrant and The Fuji Bank
and Trust Company, as Trustee (said Indenture
defines certain rights of security holders).
4.07 Indenture Agreement between Registrant and SunTrust Bank
as Trustee, dated as of September 15, 1999
Incorporated by reference to Exhibit 4.1
filed with the company's Form 8-K dated
February 29, 2000, the copy of the Indenture
dated as of September 15, 1999 between the
Registrant and SunTrust Bank,as Trustee (said
Indenture defines certain rights of security
holders).
11.00 Computation of Earnings Per Share
12.00 Ratio of Earnings to Fixed Charges
27.00 Financial Data Schedule
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b) Reports on Form 8-K:
On March 9, 2000, the company filed a current report on Form
8-K, dated February 29, 2000 reporting Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits. The
filing contained exhibits relating to the company's Medium-Term
Notes, Series I.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDISCO, INC.
Registrant
Date: May 15, 2000 /s/ John J. Vosicky
-------------------
John J. Vosicky
Executive Vice President
and Chief Financial Officer
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMDISCO, INC.
Comdisco, Inc. (the "Corporation "), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware ( "DGCL
"), certifies:
FIRST. That the name under which the Corporation was originally incorporated was
Comdisco, Inc. and the date of filing of its original certificate of
incorporation was June 28, 1971.
SECOND. That, pursuant to Sections 242 and 245 of the DGCL, the Corporation's
Board of Directors and shareholders duly adopted this Amended and Restated
Certificate of Incorporation.
THIRD. The text of the Corporation's amended and restated certificate of
incorporation is hereby further amended and restated to read in full as follows:
1. The name of the Corporation is COMDISCO, INC.
2. The address of its registered office in the State of Delaware is No.
1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust
Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of,
trade, deal in and deal with goods, wares and merchandise and personal
property of every class and description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to
undertake or assume the whole or any part of the obligations or
liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United
States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and
trade names, relating to or useful in connection with any business of
this corporation.
To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares
of the capital stock, or any voting trust certificates in respect of
the shares of capital stock, scrip, warrants, rights, bonds,
debentures, notes, trust receipts, and other securities, obligations,
choses in action and evidences of indebtedness or interest issued or
created by any corporations, joint stock companies, syndicates,
associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign
government, or by any state, territory, province, municipality or
other political subdivision or by any governmental agency, and as
owner thereof to possess and exercise all the rights, powers and
privileges of ownership, including the right to execute consents and
vote thereon, or to do any and all acts and things necessary or
advisable for the preservation, protection, improvement and
enhancement in value thereof.
To borrow or raise moneys for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make,
accept, endorse, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or
non-negotiable instruments and evidences of indebtedness, and to
secure the payment of any thereof and of the interest thereon by
mortgage upon or pledge, conveyance or assignment in trust of the
whole or any part of the property of the corporation, whether at the
time owned or thereafter acquired, and to sell, pledge or otherwise
dispose of such bonds or other obligations of the corporation for its
corporate purposes.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with real or personal property, or any
interest therein, wherever situated, and to sell, convey, lease,
exchange, transfer or otherwise dispose of, or mortgage or pledge, all
or any of the corporation's property, assets, or any interest therein,
wherever situated.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law
of Delaware or by this Amended and Restated Certificate of
Incorporation together with any powers incidental thereto, so far as
such powers and privileges are necessary or convenient to the conduct,
promotion or attainment of the business or purposes of the
corporation.
The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted
by reference to, or inference from, the terms of any other clause in
this Amended and Restated Certificate of Incorporation, but the
business and purposes identified in each of the foregoing clauses of
this article shall be regarded as independent business and purposes.
4. Capital Stock. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 1,900,000,000 consisting
of (i) 1,800,000,000 shares of Common Stock, $0.10 par value per share
("Common Stock"), and (ii) 100,000,000 shares of Preferred Stock, $0.10 par
value per share ("Preferred Stock").
A. Common Stock.
1. Issuance of Common Stock in Series; Designation;
Reclassification.
Subject to the provisions of this Article 4(A) and
provisions of law, the Corporation shall have the authority
to issue shares of Common Stock in multiple series. One
series of Common Stock shall be designated as Comdisco Stock
("Comdisco Stock"). The second series of Common Stock shall
be designated as Comdisco Ventures Stock ("Ventures Stock").
When the filing of this Amended and Restated Certificate of
Incorporation becomes effective, each share of Common Stock
outstanding immediately prior thereto shall automatically be
reclassified as one share of Comdisco Stock (and outstanding
certificates that had theretofore represented shares of
Common Stock shall thereupon represent an equal number of
shares of Comdisco Stock despite the absence of any
indication thereon to that effect).
The total number of shares of Comdisco Stock which the
Corporation shall have the authority to issue shall
initially be 750,000,000, and the total number of shares of
Ventures Stock which the Corporation shall have the
authority to issue shall initially be 750,000,000. The Board
of Directors (or such committee of the Board of Directors as
the Board of Directors shall empower) is hereby empowered to
authorize by resolution or resolutions, an increase in the
number of authorized shares of Comdisco Stock or Ventures
Stock in (but not above a number for either series that,
when added to the number of authorized shares of all other
designated series of Common Stock would exceed the total
number of authorized shares of Common Stock) or a decrease
in the number of authorized shares of Comdisco Stock or
Ventures Stock (but not below the number of shares then
outstanding). The Board of Directors shall have the
authority to designate, prior to the time of the first
issuance of the Ventures Stock, the number which,
immediately prior to such first issuance, will constitute
the Number of Shares Issuable with Respect to Comdisco
Group's Retained Interest in Comdisco Ventures and any other
terms which are consistent with applicable law and the
provisions of this Article 4(A).
The Board of Directors (or such committee of the Board of
Directors as the Board of Directors shall empower) is hereby
empowered to authorize by resolution or resolutions from
time to time the issuance of one or more additional series
of Common Stock and to fix the designations, powers,
preferences and relative, participating, optional or other
rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to each series of
Common Stock and the number of shares constituting each such
series, and to increase or decrease the number of shares of
any such series to the extent permitted by the DGCL, as
amended from time to time.
2. Dividends.
(a) Dividends. Subject to the preferences and other terms of
any outstanding series of Preferred Stock, the holders of
any series of Common Stock shall be entitled to receive
dividends on their shares of Common Stock if, as, and when
declared by the Board of Directors out of the lesser of (i)
the funds of the Corporation legally available therefor or
(ii) the Available Dividend Amount for the Group to which
such series of Common Stock relates.
(b) Discrimination Between or Among Series of Common Stock.
Subject to paragraph (a) of Section 2 of this Article 4(A)
and subject to the preferences and other terms of any
outstanding series of Preferred Stock, the Corporation shall
have the authority to declare and pay dividends on a single
series of Common Stock, or one or more series of Common
Stock, in equal or unequal amounts, notwithstanding the
relative amounts of the Available Dividend Amount with
respect to any Group, the amount of assets available for
dividends on either series of Common Stock, the amount of
prior dividends paid on either series of Common Stock, the
respective voting rights of each series of Common Stock or
any other factor.
3. Mandatory Dividend, Redemption or Conversion on Disposition of
All or Substantially All of the Assets of a Group; Optional
Conversion of Comdisco Stock for Ventures Stock; Redemption of
Ventures Stock for Stock of a Subsidiary at the Corporation's
Option.
(a) Mandatory Dividend, Redemption or Conversion.
(i) In the event of a Disposition of All or
Substantially All of the Assets of a Group (other than
an Exempt Disposition), the Corporation shall, on or
before the 90th Trading Day after the Disposition Date,
provided that the funds of the Corporation are legally
available therefor, either:
(x) declare and pay a dividend to holders of the
series of Common Stock that relates to that Group
(in cash, securities (other than Common Stock) or
other property, or a combination thereof),
subject to the limitations on dividends set forth
under Section 2 of this Article 4(A), in an
aggregate amount having a Fair Value (determined
as of the Disposition Date) equal to the product
of the Outstanding Interest Fraction with respect
to such Group (determined as of the record date
for such dividend) and the Fair Value (determined
as of the Disposition Date) of the Net Proceeds
of such Disposition;
(y) redeem from holders of the series of Common
Stock that relates to the Group that consummated
such Disposition, in exchange for cash,
securities (other than Common Stock) or other
property (or a combination thereof) in an amount
equal to the product of the Outstanding Interest
Fraction with respect to such Group (determined
as of the redemption date) and the Fair Value
(determined as of the Disposition Date) of the
Net Proceeds of such Disposition, all of the
outstanding shares of such series of Common
Stock, unless such Disposition involves
substantially all, but not all, of the assets
attributed to such Group, in which case, a number
of shares of such series of Common Stock
(rounded, if necessary, to the nearest whole
number) having an aggregate average Market Value,
during the 20 consecutive Trading Day period
beginning on the 16th Trading Day following the
Disposition Date, equal to such amount; or
(z) if that Disposition relates to Comdisco
Ventures convert each outstanding share of
Ventures Stock into a number of shares of
Comdisco Stock (rounded, if necessary, to the
nearest whole number) equal to 115% of the ratio
of the average Market Value of one share of
Ventures Stock to the average Market Value of one
share of Comdisco Stock during the 20 consecutive
Trading Day period ending on (and including) the
fifth trading day prior to the first public
announcement immediately preceding the
Disposition Date).
(ii) For purposes of this Section 3 of this Article
4(A), if a Group consummates a Disposition in a series
of related transactions, such Disposition shall not be
deemed to have been completed until consummation of the
last of such transactions.
(b) Optional Conversion of Comdisco Stock for Ventures Stock
(i) The Corporation may, at any time, convert each
outstanding share of Ventures Stock into a number of
shares of Comdisco Stock (rounded, if necessary, to the
nearest whole number) equal to that percentage of the
ratio of the average Market Value of one share of
Ventures Stock to the average Market Value of one share
of Comdisco Stock (the "Applicable Percentage")
specified for the applicable conversion date below. The
average Market Value of a share of each series of
Common Stock shall be determined during the 20
consecutive Trading Day period ending on (and
including) the 5th Trading Day immediately preceding
the date on which the Corporation mails the notice of
conversion to holders of Ventures Stock.
If the Conversion Date The Applicable Percentage
Falls During the Will be the Percentage
Period Indicated Specified for
Below Such Period Below
---------------------- -------------------------
First Quarter 125%
Second Quarter 124%
Third Quarter 123%
Fourth Quarter 122%
Fifth Quarter 121%
Sixth Quarter 120%
Seventh Quarter 119%
Eighth Quarter 118%
Ninth Quarter 117%
Tenth Quarter 116%
After Tenth Quarter 115%
For purposes of the foregoing chart, (x) the first
"Quarter" is the period from and including the date of
first issuance of shares of Ventures Stock to but
excluding the third month anniversary of such date
(provided that, if the date of first issuance of shares
of Ventures Stock is the 29th, 30th or 31st day of any
month, the first "Quarter" will be the period from and
including such date of first issuance to but excluding
the third month anniversary of the first day of the
month immediately following the month in which such
date of first issuance falls) and (y) each subsequent
"Quarter" is the period from and including the day
after the end of the prior Quarter to but excluding the
third month anniversary of such day.
(ii) Notwithstanding the preceding paragraphs, if a Tax
Event has occurred, the Applicable Percentage shall
equal 110% irrespective of when the exchange occurs.
"Tax Event" means the receipt by the Corporation of an
opinion of a tax advisor experienced in such matters,
who shall not be an officer or employee of the
Corporation or any of its affiliates, to the effect
that, as a result of any amendment to, or change in,
the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority
thereof or therein (including any proposed change in
such regulations announced by an administrative
agency), or as a result of any official or
administrative pronouncement or action or judicial
decision interpreting or applying such laws or
regulations, it is more likely than not that for United
States federal income tax purposes (1) the Corporation,
its subsidiaries or affiliates or any of its successors
or its stockholders is or, at any time in the future,
will be subject to tax upon the issuance of shares of
either Comdisco Stock or Ventures Stock, (2) either
Comdisco Stock or Ventures Stock is not or, at any time
in the future, will not be treated solely as stock of
the Corporation or (3) either Comdisco Stock or
Ventures Stock is or will be treated as Section 306
stock under the Internal Revenue Code of 1986, as
amended. For purposes of rendering such opinion, a tax
advisor shall assume that any administrative proposals
will be adopted as proposed. However, in the event a
change in law is proposed, a tax advisor shall render
an opinion only in the event of enactment.
(c) Optional Redemption of Ventures Stock for Stock of a
Subsidiary.
At any time at which all of the assets and liabilities
of Comdisco Ventures (and no other assets or
liabilities of the Corporation or any subsidiary
thereof) are held directly or indirectly by one or more
subsidiaries of the Corporation (the "Group
Subsidiaries"), the Board of Directors may, provided
that there are funds of the Corporation legally
available therefor, declare that all of the outstanding
shares of Ventures Stock shall be redeemed, as of the
exchange date described below, for the number of fully
paid and nonassessable shares of common stock of each
of such Group Subsidiaries as is equal to the product
of the Outstanding Interest Fraction with respect to
Comdisco Ventures (determined as of the redemption
date) and the number of shares of common stock of each
such Group Subsidiary held by Comdisco immediately
before such exchange. Such shares of common stock of
such Group Subsidiaries may be delivered directly or
indirectly through the delivery of shares of one or
more of such Group Subsidiaries that own directly or
indirectly all of the other shares that are deliverable
pursuant to the preceding sentence.
(d) General Dividend, Conversion and Redemption Provisions.
(i) If the Corporation completes a Disposition of All
or Substantially All of the Assets of a Group (other
than an Exempt Disposition), the Corporation shall, not
more than the 20 Trading Days after the consummation of
such Disposition, issue a press release specifying (w)
the Net Proceeds of such Disposition, (x) the number of
shares of the series of Common Stock related to such
Group then outstanding, (y) the number of shares of
such series of Common Stock issuable upon conversion,
redemption or exercise of any convertible or
exchangeable securities, options or warrants and the
conversion, redemption or exercise prices thereof and
(z) if the Group is not Comdisco Group, the Number of
Shares Issuable with Respect to Comdisco Group's
Retained Interest in such Group. The Corporation shall,
not more than 40 Trading Days after such consummation,
announce by press release which of the actions
specified in Section 3(a)(i) of this Article 4(A) it
has determined to take, and upon making that
announcement, that determination will be irrevocable.
In addition, the Corporation shall, not more than 45
Trading Days after such consummation and not less than
30 Trading Days before the applicable payment date,
redemption date or conversion date, send a notice by
first-class mail, postage prepaid, to holders of the
relevant series of Common Stock at their addresses as
they appear on the transfer books of the Corporation,
specifying:
(1) if the Corporation has determined to pay a
special dividend, (A) the record date for such
dividend, (B) the payment date of such dividend
(which cannot be more than 90 Trading Days after
such consummation) and (C) the aggregate amount
and type of property to be paid in such dividend
(and the approximate per share amount thereof);
(2) if the Corporation has determined to
undertake a redemption, (A) the date of
redemption (which cannot be more than 90 Trading
Days after such consummation), (B) the aggregate
amount and type of property to be paid as a
redemption price (and the approximate per share
amount thereof), (C) if less than all shares of
the relevant series of Common Stock are to be
redeemed, the number of shares to be redeemed and
(D) the place or places where certificates for
shares of such series of Common Stock, properly
endorsed or assigned for transfer (unless the
Corporation waives such requirement), should be
surrendered in return for delivery of the cash,
securities or other property to be paid by the
Corporation in such redemption; and
(3) if the Corporation has determined to
undertake a conversion, (A) the date of
conversion (which cannot be more than 90 Trading
Days after such consummation), (B) the number of
shares of the other series of Common Stock to be
issued in the conversion for each outstanding
share of such series of Common Stock and (C) the
place or places where certificates for shares of
such series of Common Stock, properly endorsed or
assigned for transfer (unless the Corporation
waives such requirement), should be surrendered
in return for delivery of the other series of
Common Stock to be issued by the Corporation in
such conversion.
(ii) If the Corporation has determined to complete any
conversion described in Section 3(b) or (c) of this
Article 4(A), the Corporation shall, not less than 30
Trading Days and not more than 45 Trading Days before
the exchange date, send a notice by first-class mail,
postage prepaid, to holders of the relevant series of
Common Stock at their addresses as they appear on the
transfer books of the Corporation, specifying (x) the
conversion date and the other terms of the conversion
and (y) the place or places where certificates for
shares of such series of Common Stock, properly
endorsed or assigned for transfer (unless the
Corporation waives such requirement), should be
surrendered for delivery of the stock to be issued or
delivered by the Corporation in such conversion.
(iii) Neither the failure to mail any notice required
by this Section 3(d) of this Article 4(A) to any
particular holder nor any defect therein would affect
the sufficiency thereof with respect to any other
holder or the validity of any dividend, redemption or
conversion contemplated hereby.
(iv) If the Corporation is redeeming less than all of
the outstanding shares of a series of Common Stock
pursuant to Section 3(a)(i) of this Article 4(A), the
Corporation shall redeem such shares pro rata or by lot
or by such other method as the Board of Directors
determines to be equitable.
(v) No holder of shares of a series of Common Stock
being converted or redeemed shall be entitled to
receive any cash, securities or other property to be
distributed in such conversion or redemption until such
holder surrenders certificates for such shares,
properly endorsed or assigned for transfer, at such
place as the Corporation shall specify (unless the
Corporation waives such requirement). As soon as
practicable after the Corporation's receipt of
certificates for such shares, the Corporation shall
deliver to the person for whose account such shares
were so surrendered, or to the nominee or nominees of
such person, the cash, securities or other property to
which such person shall be entitled, together with any
fractional payment referred to below, in each case
without interest. If less than all of the shares of
Common Stock represented by any one certificate is
converted or redeemed, the Corporation shall also issue
and deliver a new certificate for the shares of such
Common Stock not converted or redeemed.
(vi) The Corporation shall not be required to issue or
deliver fractional shares of any capital stock or any
other fractional securities to any holder of Common
Stock upon conversion, redemption, dividend or other
distribution described above. If more than one share of
Common Stock shall be held at the same time by the same
holder, the Corporation may aggregate the number of
shares of any capital stock that would be issuable or
any other securities that would be distributable to
such holder upon any such conversion, redemption,
dividend or other distribution. If there are fractional
shares of any capital stock or any other fractional
securities remaining to be issued or distributed to any
holder, the Corporation shall, if such fractional
shares or securities are not issued or distributed to
such holder, pay cash in respect of such fractional
shares or securities in an amount equal to the Fair
Value thereof (without interest).
(vii) From and after the date set for any conversion or
redemption contemplated by this Section 3 of this
Article 4(A), all rights of a holder of shares of
Common Stock being converted or redeemed shall cease
except for the right, upon surrender of the
certificates theretofore representing such shares, to
receive the cash, securities or other property for
which such shares were converted or redeemed, together
with any fractional payment as provided above, in each
case without interest (and, if such holder was a holder
of record as of the close of business on the record
date for a dividend not yet paid, the right to receive
such dividend). A holder of shares of Common Stock
being converted shall not be entitled to receive any
dividend or other distribution with respect to shares
of the other series of Common Stock until after
certificates theretofore representing the shares being
converted are surrendered as contemplated above. Upon
such surrender, the Corporation shall pay to the holder
the amount of any dividends or other distributions
(without interest) which theretofore became payable
with respect to a record date occurring after the
conversion, but which were not paid by reason of the
foregoing, with respect to the number of whole shares
of the other series of Common Stock represented by the
certificate or certificates issued upon such surrender.
From and after the date set for any conversion, the
Corporation shall, however, be entitled to treat the
certificates for shares of a series of Common Stock
being converted that were not yet surrendered for
conversion as evidencing the ownership of the number of
whole shares of the other series of Common Stock for
which the shares of such Common Stock should have been
converted, notwithstanding the failure to surrender
such certificates.
(viii) The Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes
that might be payable in respect of the issue or
delivery of any shares of capital stock and/or other
securities on any conversion or redemption contemplated
by this Section 3; provided, however, that the
Corporation shall not be required to pay any tax that
might be payable in respect of the issue or delivery of
any shares of capital stock and/or other securities on
any conversion or redemption contemplated by this
Section 3; provided, however, that the Corporation
shall not be required to pay any tax that might be
payable in respect of any transfer involved in the
issue or delivery of any shares of capital stock and/or
other securities in a name other than that in which the
shares so converted or redeemed were registered, and no
such issue or delivery will be made unless and until
the person requesting such issue pays to the
Corporation the amount of any such tax, or establishes
to the satisfaction of the Corporation that such tax
has been paid.
(ix) The Corporation may, subject to applicable law,
establish such other rules, requirements and procedures
to facilitate any dividend, redemption or conversion
contemplated by this Section 3 as the Board of
Directors may determine to be appropriate under the
circumstances.
4. Voting Rights.
At every meeting of stockholders, the holders of Comdisco
Stock and the holders of Ventures Stock shall vote together
as a single class on all matters as to which common
stockholders generally are entitled to vote, unless a
separate vote is required by applicable law. On all such
matters for which no separate vote is required, (a) holders
of Comdisco Stock shall be entitled to one vote per share of
Comdisco Stock held and (b) before the 31st Trading Day
after the Effective Date, holders of Ventures Stock shall be
entitled to one vote per share of Ventures Stock held. On
and after the 31st Trading Day after the Effective Date,
holders of Ventures Stock shall be entitled to a number of
votes per share of Ventures Stock held (calculated to the
nearest five decimal places) equal to the Average Market
Value of one share of Ventures Stock divided by the Average
Market Value of one share of Comdisco Stock during the 20
Trading Day period ending on (and including) the applicable
record date; provided that, in no event, shall the total
number of votes of all outstanding Ventures Stock exceed 35%
of the total number of votes of all outstanding series of
Common Stock.
5. Liquidation Rights.
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, holders of
each series of Common Stock shall be entitled to receive
their proportionate interests in the net assets of the
Corporation, if any, remaining for distribution to
stockholders, after payment of or provision for all
liabilities, including contingent liabilities of the
Corporation and payment of the liquidation preference
payable to any holders of the Corporation's Preferred Stock,
if any such stock is outstanding. Each share of each series
of Common Stock will be entitled to a share of net
liquidation proceeds in proportion to the respective
liquidation units per share of such class. Each share of
Comdisco Stock shall have one liquidation unit. Each share
of the other series of Common Stock shall have a number of
liquidation units (including a fraction of one liquidation
unit) equal to the quotient (rounded to the nearest five
decimal places) of the average Market Value of one share of
such series of Common Stock during the 20 consecutive
Trading Day period ending on, and including, the 300th day
after the Effective Date, divided by the average Market
Value of one share of Comdisco Stock during such 20 Trading
Day period. If the liquidation, dissolution, or winding-up
of the Corporation occurs before such 300th day, the average
Market Value will be determined based on the 20 consecutive
Trading Day period ending immediately before the
liquidation, dissolution, or winding-up event, or such
lesser number of consecutive Trading Days immediately prior
to such event if the liquidation, dissolution, or winding-up
event occurs prior to the 21st Trading Day after the
Effective Date.
Neither the merger nor consolidation of the Corporation with
any other entity, nor a sale, transfer or lease of all or
any part of the assets of the Corporation, would, alone, be
deemed a liquidation, dissolution or winding-up for purposes
of this Section 5 of this Article 4(A).
6. Adjustments to Number of Shares Issuable with Respect to
Comdisco Group's Retained Interest in Any Group.
The Number of Shares Issuable with Respect to Comdisco
Group's Retained Interest in any Group, as in effect from
time to time, shall, automatically without action by the
Board of Directors or any other person, be:
(a) adjusted in proportion to any changes in the number
of outstanding shares of the series of Common Stock
related to such Group caused by subdivisions (by stock
split, reclassification or otherwise) or combinations
(by reverse stock split, reclassification or otherwise)
of shares of such series of Common Stock or by
dividends or other distributions of shares of such
series of Common Stock on shares of such series of
Common Stock (and, in each such case, rounded, if
necessary, to the nearest whole number);
(b) decreased by (i) if the Corporation issues any
shares of the series of Common Stock related to such
Group and the Board of Directors attributes that
issuance (and the proceeds thereof) to Comdisco Group,
the number of shares of each series of Common Stock so
issued, and (ii) if the Board of Directors reallocates
to Comdisco Group any cash or other assets theretofore
allocated to such Group in connection with a redemption
of shares of the series of Common Stock related to such
Group (as required pursuant to clause (ii) of the
proviso to the definition of Comdisco Group below) or
in return for a decrease in the Number of Shares
Issuable with Respect to Comdisco Group's Retained
Interest in such Group, the number (rounded, if
necessary, to the nearest whole number) equal to (x)
the aggregate Fair Value of such cash or other assets
divided by (y) the Market Value of one share of the
series of Common Stock related to such Group as of the
date of such reallocation; and
(c) increased by (i) if the Corporation repurchases any
shares of the series of Common Stock related to such
Group and the Board of Directors attributes that
repurchase (and the consideration therefor) to Comdisco
Group, the number of shares of such series of Common
Stock so repurchased and (ii) if the Board of Directors
re-allocates to such Group any cash or other assets
theretofore allocated to Comdisco Group in return for
an increase in the Number of Shares Issuable with
Respect to Comdisco Group's Retained Interest in such
Group, the number (rounded, if necessary, to the
nearest whole number) equal to (x) the Fair Value of
such cash or other assets divided by (y) the Market
Value of one share of the series of Common Stock
related to such Group as of the date of such
re-allocation.
Neither the Corporation nor the Board of Directors shall
take any action that would, as a result of any of the
foregoing adjustments, reduce the Number of Shares Issuable
with Respect to Comdisco Group's Retained Interest in any
Group to below zero. Subject to the preceding sentence, the
Board of Directors may attribute the issuance of any shares
of any series of Common Stock (and the proceeds here from)
or the repurchase of any series of Common Stock (and the
consideration therefor) to Comdisco Group and Delivery or to
the Group to which such series of Common Stock relates, as
the Board of Directors determines in its sole discretion;
provided, however, that the Board of Directors must
attribute to Comdisco Group the issuance of any shares of
any series of Common Stock that are issued (1) as a dividend
or other distribution on, or as consideration for the
repurchase of, shares of Comdisco Stock or (2) as
consideration to acquire any assets or satisfy any
liabilities attributed to Comdisco Group.
7. Additional Definitions.
As used in this Article 4, the following terms shall have
the following meanings (with terms defined in singular
having comparable meaning when used in the plural and vice
versa), unless the context otherwise requires:
"ALL OR SUBSTANTIALLY ALL OF THE ASSETS" of any Group means
a portion of such assets that represents at least 80% of the
then current Fair Value of the assets of such Group.
"AVAILABLE DIVIDEND AMOUNT" for Comdisco Group, on any day
on which dividends are paid on shares of Comdisco Stock, is
the amount that would, immediately prior to the payment of
such dividends, be legally available for the payment of
dividends on shares of Comdisco Stock under Delaware law if
(a) Comdisco Group and each other Group were each a single,
separate Delaware corporation, (b) Comdisco Group had
outstanding (i) a number of shares of common stock, par
value $0.10 per share, equal to the number of shares of
Comdisco Stock that are then outstanding and (ii) a number
of shares of preferred stock, par value $0.10 per share,
equal to the number of shares of Preferred Stock that have
been attributed to Comdisco Group and are then outstanding,
(c) the assumptions about each Group that is not Comdisco
Group set forth in the next sentence were true and (d)
Comdisco Group owned a number of shares of each series of
Common Stock (other than Comdisco Stock) equal to the Number
of Shares Issuable with Respect to Comdisco Group's Retained
Interest in each Group to which each such series of Common
Stock relates.
"AVAILABLE DIVIDEND AMOUNT" for any Group other than
Comdisco Group, on any day on which dividends are paid on
shares of the series of Common Stock relating to such Group,
is the amount that would, immediately prior to the payment
of such dividends, be legally available for the payment of
dividends on shares of such series of Common Stock under
Delaware law if such Group were a single, separate Delaware
corporation having outstanding (a) a number of shares of
common stock, par value $0.10 per share, equal to the number
of shares of such series of Common Stock that are then
outstanding plus the Number of Shares Issuable with Respect
to Comdisco Group's Retained Interest in such Group and (b)
a number of shares of preferred stock, par value $0.10 per
share, equal to the number of shares of Preferred Stock that
have been attributed to such Group and are then outstanding.
"COMDISCO GROUP" means (a) all of the businesses, assets and
liabilities of the Corporation and its subsidiaries, other
than the businesses, assets and liabilities that are part of
any Group other than Comdisco Group, (b) the rights and
obligations of Comdisco Group under any inter-Group debt
deemed to be owed to or by Comdisco Group (as such rights
and obligations are defined in accordance with policies
established from time to time by the Board of Directors) and
(c) a proportionate interest in any Group other than
Comdisco Group (after giving effect to any options,
Preferred Stock, other securities or debt issued or incurred
by the Corporation and attributed to any Group other than
Comdisco Group) equal to the Retained Interest Percentage;
provided, however, that: (i) the Corporation may re-allocate
assets from one Group to another Group in return for other
assets or services rendered by that other Group in the
ordinary course of business or in accordance with policies
established by the Board of Directors from time to time, and
(ii) if the Corporation transfers cash, other assets or
securities to holders of shares of a series of Common Stock
other than Comdisco Stock as a dividend or other
distribution on shares of such series of Common Stock (other
than a dividend or distribution payable in shares of such
series of Common Stock), or as payment in a redemption
required by Section (3)(a) of this Article 4(A), then the
Board of Directors shall re-allocate from such Group to
Comdisco Group cash or other assets having a Fair Value
equal to the aggregate Fair Value of the cash, other assets
or securities so transferred times the Retained Interest
Amount with respect to such Group as of the record date for
such dividend or distribution, or on the date of such
redemption, as the case may be.
"COMDISCO VENTURES" means (a) the venture financing business
division of the Corporation; and all of the businesses,
assets and liabilities of the Corporation and its
subsidiaries that the Board of Directors has, as of the
Effective Date, allocated to Comdisco Ventures for
accounting purposes, (b) any assets or liabilities acquired
or incurred by the Corporation or any of its subsidiaries
after the Effective Date in the ordinary course of business
and attributable to Comdisco Ventures, (c) any businesses,
assets or liabilities acquired or incurred by the
Corporation or any of its subsidiaries after the Effective
Date that the Board of Directors has specifically allocated
to Comdisco Ventures or that the Corporation otherwise
allocates to Comdisco Ventures in accordance with policies
established from time to time by the Board of Directors and
(d) the rights and obligations of Comdisco Ventures under
any inter-Group debt deemed to be owed to or by Comdisco
Ventures (as such rights and obligations are defined in
accordance with policies established from time to time by
the Board of Directors); provided, however, that:
(i) the Corporation may re-allocate assets from one
Group to another Group in return for other assets or
services rendered by that other Group in the ordinary
course of business or in accordance with policies
established by the Board of Directors from time to
time, and (ii) if the Corporation transfers cash, other
assets or securities to holders of shares of Ventures
Stock as a dividend or other distribution on shares of
Ventures Stock (other than a dividend or distribution
payable in shares of Ventures Stock), or as payment in
a redemption of shares of Ventures Stock required by
Section 3(a) of this Article 4(A), then the Board of
Directors shall re-allocate from Comdisco Ventures to
Comdisco Group cash or other assets having a Fair Value
equal to the aggregate Fair Value of the cash, other
assets or securities so transferred multiplied by a
fraction, the numerator of which shall equal the Number
of Shares Issuable with Respect to Comdisco Group's
Retained Interest in such Group on the record date for
such dividend or distribution, or on the date of such
redemption, and the denominator of which shall equal
the number of shares of such Group outstanding on such
date.
"DISPOSITION" means a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or
otherwise) of All or Substantially All of the Assets of a
Group to one or more persons or entities, in one transaction
or a series of related transactions.
"DISPOSITION DATE" is the date of the consummation of a
Disposition.
"EFFECTIVE DATE" means the date on which this Amended and
Restated Certificate of Incorporation becomes effective
under Delaware law.
"EXEMPT DISPOSITION" means any of the following:
(a) Disposition in connection with the liquidation,
dissolution or winding-up of the Corporation and the
distribution of assets to stockholders, (b) a
Disposition to any person or entity controlled by the
Corporation (as determined by the Board of Directors in
its sole discretion), (c) a Disposition by any Group
for which the Corporation receives consideration
primarily consisting of equity securities (including,
without limitation, capital stock of any kind,
interests in a general or limited partnership,
interests in a limited liability company or debt
securities convertible into or exchangeable for, or
options or warrants to acquire, any of the foregoing,
in each case without regard to the voting power or
other management or governance rights associated
therewith) of an entity which is primarily engaged or
proposes to engage primarily in one or more businesses
similar or complementary to businesses conducted by
such Group prior to the Disposition, as determined by
the Board of Directors in its sole discretion, (d) a
dividend, out of any Group's assets, to holders of
series of Common Stock related to such Group and a
re-allocation of a corresponding amount of such Group's
assets to Comdisco Group as required pursuant to clause
(ii) of the proviso to the definition of Comdisco Group
above, (e) a dividend, out of Comdisco Group's assets,
to holders of Comdisco Stock and (f) any other
Disposition, if (i) at the time of the Disposition
there are no shares of Comdisco Stock outstanding, (ii)
at the time of the Disposition there are no shares of
the series of Common Stock relating to the Group that
consummated such Disposition outstanding or (iii)
before the 30th Trading Day following the Disposition
the Corporation has mailed a notice stating that it is
exercising its right to exchange all of the outstanding
shares of the series of Common Stock relating to the
Group that consummated such Disposition for newly
issued shares of Comdisco Stock as contemplated under
Section 3(b) of this Article 4(A).
"FAIR VALUE" means (a) in the case of cash, the amount
thereof, (b) in the case of capital stock that has been
Publicly Traded for a period of at least 15 months, the
Market Value thereof and (c) in the case of other assets or
securities, the fair market value thereof as the Board of
Directors shall determine in good faith (which determination
shall be conclusive and binding on all stockholders).
"GROUP" initially means Comdisco Group or Comdisco Ventures;
provided that if the Board of Directors authorizes the
issuance of shares of a series of Common Stock other than
Comdisco Stock or Ventures Stock, the Board of Directors
shall designate the assets and liabilities of Comdisco Group
to which such series of Common Stock relates, which assets
and liabilities shall be an additional "Group" for all
purposes of this Article 4.
"MARKET VALUE" of a share of any class or series of capital
stock on any Trading Day means the average of the high and
low reported sales prices of such class or series on such
Trading Day or, in case no such reported sale takes place on
such Trading Day, the average of the reported closing bid
and asked prices regular way of a share of such class or
series on such Trading Day, in either case as reported on
the New York Stock Exchange ("NYSE") Composite Tape or, if
the shares of such class or series are not listed or
admitted to trading on the NYSE on such Trading Day, on the
principal national securities exchange on which the shares
of such class or series are listed or admitted to trading
or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on The Nasdaq
National Market System of the Nasdaq Stock Market ("NASDAQ
NMS") or, if the shares of such class or series are not
listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq NMS on such Trading Day,
the average of the closing bid and asked prices of a share
of such class or series in the over-the-counter market on
such Trading Day as furnished by any NYSE member firm
selected from time to time by the Corporation or, if such
closing bid and asked prices are not made available by any
such NYSE member firm on such Trading Day, the fair market
value of a share of such class or series as the Board of
Directors shall determine in good faith (which determination
shall be conclusive and binding on all stockholders);
provided, that, for purposes of determining the average
Market Value of a share of any class or series of capital
stock for any period, (a) the "Market Value" of a share of
any class or series of capital stock on any day prior to any
"ex-dividend" date or any similar date occurring during such
period for any dividend or distribution (other than any
dividend or distribution contemplated by clause (b)(ii) of
this sentence) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution and (b) the
"Market Value" of a share of any class or series of capital
stock on any day prior to (i) the effective date of any
subdivision (by stock split or otherwise) or combination (by
reverse stock split or otherwise) of outstanding shares of
such class or series of capital stock occurring during such
period or (ii) any "ex-dividend" date or any similar date
occurring during such period for any dividend or
distribution with respect to such capital stock to be made
in shares of such class or series of capital stock shall be
appropriately adjusted, as determined by the Board of
Directors, to reflect such subdivision, combination,
dividend or distribution; and provided further, if (a) the
Corporation repurchases outstanding shares of any series
Common Stock other than Comdisco Stock and the Board of
Directors attributes that repurchase (and the consideration
therefor) to the Group to which such series of Common Stock
relates and (b) the Board of Directors determines to
re-allocate to Comdisco Group cash or other assets
theretofore allocated to the Group to which such series of
Common Stock relates in order to avoid a change in the
Retained Interest Percentage, the "Market Value" of a share
any series Common Stock other than Comdisco Stock used to
compute the corresponding reduction in the Number of Shares
Issuable with Respect to Comdisco Group's Retained Interest
in the Group to which such series of Common Stock relates
will equal the Fair Value of the consideration paid per
share of Common Stock so repurchased; and provided further,
if the Corporation redeems a portion of the outstanding
shares of any of series of Common Stock other than Comdisco
Stock (and the Board of Directors re-allocates to Comdisco
Group cash or other assets theretofore allocated to the
Group to which such series of Common Stock relates in the
manner required by clause (ii) of the proviso to the
definition of Comdisco Group above), the "Market Value" of a
share of such series of Common Stock used to compute the
corresponding reduction in the Number of Shares Issuable
with Respect to Comdisco Group's Retained Interest in the
Group to which such series of Common Stock relates will
equal the Fair Value of the consideration paid per share of
such series of Common Stock so redeemed.
"NET PROCEEDS" of a Disposition of any of the assets of a
Group means the positive amount, if any, remaining from the
gross proceeds of such Disposition after any payment of, or
reasonable provision (as determined in good faith by the
Board of Directors, which determination will be conclusive
and binding on all stockholders) for, (a) any taxes payable
by the Corporation or any subsidiary or affiliate thereof in
respect of such Disposition or which would have been payable
but for the utilization of tax benefits attributable to the
Group not the subject of the Disposition, (b) any taxes
payable by the Corporation in respect of any resulting
dividend or redemption, (c) any transaction costs,
including, without limitation, any legal, investment banking
and accounting fees and expenses and (d) any liabilities
(contingent or otherwise) of, attributed to or related to,
such Group, including, without limitation, any liabilities
for deferred taxes or any indemnity or guarantee obligations
which are outstanding or incurred in connection with the
Disposition or otherwise, any liabilities for future
purchase price adjustments and any obligations with respect
to outstanding securities (other than Common Stock)
attributed to such Group as determined in good faith by the
Board of Directors.
"NUMBER OF SHARES ISSUABLE WITH RESPECT TO COMDISCO GROUP'S
RETAINED INTEREST" means, with respect to any Group,
initially the number the Board of Directors designates prior
to the time the Corporation first issues shares of the
series of Common Stock applicable to such Group as the
number of shares of such series of Common Stock that could
be issued by the Corporation for the account of Comdisco
Group in respect of its retained interest in such Group, as
authorized by Section 1 of this Article 4(A); provided,
however, that such number as in effect from time to time
shall automatically be adjusted as required by Section 6 of
this Article 4(A).
"OUTSTANDING INTEREST FRACTION" means (i) with respect to
Comdisco Group, at any time of determination, and (ii) with
respect to any other Group, at any time of determination, a
fraction the numerator of which shall be the number of
shares of the series of Common Stock applicable to such
Group outstanding on such date and the denominator of which
shall be the sum of the number of shares of the series of
Common Stock applicable to such Group outstanding on such
date and the Number of Shares Issuable with Respect to
Comdisco Group's Retained Interest in such Group.
"PUBLICLY TRADED" with respect to any security means (a)
registered under Section 12 of the Securities Exchange Act
of 1934, as amended (or any successor provision of law), and
(b) listed for trading on the NYSE (or any other national
securities exchange registered under Section 7 of the
Securities Exchange Act of 1934, as amended (or any
successor provision of law)) or listed on the Nasdaq NMS (or
any successor market system).
"RETAINED INTEREST" means with respect to any Group, other
than Comdisco Group, at any time of determination, a
fraction the numerator of which shall be the Number of
Shares Issuable with Respect to Comdisco Group's Retained
Interest in such Group and the denominator of which shall be
the number of shares of the series of common stock relating
to such Group outstanding on such date.
"RETAINED INTEREST PERCENTAGE" means (i) with respect to
Comdisco Group, at any time of determination, one (1) and
(ii) with respect to any Group that is not Comdisco Group,
at any time of determination, a fraction the numerator of
which shall be the Number of Shares Issuable with Respect to
Comdisco Group's Retained Interest in such Group and the
denominator of which shall be the sum of the number of
shares of the series of common stock applicable to such
Group outstanding on such date and the Number of Shares
Issuable with Respect to Comdisco Group's Retained Interest
in such Group.
"TRADING DAY" means each weekday on which the relevant
security (or, if there are two relevant securities, each
relevant security) is traded on the principal national
securities exchange on which it is listed or admitted to
trading or on the Nasdaq NMS or, if such security is not
listed or admitted to trading on a national securities
exchange or quoted on the Nasdaq NMS, traded in the
principal over-the-counter market in which it trades.
8. Effectiveness of Sections 2 through 7 of This Article 4(A).
The terms of Sections 2 through 7, inclusive, of this
Article 4 (A) shall apply only when there are shares of
multiple series of Common Stock outstanding.
9. Determinations by the Board of Directors.
Subject to applicable law, any determinations made by the
Board of Directors in good faith under this Amended and
Restated Certificate of Incorporation, as it may be amended
from time to time, including without limitation any such
determinations with respect to the businesses, assets and
liabilities of either Group, transactions between the Groups
or the rights of holders of any series of Common Stock or
Preferred Stock made pursuant to or in the furtherance
hereof, shall be final and binding on all stockholders of
the Corporation. A record of all formal determinations of
the Board of Directors made as contemplated hereby shall be
filed with the records of the actions of the Board of
Directors.
B. Preferred Stock.
1. Designation. The Preferred Stock shall be designated and
known as "Preferred Stock." The number of shares constituting
such Preferred Stock shall be 100,000,000.
2. Rights and Preferences. Preferred Stock may be issued from
time to time in one or more series, each of such series to have
such terms as stated or expressed herein and in the resolution or
resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided.
Any shares of Preferred Stock, which may be redeemed, purchased
or acquired by the Corporation, may be reissued except as
otherwise provided by law. Different series of Preferred Stock
shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors
from time to time to issue the Preferred Stock in one or more
series, and in connection with the creation of any such series,
by resolution or resolutions providing for the issue of the
shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including
without limitation thereof, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be
stated and expressed in such resolutions, all to the full extent
now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the
resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series
to the extent permitted by law. Except as otherwise provided in
this Amended and Restated Certificate of Incorporation, no vote
of the holders of the Preferred Stock or Common Stock shall be a
prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with
the conditions of this Amended and Restated Certificate of
Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the
Corporation.
C. Designation of Series C Junior Participating Preferred Stock
1. Designation and Amount. Two Hundred Thousand (200,000) of the
authorized and unissued shares of Preferred Stock are designated
as "Series C Junior Participating Preferred Stock." Such number
of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the
number of shares of Series C Preferred Stock to a number less
than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into
Series C Junior Participating Preferred Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series C Junior Participating
Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in
cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series C Junior
Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (x)
$1.00 or (y) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Comdisco Stock or a subdivision of the outstanding
shares of Comdisco Stock (by reclassification or otherwise),
declared on the Comdisco Stock of the Corporation since the
immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share
of Series C Junior Participating Preferred Stock. In the
event the Corporation shall at any time after the date that
these Restated and Amended Articles of Incorporation become
effective (the "Rights Declaration Date") (i) declare any
dividend on Comdisco Stock payable in shares of Comdisco
Stock, (ii) subdivide the outstanding Comdisco Stock, or
(iii) combine the outstanding Comdisco Stock into a smaller
number of shares, then in each such case the amount to which
holders of shares of Series C Junior Participating Preferred
Stock were entitled immediately prior to such event under
clause (y) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which
is the number of shares of Comdisco Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Comdisco Stock that were outstanding
immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series C Junior Participating Preferred Stock as
provided in Paragraph (a) above immediately after it
declares a dividend or distribution on the Comdisco Stock
(other than a dividend payable in shares of Comdisco Stock);
provided that, in the event no dividend or distribution
shall have been declared on the Comdisco Stock during the
period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend
of $0.01 per share on the Series C Junior Participating
Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series C Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series C
Junior Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series C Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series C Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
The Board of Directors may fix a record date for the
determination of holders of shares of Series C Junior
Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the
payment thereof.
3. Voting Rights. The holders of shares of Series C Junior
Participating Preferred Stock shall have the following voting
rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series C Junior Participating Preferred
Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend
on Comdisco Stock payable in shares of Comdisco Stock, (ii)
subdivide the outstanding Comdisco Stock, or (iii) combine
the outstanding Comdisco Stock into a smaller number of
shares, then in each such case the number of votes per share
to which holders of shares of Series C Junior Participating
Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of
Comdisco Stock outstanding immediately after such event and
the denominator of which is the number of shares of Comdisco
Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series C Junior Participating Preferred
Stock and the holders of shares of Comdisco Stock shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) (i) If at any time dividends on any Series C Junior
Participating Preferred Stock shall be in arrears in an
amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series C Junior
Participating Preferred Stock then outstanding shall have
been declared and paid or set apart for payment. During each
default period, all holders of Preferred Stock (including
holders of the Series C Junior Participating Preferred
Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two
(2) directors.
(ii) During any default period, such voting right of the
holders of Series C Junior Participating Preferred Stock may
be exercised initially at a special meeting called pursuant
to subparagraph (iii) of this Section 3(c) of this Article
4(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that
such voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the
right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then
exist up to two (2) directors or, if such right is exercised
at an annual meeting, to elect two (2) directors. If the
number which may be so elected at any special meeting does
not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase
in the number of directors as shall be necessary to permit
the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their
right to elect directors in any default period and during
the continuance of such period, the number of directors
shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or
pari passu with the Series C Junior Participating Preferred
Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their
right to elect directors, the Board of Directors may order,
or any stockholder or stockholders owning in the aggregate
not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of special meeting of the
holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary
of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to
vote pursuant to this subparagraph (iii) shall be given to
each holder of record of Preferred Stock by mailing a copy
of such notice to him or her at his or her last address as
the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this subparagraph (iii),
no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of
directors until the holders of Preferred Stock shall have
exercised their right to elect two (2) directors voting as a
class, after the exercise of which right (x) the directors
so elected by the holders of Preferred Stock shall continue
in office until their successors shall have been elected by
such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as
provided in Paragraph (ii) of this Section 3(c) of this
Article 4(C)) be filled by vote of a majority of the
remaining directors theretofore elected by the holders of
the class of stock which elected the director whose office
shall have become vacant. References in this Paragraph (c)
to directors elected by the holders of a particular class of
stock shall include directors elected by such directors to
fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to
elect directors shall cease, (y) the term of any directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of directors shall be such
number as may be provided for in the Amended and Restated
Certificate of Incorporation or by-laws irrespective of any
increase made pursuant to the provisions of Paragraph
(c)(ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law
or in the Amended and Restated Certificate of Incorporation
or by-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the
remaining directors.
(d) Except as set forth herein, holders of Series C Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series C Junior Participating
Preferred Stock as provided in Section 2 of this Article
4(C) are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared,
on shares of Series C Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Junior
Participating Preferred Stock, except dividends paid
ratably on the Series C Junior Participating Preferred
Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total
amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Junior
Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series C
Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series C Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with
the Series C Junior Participating Preferred Stock,
except in accordance with a purchase offer made in
writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in
fair and equitable treatment among the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under Paragraph (a) of this Section 4
of this Article 4(C), purchase or otherwise acquire such
shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series C Junior Participating
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior
Participating Preferred Stock unless, prior thereto, the
holders of shares of Series C Junior Participating Preferred
Stock shall have received an amount equal to 1,000 times the
Purchase Price, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series C
Liquidation Preference"). Following the payment of the full
amount of the Series C Liquidation Preference, no additional
distributions shall be made to the holders of shares of
Series C Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Comdisco Stock shall have
received an amount per share (the "Comdisco Adjustment")
equal to the quotient obtained by dividing (i) the Series C
Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in subparagraph (C) below to reflect
such events as stock splits, stock dividends and
recapitalizations with respect to the Comdisco Stock) (such
number in clause (ii), the "Comdisco Adjustment Number").
Following the payment of the full amount of the Series C
Liquidation Preference and the Comdisco Adjustment in
respect of all outstanding shares of Series C Junior
Participating Preferred Stock and Comdisco Stock,
respectively, holders of Series C Junior Participating
Preferred Stock and holders of shares of Comdisco Stock
shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the
Comdisco Adjustment Number to 1 with respect to such
Preferred Stock and Comdisco Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series C
Liquidation Preference and the liquidation preferences of
all other series of preferred stock, if any, which rank on a
parity with the Series C Junior Participating Preferred
Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to
permit payment in full of the Comdisco Adjustment, then such
remaining assets shall be distributed ratably to the holders
of Comdisco Stock.
(c) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Comdisco
Stock payable in shares of Comdisco Stock, (ii) subdivide
the outstanding Comdisco Stock, or (iii) combine the
outstanding Comdisco Stock into a smaller number of shares,
then in each such case the Comdisco Adjustment Number in
effect immediately prior to such event shall be adjusted by
multiplying such Comdisco Adjustment Number by a fraction
the numerator of which is the number of shares of Comdisco
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Comdisco
Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter
into any consolidation, merger, combination or other transaction
in which the shares of Comdisco Stock are exchanged for or
changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series C Junior
Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which
or for which each share of Comdisco Stock is changed or
exchanged. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Comdisco
Stock payable in shares of Comdisco Stock, (ii) subdivide the
outstanding Comdisco Stock, or (iii) combine the outstanding
Comdisco Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series C Junior
Participating Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Comdisco Stock outstanding immediately after such event
and the denominator of which is the number of shares of Comdisco
Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series C Junior Participating
Preferred Stock shall not be redeemable.
9. Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in
any manner which would materially alter or change the powers,
preferences or special rights of the Series C Junior
Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series C Junior Participating
Preferred Stock, voting separately as a class.
10. Fractional Shares. Series C Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holders fractional shares, to
exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of
holders of Series C Junior Participating Preferred Stock.
D. Designation of Series D Junior Participating Preferred Stock
1. Designation and Amount. Two Hundred Thousand (200,000) of the
authorized and unissued shares of Preferred Stock are designated
as "Series D Junior Participating Preferred Stock." Such number
of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the
number of shares of Series D Preferred Stock to a number less
than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into
Series D Junior Participating Preferred Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series D Junior Participating
Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in
cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series D Junior
Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (x)
$1.00 or (y) subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Ventures Stock or a subdivision of the outstanding
shares of Ventures Stock (by reclassification or otherwise),
declared on the Ventures Stock of the Corporation since the
immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share
of Series D Junior Participating Preferred Stock. In the
event the Corporation shall at any time after the date that
these Restated and Amended Articles of Incorporation become
effective (the "Rights Declaration Date") (i) declare any
dividend on Ventures Stock payable in shares of Ventures
Stock, (ii) subdivide the outstanding Ventures Stock, or
(iii) combine the outstanding Ventures Stock into a smaller
number of shares, then in each such case the amount to which
holders of shares of Series D Junior Participating Preferred
Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which
is the number of shares of Ventures Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Ventures Stock that were outstanding
immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series D Junior Participating Preferred Stock as
provided in Paragraph (y) above immediately after it
declares a dividend or distribution on the Ventures Stock
(other than a dividend payable in shares of Ventures Stock);
provided that, in the event no dividend or distribution
shall have been declared on the Ventures Stock during the
period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend
of $0.01 per share on the Series D Junior Participating
Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series D Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series D
Junior Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series D Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series D Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
The Board of Directors may fix a record date for the
determination of holders of shares of Series D Junior
Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed
for the payment thereof.
3. Voting Rights. The holders of shares of Series D Junior
Participating Preferred Stock shall have the following voting
rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series D Junior Participating Preferred
Stock shall entitle the holder thereof to the number of
votes on all matters submitted to a vote of the stockholders
of the Corporation equal to the product of (x) 1,000 and (y)
the number of votes then attributed to a share of Ventures
Stock. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on
Ventures Stock payable in shares of Ventures Stock, (ii)
subdivide the outstanding Ventures Stock, or (iii) combine
the outstanding Ventures Stock into a smaller number of
shares, then in each such case the number of votes per share
to which holders of shares of Series D Junior Participating
Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of
Ventures Stock outstanding immediately after such event and
the denominator of which is the number of shares of Ventures
Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series D Junior Participating Preferred
Stock and the holders of shares of Ventures Stock shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) (i) If at any time dividends on any Series D Junior
Participating Preferred Stock shall be in arrears in an
amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series D Junior
Participating Preferred Stock then outstanding shall have
been declared and paid or set apart for payment. During each
default period, all holders of Preferred Stock (including
holders of the Series D Junior Participating Preferred
Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two
(2) directors.
(ii) During any default period, such voting right of the
holders of Series D Junior Participating Preferred Stock may
be exercised initially at a special meeting called pursuant
to subparagraph (iii) of this Section 3(c) of this Article
4(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that
such voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the
right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then
exist up to two (2) directors or, if such right is exercised
at an annual meeting, to elect two (2) directors. If the
number which may be so elected at any special meeting does
not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase
in the number of directors as shall be necessary to permit
the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their
right to elect directors in any default period and during
the continuance of such period, the number of directors
shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or
pari passu with the Series D Junior Participating Preferred
Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their
right to elect directors, the Board of Directors may order,
or any stockholder or stockholders owning in the aggregate
not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of special meeting of the
holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary
of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to
vote pursuant to this subparagraph (iii) shall be given to
each holder of record of Preferred Stock by mailing a copy
of such notice to him or her at his or her last address as
the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this subparagraph (iii),
no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of
directors until the holders of Preferred Stock shall have
exercised their right to elect two (2) directors voting as a
class, after the exercise of which right (x) the directors
so elected by the holders of Preferred Stock shall continue
in office until their successors shall have been elected by
such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as
provided in Paragraph (ii) of this Section 3(c) of this
Article 4(D)) be filled by vote of a majority of the
remaining directors theretofore elected by the holders of
the class of stock which elected the director whose office
shall have become vacant. References in this Paragraph (c)
to directors elected by the holders of a particular class of
stock shall include directors elected by such directors to
fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to
elect directors shall cease, (y) the term of any directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of directors shall be such
number as may be provided for in the Amended and Restated
Certificate of Incorporation or by-laws irrespective of any
increase made pursuant to the provisions of Paragraph (ii)
of this Section 3 of this Article 4(D) (such number being
subject, however, to change thereafter in any manner
provided by law or in the Amended and Restated Certificate
of Incorporation or by-laws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z)
in the preceding sentence may be filled by a majority of the
remaining directors.
(d) Except as set forth herein, holders of Series D Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series D Junior Participating
Preferred Stock as provided in Section 2 of this Article
4(D) are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared,
on shares of Series D Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Junior
Participating Preferred Stock, except dividends paid
ratably on the Series D Junior Participating Preferred
Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total
amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Junior
Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series D
Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series D Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with
the Series D Junior Participating Preferred Stock,
except in accordance with a purchase offer made in
writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative
rights and preferences of the respective series and
classes, shall determine in good faith will result in
fair and equitable treatment among the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under Paragraph (a) of this Section 4
of this Article 4(D), purchase or otherwise acquire such
shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series D Junior Participating
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Junior
Participating Preferred Stock unless, prior thereto, the
holders of shares of Series D Junior Participating Preferred
Stock shall have received an amount equal to 1,000 times the
Purchase Price, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series D
Liquidation Preference"). Following the payment of the full
amount of the Series D Liquidation Preference, no additional
distributions shall be made to the holders of shares of
Series D Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Ventures Stock shall have
received an amount per share (the "Ventures Adjustment")
equal to the quotient obtained by dividing (i) the Series D
Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in subparagraph (c) below to reflect
such events as stock splits, stock dividends and
recapitalizations with respect to the Ventures Stock) (such
number in clause (ii), the "Ventures Adjustment Number").
Following the payment of the full amount of the Series D
Liquidation Preference and the Ventures Adjustment in
respect of all outstanding shares of Series D Junior
Participating Preferred Stock and Ventures Stock,
respectively, holders of Series D Junior Participating
Preferred Stock and holders of shares of Ventures Stock
shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the
Ventures Adjustment Number to 1 with respect to such
Preferred Stock and Ventures Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series D
Liquidation Preference and the liquidation preferences of
all other series of preferred stock, if any, which rank on a
parity with the Series D Junior Participating Preferred
Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to
permit payment in full of the Ventures Adjustment, then such
remaining assets shall be distributed ratably to the holders
of Ventures Stock.
(c) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Ventures
Stock payable in shares of Ventures Stock, (ii) subdivide
the outstanding Ventures Stock, or (iii) combine the
outstanding Ventures Stock into a smaller number of shares,
then in each such case the Ventures Adjustment Number in
effect immediately prior to such event shall be adjusted by
multiplying such Ventures Adjustment Number by a fraction
the numerator of which is the number of shares of Ventures
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Ventures
Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter
into any consolidation, merger, combination or other transaction
in which the shares of Ventures Stock are exchanged for or
changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series D Junior
Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1,000
times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which
or for which each share of Ventures Stock is changed or
exchanged. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Ventures
Stock payable in shares of Ventures Stock, (ii) subdivide the
outstanding Ventures Stock, or (iii) combine the outstanding
Ventures Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series D Junior
Participating Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of
shares of Ventures Stock outstanding immediately after such event
and the denominator of which is the number of shares of Ventures
Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series D Junior Participating
Preferred Stock shall not be redeemable.
9. Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in
any manner which would materially alter or change the powers,
preferences or special rights of the Series D Junior
Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series D Junior Participating
Preferred Stock, voting separately as a class.
10. Fractional Shares. Series D Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holders fractional shares, to
exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of
holders of Series D Junior Participating Preferred Stock.
5. The name and mailing address of each incorporator is as follows:
Name Mailing Address
B.J. Consono 1209 Orange Street
Wilmington, Delaware 19899
F.J. Obara, Jr. 1209 Orange Street
Wilmington, Delaware 19899
J.L. Rivera 1209 Orange Street
Wilmington, Delaware 19899
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The by-laws may
provide that in the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, or in the by-laws of the
Corporation, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to
amending the Amended and Restated Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all
of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the by-laws of the Corporation; and, unless
the resolution or by-laws expressly so provide, no such committee
shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property
and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or
property including shares of stock in, and/or other securities of, any
other corporation or corporations, as its board of directors shall
deem expedient and for the best interest of the Corporation.
8. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditor or stockholder
thereof, or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
General Corporation Law of the State of Delaware or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of section 279 of Title 8 of the General
Corporation Law of the State of Delaware order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders
of this Corporation, as the case may be, to be summoned in such manner as
the said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of this Corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of this Corporation
as a consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time
by the board of directors or in the by-laws of the corporation. Elections
of directors need not to be by written ballot unless the by-laws of the
corporation shall so provide.
10. Except as expressly provided in this Amended and Restated Articles of
Incorporation, the Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Articles of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
11. The number of directors which shall constitute the whole board shall be
not less than four nor more than fifteen, such number to be set by or in
accordance with the by-laws. Such by-law provision can only be amended by
the Board of Directors or by the affirmative vote of not less than 66 2/3%
of the stock then entitled to vote in an election of directors. The
directors shall be divided into three classes as nearly equal in number as
possible. At the 1986 annual meeting of stockholders, one class of
directors was elected for a one-year term, one class for a two-year term
and one class for a three-year term. At each succeeding annual meeting of
stockholders, successors to the class of directors whose term expires in
that year will be elected for a three-year term. A director shall hold
office until the annual meeting of stockholders for the year in which his
term expires or until his successor is elected and qualified.
Vacancies and newly created directorships within any class resulting from
any increase in the authorized number of directors may be filled by a
majority of directors then in office, though less than a quorum, and any
director so chosen shall hold office for a term which shall coincide with
the term of such class to which he is elected. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
The affirmative vote of the holders of at least 66 2/3% of the stock then
entitled to vote in an election of directors shall be required for the
approval of any proposal that (a) any director of the corporation be
removed from office for cause; or (b) this Article 11 of this Amended and
Restated Certificate of Incorporation be altered, amended or repealed.
12. A. In addition to the requirements of any applicable statute, the
affirmative vote of not less than 66 2/3% of the stock then entitled to
vote in an election of directors owned by persons other than a "substantial
stockholder" (as hereinafter defined), considered for purposes of this
Article 12 as one class, shall be required for the approval or
authorization of any "business combination" (as hereinafter defined)
between the corporation and any substantial stockholders provided, however,
that such additional voting requirement shall not be applicable if:
1. The business combination is solely between the Corporation and
another corporation, 50% or more of the voting stock of which is owned
by the Corporation and none of which is owned by a substantial
stockholder and each holder of common stock of the Corporation
receives the same type of consideration in proportion to his holdings;
or
2. All the following conditions are satisfied: (a) the cash or fair
market value of the property, securities or "other consideration to be
received" (as hereinafter defined) per share in the business
combination by holders of the common stock of the corporation is not
less than the higher of (i) the highest price per share (including
brokerage commissions, soliciting dealers' fees and dealer-manager
compensation) paid by such substantial stockholder in acquiring any of
its holdings of the Corporation's common stock, or (ii) the highest
per share market price of common stock during the three-month period
immediately preceding the date of the proxy statement described in (c)
below or, if none, during the six-month period prior to the
consummation of the business combination; (b) after becoming a
substantial stockholder and prior to the consummation of such business
combination (i) such substantial stockholder shall not have acquired
any newly issued shares of capital stock, directly or indirectly, from
the Corporation (except upon conversion of convertible securities
acquired by it prior to becoming a substantial stockholder or upon
compliance with the provisions of this Article 12 or as a result of a
pro rata stock dividend or stock split), and (ii) such substantial
stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax
credits provided by the Corporation, or made any major changes in the
Corporation's business or equity capital structure; and (c) if such
proposal otherwise requires stockholder approval, a proxy statement
responsive to the requirements of the Securities Exchange Act of 1934,
whether or not the Corporation is then subject to such requirements,
shall be mailed to the public stockholders of the Corporation for the
purpose of soliciting stockholder approval of such business
combination.
B. For the purposes of this Article 12:
1. The term "business combination" shall mean (a) any merger or
consolidation of the Corporation with or into a substantial
stockholder, (b) any sale, lease, exchange, transfer or other
disposition, including, without limitation, a mortgage or any other
security device, of all, or any "substantial part" (as hereinafter
defined) of the assets of the Corporation including, without
limitation, any voting securities of a subsidiary) or of a subsidiary,
to a substantial stockholder, (c) any merger or consolidation of a
substantial stockholder with or into the Corporation or a subsidiary
of the Corporation, (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a
substantial stockholder to the Corporation or a subsidiary of the
Corporation, (e) the issuance of any securities of the Corporation or
a subsidiary of the Corporation to a substantial stockholder (except
proportionately as a stockholder), (f) the acquisition by the
Corporation or a subsidiary of the Corporation of any securities of a
substantial stockholder (except proportionately as a stockholder), (g)
any reclassification of common stock of the Corporation, or any
recapitalization involving common stock of the Corporation,
consummated within five years after a substantial stockholder becomes
a substantial stockholder, and (h) any agreement, contract or other
arrangement providing for any of the transactions described in this
definition of business combination;
2. The term "substantial stockholder" shall mean and include any
individual, corporation, partnership, "group" or other person or
entity which, together with its "affiliates" and "associates",
"beneficially" owns (as those terms are defined on the date on which
this provision was adopted in Rules 12b-2, 13d-3 and 13d-5(b) of the
General Rules and Regulations under the Securities Exchange Act of
1934) in the aggregate 10% or more of the outstanding shares of common
stock of the Corporation, and any affiliate or associate of any such
individual, corporation, partnership, group or other person or entity
excluding, however, any incumbent members of the Board of Directors as
of September 30, 1985 and any employee benefit plan of the corporation
or its subsidiaries;
3. The term "substantial part" shall mean more than 10% of the total
book value of assets of the corporation in question, as of the end of
its most recent fiscal year ending prior to the time the determination
is being made;
4. Without limitation, any shares of common stock of the Corporation
which any substantial stockholder has the right to acquire at any time
pursuant to any agreement, or upon exercise of conversion rights,
warrants, options, or otherwise, shall be deemed outstanding and
beneficially owned by such substantial stockholder for purposes of
this Article 12 only; and
5. The phrase "other consideration to be received" shall include,
without limitation, common stock of the corporation retained by its
existing stockholders other than a substantial stockholder in the
event of a business combination with such substantial stockholder in
which the corporation is the surviving corporation.
C. The provisions set forth in this Article 12 may not be repealed or
amended in any respect or in any manner including through any merger or
consolidation of the corporation with any other corporation unless the
surviving corporation's Certificate of Incorporation contains an article to
the same effect as this Article 12, except by the affirmative vote of the
holders of not less than 66 2/3% of the stock then entitled to vote in an
election of directors, subject to the provisions of any series of preferred
stock which may at any time be outstanding; provided, however, that if
there is a substantial stockholder such action must be approved by not less
than 66 2/3% of the stock then entitled to vote in an election of directors
owned by persons other than the substantial stockholder.
13. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived any improper personal benefit. Any repeal or
modification hereof by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed as of this 20th day of April, 2000.
COMDISCO, INC.
By:/s/ Philip A. Hewes
-------------------
Philip A. Hewes, Senior Vice President
and Secretary
Comdisco, Inc. and Subsidiaries
Exhibit 11.00
COMPUTATION OF EARNINGS PER COMMON SHARE
(in millions except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
March 31, March 31,
2000 1999 2000 1999
------ --------- -------- --------
<S> <C> <C> <C> <C>
Average shares outstanding--basic ......... 151 151 152 152
Effect of dilutive options (see note 1) ... 12 -- 11 --
---- ---- ---- ----
Average shares outstanding--diluted ....... 163 151 163 152
==== ==== ==== ====
Net earnings (loss) to common stockholders $ 43 $(56) $ 84 $(18)
==== ===== ==== ====
Net earnings (loss) per common share:
Basic .......................... $.28 $(.37) $.55 $(.12)
==== ===== ==== =====
Diluted (see note 1) ........... $.26 $(.37) $.52 $(.12)
==== ===== ==== =====
</TABLE>
Note 1: In accordance with Statement of Financial Accounting Standards No. 128,
no potential common shares are included in the computation of any diluted
per-share amount when a loss exists.
<PAGE>
Comdisco, Inc. and Subsidiaries
Exhibit 12.00
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Six months ended
March 31 For the years ended September 30
---------------- --------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges
Interest expense (1).................................. $178 $173 $341 $329 $301 $267 $278
Approximate portion of
rental expense representative
of an interest factor .............................. 3 3 6 5 4 7 11
---- ---- ---- ---- ---- ---- ----
Fixed charges ........................................ 181 176 347 334 305 274 289
Earnings before income taxes,
net of preferred stock dividends .................... 131 (28) 75 238 203 176 160
---- ---- ---- ---- ---- ---- ----
Earnings before income taxes,
net of preferred stock dividend ..................... $312 $148 $422 $572 $508 $450 $449
==== ==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges ..................... 1.72 0.84 1.22 1.71 1.67 1.64 1.55
==== ==== ==== ==== ==== ==== ====
Rental expense:
Equipment subleases .................................. $ 2 $ 2 $ 4 $ 5 $ 6 $ 14 $ 22
Office space, furniture, etc ......................... 8 7 14 9 7 8 10
---- ---- ---- ---- ---- ---- ----
Total ............................................. $ 10 $ 9 $ 18 $ 14 $ 13 $ 22 $ 32
==== ==== ==== ==== ==== ==== ====
1/3 of rental expense ............................. $ 3 $ 3 $ 6 $ 5 $ 4 $ 7 $ 11
==== ==== ==== ==== ==== ==== ====
<FN>
(1) Includes interest expense incurred by technology services and included in
technology services expenses on the statements of earnings and interest expense
incurred by Prism Communication Services and included in Prism expenses on the
statements of earnings.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000722487
<NAME> Comdisco, Inc.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> Oct-01-1999
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 122
<SECURITIES> 636
<RECEIVABLES> 1,050
<ALLOWANCES> 88
<INVENTORY> 112
<CURRENT-ASSETS> 4,106
<PP&E> 8,222
<DEPRECIATION> 2,584
<TOTAL-ASSETS> 8,415
<CURRENT-LIABILITIES> 1,707
<BONDS> 3,683
<COMMON> 22
0
0
<OTHER-SE> 1,251
<TOTAL-LIABILITY-AND-EQUITY> 8,415
<SALES> 1,166
<TOTAL-REVENUES> 1,890
<CGS> 869
<TOTAL-COSTS> 1,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> 131
<INCOME-TAX> 47
<INCOME-CONTINUING> 84
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.52
</TABLE>
