SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1994
or
[ ] Transition Report Pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the transition period from ___________________ to ________________
Commission file number 1-7725
COMDISCO, INC.
(a Delaware Corporation)
6111 North River Road
Rosemont, Illinois 60018
Telephone (708) 698-3000
I.R.S. Employer Identification Number 36-2687938
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Titles of each class on which registered
Common Stock New York Stock Exchange
$.10 par value Chicago Stock Exchange, Inc.
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange, Inc.
8.75% Cumulative Preferred Stock,
Series A and B $25 stated New York Stock Exchange
value and liquidation preference
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. .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the common stock held by nonaffiliates of the
Registrant as of December 1, 1994 was approximately $549,000,000. For
purposes of the foregoing calculation only, all directors and officers of the
registrant have been deemed affiliates. As of September 30, 1994, there were
36,695,908 shares of the Registrant's common stock, $.10 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Annual Report to Stockholders for the fiscal
year ended September 30, 1994 are incorporated by reference
into Part I and II.
2. Portions of Comdisco, Inc.'s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
January 24, 1995 filed within 120 days of fiscal
year end are incorporated by reference into Part III.
<PAGE>
Comdisco, Inc. and Subsidiaries
TABLE OF CONTENTS
PART I.
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III.
Item 10. Directors and Executive Officers of Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 9
SIGNATURES 11
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 12
INDEX TO EXHIBITS 20
<PAGE>
PART I.
Item 1. Business
General
Comdisco, Inc. (with its subsidiaries, the "Company" or "Comdisco") is
primarily engaged in the buying, selling and leasing of new and used computer
and other high technology equipment and in providing disaster recovery
services (also referred to as "business continuity services"). In addition,
the Company provides technology planning and asset management services,
integrating leasing and business continuity services with customized asset
acquisition, asset management software tools and data center moves and/or
consolidations, disposition and migration strategies. These services are
designed to provide integrated, long-term, cost effective asset and
technological planning to users of high technology equipment.
Note 11 of Notes to Consolidated Financial Statements on page 44 of the Annual
Report to Stockholders for the year ended September 30, 1994 is incorporated
herein by reference (said footnote contains information regarding discontinued
operations).
The Company was founded in 1969 and incorporated in Delaware in 1971. The
executive offices of the Company are located in the Chicago area, at 6111
North River Road, Rosemont, Illinois 60018, and its telephone number is (708)
698-3000. At September 30, 1994, the Company had approximately 2,100
full-time employees.
The Company does not own any patents, trademarks, licenses, or franchises
which would be considered significant to the Company's businesses. The
Company recently applied for a patent on its high speed connectivity products
(see "other services" on page 5 of this Annual Report on Form 10-K). There
can be no assurance that such a patent will be granted.
The Company's businesses are not seasonal, however, quarter-to-quarter results
from operations can vary significantly.
The amount of backlog orders is not applicable to the Company's businesses.
The Company's operations are conducted through its principal office in the
Chicago area and approximately fifty offices in the United States, Canada,
Europe, and the Pacific Rim . The Company also operates in South
America, however, it does not maintain local offices. Subsidiaries in Europe
and Canada offer services similar to those offered in the United States,
although the Company's European leasing operations are predominately in the
computer marketplace. The Company's disaster recovery activities include the
domestic, Canadian and European marketplaces.
See "International Operations" on page 32 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1994 (which is incorporated herein by
reference) for a discussion of the Company's geographic results of operations
in fiscal 1994, 1993 and 1992 and Note 17 of Notes to Consolidated Financial
Statements on pages 48 and 49 of the Annual Report to Stockholders for the
year ended September 30, 1994, which includes geographic segment and export
sales information and is incorporated herein by reference.
Leasing
The Company believes it is the world's largest independent leasing company. In
its leasing activities, the Company specializes in central processing units,
desktop equipment, electronics, telecommunications equipment and, through a
subsidiary, medical equipment.
The Company offers its customers alternatives in managing high technology
equipment needs, including the leasing of equipment. The Company works
closely with its customers to develop strategies governing when and where to
acquire equipment, when to upgrade existing equipment and when to order new
equipment to take advantage of current technology. The Company also has the
ability to act as an outlet for the equipment being displaced.
The Company's customers include "Fortune 1000" corporations or companies of a
similar size as well as smaller corporations. A substantial portion of the
Company's transactions are with repeat customers. The Company's business is
not dependent on any single customer or on any single source for the
purchasing, selling or leasing of equipment.
Computer: Central Processing Units: The Company buys or leases, and
in turn sells, leases or subleases IBM computer equipment
as well as equipment manufactured by others. The
Company's sale and lease transactions include the
"mainframe" central processing units, midrange, and/or
various peripherals, such as printers, tape and disk
drives and other equipment used with a mainframe.
The mainframe industry has been characterized by rapid and
continuous technological advances permitting broadened
user applications. The introduction of new equipment
and/or technology by IBM or other manufacturers does not
cause existing equipment to become technically obsolete,
but usually results in adjustments in the
"price/performance ratio" (the number of computations or
relative performance per dollar of cost) of the existing
equipment. Users upgrade equipment as their existing
equipment becomes inappropriate for their needs or as a
result of changes in the required amount of data
processing capacity. To the extent equipment replaced
by newer models becomes available for remarketing, a secondary
market in used equipment is created. Recent technological
advances in mainframe technology by International Business
Machines ("IBM") have focused on "parallel processing"
systems. These systems include transaction processing
and database server models, designed for both "legacy"
and newer technologies in open systems.
The Company believes that in recent years, mainframe
acquisition decisions were being delayed because of
concerns about the economy. The Company also believes
customers delayed making hardware decisions pending
release of additional information concerning new IBM
product capabilities and delivery schedules. Recent
product announcements may have reduced some of the
uncertainty present in the marketplace. Furthermore,
leasing volume in general has been impacted by
consolidations and cutbacks as companies attempt to streamline
operations. Industry analysts predict a slowing decline in
mainframe sales, at least in the short-term, based on
reports from the major mainframe manufacturers. See
"Leasing" on page 29 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1994 for a
discussion of mainframes and client/server (which is
incorporated herein by reference).
The focus of the Company's activities with respect to
particular models of computer equipment changes
periodically as a result of changes in market conditions
and advances in computer technology. In September, 1994,
IBM began shipping its next-generation mainframes. The
new parallel enterprise servers are expected to be
positioned as price-competitive replacement models for
pre-1990 IBM mainframes and the Company expects to
include these models in its activities. Advances in
technology, such as these servers, affect the market for
computer products and may also have an impact on the way
the Company has traditionally conducted its leasing
activities.
Desktop: The Company leases PC's and workstations from
most of the leading manufacturers. The company's lease
transactions also include high-end servers, printers and
other desktop related equipment. The Company's
integrated asset management software tools let customers
order, track and manage their inventory of desktop
equipment. The Company has business partnerships and/or
vendor leasing programs with major workstation
manufacturers.
Other services: In fiscal 1994, the Company formed a
systems interrogation group to address the needs of the
developing open systems market, including client/server
(client/server computing is a type of processing in which
a client requests a service or information from a server
that performs the service and/or returns the requested
information to the client). The Company provides
products, services and consultants to assist customers in
implementing or utilizing an open systems platform.
Products include high-speed connectivity systems, which
provide access between mainframe and open systems data at
transaction-processing speeds. Services include
transitional strategies, integration planning and
implementation, financing (hardware and software), and
business continuity planning. The Company, together with
its consultants and strategic alliances with
client/server product providers, provides customers with
solutions based on requirements and goals.
The Company's asset management services assists customers
in: planning and implementing major data center
relocations and consolidations; evaluating information
technology needs and system assessment; equipment
procurement strategies and timing.
Other
High
Technology
Equipment: Medical: Through its subsidiaries, the Company leases
medical and other high technology equipment to healthcare
providers, including used, reconditioned medical
equipment. The Company's portfolio includes angiography,
MRI systems, CT scanners and nuclear imaging devices.
Additionally, the Company believes that it has the
largest and most comprehensive medical equipment
refurbishing center in the industry and that it was the
one of the first to obtain ISO 9002 certification for
such a center.
Electronics: The Company leases new and used electronic
manufacturing, testing and monitoring equipment,
including semiconductor production equipment, automated
test equipment, assembly equipment and
scientific/analytical instrumentation. Additionally,
the company maintains a dedicated refurbishing and sales
facility in the silicon valley area.
Telecommunications: The Company buys, sells, and leases
new and refurbished telecommunications equipment
throughout North America. The Company also provides its
customers with a market for, and a source of, used
equipment. The telecommunications portfolio includes PBX
systems, VSATs, voice mail, modems and bridges, routers
and concentrators. The Company also reconditions and
configures used systems.
Other: The Company buys, sells and leases new and used
point-of-sale terminals and leases other office equipment
such as fax machines and copiers, test equipment such as
oscillascopes, analyzers and testers and laboratory
equipment such as microscopes and centrifuges.
At September 30, 1994, cost at lease inception of other
high technology equipment was approximately $3.0 billion,
or approximately 46% of the Company's total equipment cost
at lease inception of $6.5 billion.
The Company competes in the leasing marketplace as a lessor and as a
dealer of new and used computer and selected other high technology
equipment. The Company competes with different firms in each of
its activities. The Company's competition includes equipment
manufacturers such as IBM, Hewlett Packard, Amdahl, Hitachi Data
Systems, AT&T, Rolm, Hitachi Medical Systems, Siemens Medical Systems,
and General Electric, other equipment dealers, brokers and leasing
companies (including captive or related leasing companies of IBM,
AT&T and General Electric and others) as well as financial
institutions, including commercial banks and investment banking
firms. While its competitive methodologies will differ, in general, the
Company competes mainly on the basis of its expertise in remarketing
equipment, terms offered in its transactions, its reliability in
meeting its commitments, its manufacturers' independence and its
ability to develop and offer alternative solutions and options to
high technology equipment users. The Company believes it is a full
service lessor.
In mainframes, the Company believes that it competes primarily with
the manufacturers and their captive or related leasing companies, if
any, and with a few other leasing companies. The Company also believes
that, aside from IBM and its captive leasing company, IBM Credit Corporation,
it is one of the largest purchasers, sellers and lessors of IBM
equipment. The Company does not believe that a significant amount of
used IBM equipment is sold independently by owner-users of the
equipment to other owner-users. The Company's continued ability to
compete effectively may be affected by policies of IBM.
In desktop, medical, electronics and telecommunications, the Company
believes it competes with the manufacturers and their captive leasing
companies and approximately five significant leasing companies, as well
as banks and other lessors and financial and lending institutions
throughout the United States and Canada. In its other services, the
Company competes with manufacturers and other national and regional
consulting and services organizations.
Disaster Recovery Services
These services include emergency data processing backup, principally for large
system users of IBM and IBM-compatible equipment, workarea recovery,
voice recovery, consulting services in business continuity planning
as well as other related data processing services, throughout the
United States, Canada and Europe. These services are designed to help
minimize the impact of a significant interruption of the operations of,
or inaccessibility to, the customer's data processing facility and/or
communications network. The Company also provides backup capabilities
for Digital Equipment Corporation, IBM midrange processors, Unisys,
Hewlett Packard, Stratus and Tandem System equipment users.
The Company believes that it competes with approximately five
significant domestic companies, including IBM and SunGard Data Systems,
Inc., as well as other regional firms in the domestic, Canadian and
European marketplace, which provide contract disaster recovery
services and that it is the one of the largest international providers
of such services.
Through its network and facilities strategy entitled CDRS Net,
the Company offers customers access to its North American facilities,
including a range of data processing recovery services at hot sites,
Customer Control Centers ("CCC") and shell sites. Hot sites are
equipped computer facilities that include central processing units,
peripherals and communications equipment. A CCC interfaces customers to
geographically separated hot sites and provides local display terminals
and printers that can be connected to any hot site by means of
telecommunications lines. A shell site contains the power,
environmental and support equipment necessary for the
installation of replacement computer equipment by the customer.
Most facilities also include workarea recovery capability. In
September, 1994, the Company completed an expansion and service
enhancement project that included what the Company believes was the
industry's first recovery center dedicated to client/server
environments. Enhanced capabilities include client/server platforms,
workareas, open systems networks, midrange and mainframe computers.
Of the Company's twenty-eight locations, nine serve as regional recovery
centers providing hot site and/or shell site services. These nine
regional recovery centers serve major commercial centers, including
New York, Chicago, Northern and Southern California, Texas, Georgia,
as well as locations in Southern New Jersey that serves the Mid-Atlantic
region and a center located in Toronto, Canada. Each recovery center
has at least one hot site or CCC and includes telecommunications
capabilities, conference rooms, office space, support areas, and
appropriate on-site technical personnel.
Item 2. Properties
The Company owns its principal executive office building in Rosemont,
Illinois that has approximately 269,000 square feet, and has pledged the
property as part of a mortgage agreement. The Company leases office space for
sales offices in various domestic and international locations. The Company's
technical services division utilizes a 250,000 square foot building owned by
the Company in Schaumburg, Illinois. This space is used primarily for
refurbishing, maintenance and equipment storage. The Company's disaster
recovery services division presently occupies eight recovery centers owned by
the Company, including 151,000 square feet in Illinois, 34,000 square feet in
Texas, 42,000 square feet in Georgia, 59,000 square feet in Toronto, Canada,
two recovery centers each in New Jersey of 81,000 and 72,000 square feet, and
California of 52,000 and 38,000 square feet. The Company's disaster recovery
services division also leases 255,000, 14,000 and 10,000 square feet in
New Jersey, Missouri, and Canada, respectively. Existing Company-owned
facilities can be enlarged and expanded as required to support additional
growth. The Company's disaster recovery services division also owns and
leases facilities in several European countries. The Company's medical
refurbishment subsidiary leases approximately 100,000 square feet in
Wood Dale, Illinois. The Company's electronic group leases
approximately 35,000 square feet in San Jose, California, to be used
primarily for refurbishing, maintenance and equipment storage.
Item 3. Legal Proceedings
Note 16 of Notes to Consolidated Financial Statements on pages 45 and 46 of
the Annual Report to Stockholders for the fiscal year ended September 30,
1993, is incorporated herein by reference (said footnote discussed
contingencies of the Company arising out of three legal actions filed against
Comdisco by IBM, IBM Credit Corporation and certain IBM-related limited
partnerships). On August 26, 1994, all of the parties to the three lawsuits
entered into a settlement agreement. Note 8 of Notes to Consolidated
Financial Statements on page 44 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1994 is incorporated herein by reference (said
footnote describes the IBM litigation settlement).
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the three
months ended September 30, 1994.
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
PRICE RANGE OF COMMON STOCK
Price Range of Common Stock on page 32 of the Annual Report to Stockholders
for the fiscal year ended September 30, 1994 is incorporated herein by
reference.
COMMON STOCK REPURCHASE PROGRAM
During fiscal 1994, the Company purchased 1,995,644 shares of its outstanding
common stock at an aggregate cost of $39 million. These purchases, when added
to the shares purchased in prior years, bring the total number of common
shares purchased to 12.5 million (1.9 million shares were distributed as a
common stock dividend on March 30, 1992 - see Note 14 of Notes to Consolidated
Financial Statements), at an aggregate cost of $197 million. No shares were
purchased in fiscal 1992. On November 7, 1994, the Board of Directors
authorized the Company to spend an additional $25 million under its repurchase
program.
SHAREHOLDER RIGHTS PLAN
On November 18, 1987, the Board adopted a shareholders rights plan and
pursuant thereto declared a dividend distribution of one Right for each
outstanding share of common stock of the Company to stockholders of record at
the close of business on November 27, 1987 (the "Record Date"). The
shareholder rights plan was amended and restated as of November 7, 1994. Each
Right entitles the registered holder under certain circumstances to purchase
from the Company one share of common stock at a Purchase Price of $95.24,
subject to adjustment in certain circumstances. The Purchase Price is to be
paid in cash. The Rights become exercisable if (i) a person or group (other
than any holder of 20% or more of the common stock on the Record Date and its
successors) (an "Acquiring Person") becomes the beneficial owner of 15% or
more of the outstanding common stock (and the Company does not redeem the
Rights within 15 days thereafter), (ii) a person or group makes a tender or
exchange offer which upon consummation would result in such person or group
beneficially owning 15% or more of the common stock (and the Company does not
redeem the Rights within 15 days thereafter) or (iii) the Board of Directors
determines that a beneficial owner of 10% or more of the common stock is an
Adverse Person (as defined in the Rights Agreement). Upon the occurrence of
any such event, each Right (other than those held by an Acquiring Person or
Adverse Person) will become exercisable for one share of common stock at an
adjusted Purchase Price equal to 20% of the then market price of the common
stock. The terms of the Rights are set forth in the amended and restated
Rights Agreement, dated as of November 7, 1994 (the "Rights Agreement"),
between the Company and Chemical Bank, N.A. (formerly Manufacturers Hanover
Trust Company), as Rights Agent. The Rights Agreement and a related form of
the rights certificate is incorporated by reference to Exhibit 4.04 filed with
the Company's Current Report on Form 8-K, filed on December 6, 1994, File No.
1-7725. The foregoing description of the shareholder rights plan does not
purport to be complete and is qualified in its entirety by reference to such
exhibit.
DIVIDENDS
The Company has paid cash dividends quarterly since February 1979. Cash
dividends paid on common stock were $13 million in fiscal 1994 and $12 million
in fiscal 1993. The most recently declared quarterly common stock cash
dividend, $.09 per share, was paid on December 5, 1994 to stockholders of
record on November 18, 1994. Subject to the prior right of the holders of the
Series A and Series B Preferred Stock, there are no restrictions on the
Company's present or future ability to pay common dividends, except its
agreement to maintain a debt to net worth ratio pursuant to, and certain other
limitations contained in, the Company's multi-option and global revolving
credit agreements, none of which have any current application. The Company
expects to continue its policy of paying regular cash dividends, although
there is no assurance as to future dividends because they are dependent upon
the Company's profit levels and capital requirements as well as financial and
other conditions existing at the time. Common stock cash dividends paid were
$.35 per share in fiscal 1994 and $.29 per share in fiscal 1993.
Item 6. Selected Financial Data
Six Year Summary on pages 26 and 27 of the Annual Report to Stockholders for
the fiscal year ended September 30, 1994 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 28 through 32 of the Annual Report to Stockholders for the
fiscal year ended September 30, 1994 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements on pages 33 through 49 of the Annual Report to
Stockholders for the fiscal year ended September 30, 1994 is incorporated
herein by reference. Quarterly Financial Data on page 48 of the Annual Report
to Stockholders for the fiscal year ended September 30, 1994 is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of Registrant
A description of Directors and Executive Officers of Registrant contained in
the Company's definitive Proxy Statement filed within one hundred twenty days
of the last day of the year ended September 30, 1994 is incorporated herein by
reference.
Item 11. Executive Compensation
A description of Executive Compensation contained in the Company's definitive
Proxy Statement filed within one hundred twenty days of the last day of the
year ended September 30, 1994 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A description of Security Ownership of Certain Beneficial Owners and
Management contained in the Company's definitive Proxy Statement filed within
one hundred twenty days of the last day of the year ended September 30, 1994
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
A description of Certain Relationships and Related Transactions contained in
the Company's definitive Proxy Statement filed within one hundred twenty days
of the last day of the year ended September 30, 1994 is incorporated herein by
reference.
Additional information is provided in Schedule II filed as part of this Form
10-K on pages 13 and 14.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (a)(2) Certain Documents Filed as Part of the Form 10-K:
The financial statements, including supporting schedules,
listed in the Index to Financial Statements and Financial
Statement Schedules are filed as part of this Form 10-K on page 12.
(a)(3) Exhibits:
See Index to Exhibits filed as part of this Form 10-K on
pages 20 through 23.
(b) Reports on Form 8-K:
On December 6, 1994, the Company filed a current
report on Form 8-K, dated December 13, 1994, reporting
Item 5. Other Events and Item 7. Financial Statements
and Exhibits. The filing was for the Rights Agreement.
(c) Exhibits:
Included in Item (a)(3) above.
(d) Financial Statement Schedules Required by Regulation S-X:
Included in Item (a)(1) and (a)(2) above.
The Registrant hereby undertakes to furnish to the Commission any instrument
with respect to long-term debt of the Registrant which does not exceed 10
percent of the total assets of the Registrant and its subsidiaries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMDISCO, INC.
DATE: December 20, 1994 By: /s/ David J. Keenan
David J. Keenan
Vice President and
Corporate Controller
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John F. Slevin
- - - ----------------------------
John F. Slevin
Chief Executive Officer /s/ Philip A. Hewes
--------------------------------
(Principal Executive Officer), Philip A. Hewes
President and Director Director
/s/ John J. Vosicky /s/ Alan J. Andreini
- - - ------------------------------- --------------------------------
John J. Vosicky Alan J. Andreini
Chief Financial Officer (Principal Director
Financial Officer), Treasurer
and Director
/s/ David J. Keenan /s/ William N. Pontikes
- - - -------------------------------- --------------------------------
David J. Keenan William N. Pontikes
Vice President (Principal Accounting Officer) Director
and Corporate Controller
/s/ Nicholas K. Pontikes
- - - ---------------------------------- ----------------------------
Robert A. Bardagy Nicholas K. Pontikes
Director Director
/s/ Edward H. Fiedler, Jr. /s/ Rick Kash
- - - ----------------------------------- --------------------------------
Edward H. Fiedler, Jr. Rick Kash
Director Director
/s/ C. Keith Hartley /s/ Basil R. Twist, Jr.
- - - ------------------------------------- --------------------------------
C. Keith Hartley Basil R. Twist, Jr.
Director Director
/s/ Thomas H. Patrick
- - - -------------------------------------
Thomas H. Patrick
Director Each of the above signatures is
affixed as of December 20, 1994
<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and notes to consolidated
financial statements of Comdisco, Inc. and Subsidiaries and related
Independent Auditors' Report, included in the Registrant's Annual Report to
Stockholders for the fiscal year ended September 30, 1994, are incorporated by
reference in Item 8:
Annual Report
Page Number
-------------
Consolidated Statements of Earnings --
Years Ended September 30, 1994, 1993 and 1992 . . . . . . . . 33
Consolidated Balance Sheets -- September 30, 1994 and 1993 . 34
Consolidated Statements of Stockholders' Equity --
Years Ended September 30, 1994, 1993 and 1992 . . . . . . 35
Consolidated Statements of Cash Flows --
Years Ended September 30, 1994, 1993 and 1992 . . . . . . 36-37
Notes to Consolidated Financial Statements . . . . . . . . . 38-49
Independent Auditors' Report . . . . . . . . . . . . . . . . 50
The following consolidated financial statement schedules of
Comdisco, Inc. and Subsidiaries are included in Item 14(d):
Form 10-K
Page Number
Schedule II -- Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other
Than Related Parties . . . . . . . . . 14-15
Schedule V -- Property, Plant and Equipment . . . . . . . . 16
Schedule VI -- Accumulated Depreciation and Amortization
of Property, Plant and Equipment . . . . . . 17
Schedule VIII -- Valuation and Qualifying Accounts . . . . . . 18
Schedule IX -- Short-Term Borrowings . . . . . . . . . . . . 19
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Comdisco, Inc.:
Under date of November 7, 1994, we reported on the consolidated balance sheets
of Comdisco, Inc. and subsidiaries as of September 30, 1994 and 1993, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1994,
as contained in the 1994 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year ended September 30, 1994. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/KPMG PEAT MARWICK LLP
Chicago, Illinois
November 7, 1994
<PAGE>
<TABLE>
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Comdisco, Inc. and Subsidiaries
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
For the Three Years Ended September 30, 1994
Balance at Amounts Balance at
beginning written end of period
-------------
Description of period Additions Collected off Current Not current
- - - ----------------------------- ----------- -------------- -------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1992
Robert A. Bardagy
Unpaid interest on
8.75% demand note $ 90,916 $ - $ - $ - $ 90,916 $ -
David J. Keenan
Demand note at
9% per annum 170,255 9,7701 70,105 - - 109,920
Stephen W. Hamilton
Demand note 314,428 - - - - 314,428
Demand note 96,000 - - - - 96,000
Douglas Cogswell
Demand Note - 190,000 190,000 - - -
----------- -------------- -------------- -------------- ---------------- -------------
$ 671,599 $ 199,770 $ 260,105 $ - $ 90,916 $ 520,348
=========== ============== ============== ============== ================ =============
Year ended September 30, 1993
Robert A. Bardagy
Demand note at
8.75% per annum $ 90,916 $ - $ 90,916 $ - $ - $ -
David J. Keenan
Demand note at
9% per annum 109,920 7,875<F1> 117,795 - - -
Stephen W. Hamilton
Demand note 314,428 - - - - 314,428
Demand note 96,000 - - - - 96,000
W. Bradford Wheatley
Demand note at
8% per annum - 157,500 <F2> - - - 157,500
----------- -------------- -------------- -------------- ---------------- -------------
$ 611,264 $ 165,375 $ 208,711 $ - $ - $ 567,928
=========== ============== ============== ============== ================ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES -- CONTINUED
For the Three Years Ended September 30, 1994
Balance at Amounts Balance at
beginning written end of period
-------------
Description of period Additions Collected off Current Not current
- - - ----------------------------- ---------- --------- ---------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Stephen W. Hamilton
Demand note $ 314,428 $ - $166,832 $ - $ - $ 147,596
Demand note 96,000 - - - - 96,000
Demand note 329,376 329,376
W. Bradford Wheatley
Demand note at
8% per annum 157,500 12,000<F1> 7,500 - - 162,000
---------- --------- ---------- ------- -------- -------------
$ 567,928 $341,376 $174,332 $ - $ - $ 734,972
========== ========= ========== ======= ======== =============
<FN>
1 Represents accrued interest
2 Loan amount - $150,000; accrued interest $7,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended September 30, 1994
(in millions)
Balance at Balance
beginning Additions at end
Description of period at cost Sales Other end of period
- - - ----------------------------- ---------- --------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1992
Operating leased assets<F1> $ 3,277 $ 1,262 $ - $ (1,080) $ 3,459
Buildings, furniture
and other<F2> 246 32 (1) - 277
---------- --------- ------- ----------- -------------
$ 3,523 $ 1,294 $ (1) $ (1,080) $ 3,736
========== ========= ======= =========== =============
Year ended September 30, 1993
Operating leased assets<F1> $ 3,459 $ 1,019 $ - $ (1,170) $ 3,308
Buildings, furniture
and other<F2> 277 25 (8) (26) 268
---------- --------- ------- ----------- -------------
$ 3,736 $ 1,044 $ (8) $ (1,196) $ 3,576
========== ========= ======= =========== =============
Year ended September 30, 1994
Operating leased assets<F1> $ 3,308 $ 1,152 $ - $ (1,328) $ 3,132
Buildings, furniture
and other<F2> 268 19 (3) ( 5) 279
---------- --------- ------- ----------- -------------
$ 3,576 $ 1,171 $ (3) $ (1,333) $ 3,411
========== ========= ======= =========== =============
<FN>
1 In the "Other" column, transfers from operating leased assets to inventory
were $1,352 in 1994, $1,063 in 1993, and $1,149 in 1992; balance in
"Other" column represents foreign currency translation adjustments
2 Buildings, furniture and other balance in "Other" column primarily
represents write-offs in fiscal 1994 and 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended September 30, 1994
(in millions)
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Sales Other1 of period
- - - ----------------------------- ----------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1992
Leased equipment:
Operating leased assets $ 1,257 $ 809 $ - $ (644) $ 1,422
Residual reduction2 15 - - (10) 5
----------- ---------- -------- ----------- ------------
1,272 809 - (654) 1,427
Buildings, furniture
and other 68 24 (1) - 91
----------- ---------- -------- ----------- ------------
$ 1,340 $ 833 $ (1) $ (654) $ 1,518
=========== ========== ======== =========== ============
Year ended September 30, 1993
Leased equipment:
Operating leased assets $ 1,422 $ 771 $ - $ (720) $ 1,473
Residual reduction2 5 - - ( 4) 1
----------- ---------- -------- ----------- ------------
1,427 771 - (724) 1,474
Buildings, furniture
and other3 91 30 (4) (24) 93
----------- ---------- -------- ----------- ------------
$ 1,518 $ 801 $ (4) $ (748) $ 1,567
=========== ========== ======== =========== ============
Year ended September 30, 1994
Leased equipment:
Operating leased assets $ 1,473 $ 769 $ - $ (807) $ 1,435
Residual reduction2 1 - - - -
----------- ---------- -------- ----------- ------------
1,474 769 - (807) 1,436
Buildings, furniture
and other 3 93 23 - ( 5) 111
----------- ---------- -------- ----------- ------------
$ 1,567 $ 792 $ - $ (812) $ 1,547
=========== ========== ======== =========== ============
<FN>
1 Primarily accumulated depreciation on transfers from operating leased assets
to inventory. Also includes foreign currency translation adjustments.
2 Represents residual reduction resulting from equity transactions which is
recorded in the balance of accumulated depreciation.
3 Buildings, furniture and other balance in "Other" column primarily represents
write-offs in fiscal 1994 and 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended September 30, 1994
(in millions)
Additions
Balance at charged to Balance at
beginning costs and end
Description of period expenses Other of period
- - - ------------------------------ ---------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Year ended September 30, 1992:
Allowance for
doubtful accounts $ 9 $ 32 $(20)1 $ 21
========== ========== ======= ==========
Litigation reserve $ 0 $ 20 $ (5) $ 15
========== ========== ======= ==========
Year ended September 30, 1993
Allowance for
doubtful accounts $ 21 $ 10 $(18)1 $ 13
========== ========== ======= ==========
Litigation reserve $ 15 $ - $ (9) $ 6
========== ========== ======= ==========
Year ended September 30, 1994:
Allowance for
doubtful accounts $ 13 $ 10 $(13)1 $ 10
========== ========== ======= ==========
Litigation reserve $ 6 $ 10 $ (13) $ 3
========== ========== ======= ==========
<FN>
1 Write off of receivables net of recoveries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries
SCHEDULE IX - SHORT-TERM BORROWINGS
For the Three Years Ended September 30, 1994
(in millions except interest rates)
Maximum Average Weighted
Weighted amount amount average
Balance average outstanding outstanding interest rate
Category of aggregate at end of interest during the during the during the
short term borrowings period rate period period 2 period 3
- - - ----------------------------- --------- --------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1992
Notes payable to banks1 $ 246 6.69% $ 259 $ 232 7.81%
Commercial paper $ 520 4.64% $ 525 $ 495 6.40%
Term notes payable $ 238 5.17% $ 326 $ 269 6.36%
Year ended September 30, 1993
Notes payable to banks1 $ 248 4.99% $ 423 $ 225 5.96%
Commercial paper $ 407 4.04% $ 425 $ 445 5.28%
Term notes payable $ 206 5.23% $ 238 $ 212 5.31%
Year ended September 30, 1994
Notes payable to banks1 $ 223 5.00% $ 374 $ 182 4.91%
Commercial paper $ 370 5.04% $ 529 $ 416 5.43%
Term notes payable $ 291 6.36% $ 291 $ 240 5.54%
<FN>
1 Notes payable to banks represent borrowings under domestic and international
lines of credit.
2 The average amount outstanding during the period was computed by dividing
the total daily
outstanding principal balances by the number of days in the year.
3 The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average amount
outstanding during the period.
</TABLE>
[TEXT]
<PAGE>
Comdisco, Inc. and Subsidiaries
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.01 Restated Certificate of Incorporation of Registrant
dated February 12, 1988
Incorporated by reference to Exhibit 4.1 filed with the
Company's Registration Statement on Forms S-8 and S-3,
File No. 33-20715, filed March 8, 1988.
3.02 Certificate of Designations with respect to the
Company's 8 3/4% Cumulative Preferred Stock, Series A,
as filed with the Secretary of State of Delaware
on September 18, 1992
Incorporated by reference to Exhibit 4.1 filed with the
Company's Current Report on Form 8-K dated
September 17, 1992, as filed with the Commission
October 9, 1992, File No. 1-7725.
3.03 Certificate of Designations with respect to the
Company's 8 3/4% Cumulative Preferred Stock, Series B,
as filed with the Secretary of State of the State of
Delaware on July 2, 1993
Incorporated by reference to Exhibit 4.1 filed with
the Company's Current Report on Form 8-K dated
June 30, 1993, as filed with the Commission
July 21, 1993, File No. 1-7725.
3.04 By-Laws of Registrant as amended through November 18, 1987
Incorporated by reference to Exhibit 3.5 filed with the
Company's Annual Report for the year ended
September 30, 1987 on Form 10-K, 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).
<PAGE>
Exhibit No. Description of Exhibit
4.04 Shareholder Rights Agreement, dated as of November 18,
1987, as amended and restated as of November 7, 1994,
between Comdisco, Inc. and Chemical Bank, as Rights
Agent, which includes as Exhibit A thereto the Form
of Rights Certificate.
Incorporated by reference to Exhibit 4.1 filed with
the Company's Current Report on Form 8-K, filed on
December 6, 1994, File No. 1-7725.
10.01 Employment Agreement with John F. Slevin dated
October 20, 1994.
10.02 1979 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.3 filed with
the Company's Annual Report for the year ended
September 30, 1982 on Form 10-K, File No. 1-7725.
10.03 1981 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.4 filed with
the Company's Annual Report for the year ended
September 30, 1982 on Form 10-K, File No. 1-7725.
10.04 Amendment to 1979 and 1981 Stock Option Plans of the
Registrant dated December 15, 1986
Incorporated by reference to Exhibit 10.6 filed with
the Company's Annual Report for the year ended
September 30, 1987 on Form 10-K, File No. 1-7725.
10.05 1987 Stock Option Plan of the Registrant
Incorporated by reference to Exhibit 10.7 filed with
the Company's Annual Report for the year ended
September 30, 1988 on Form 10-K, File No. 1-7725.
10.06 Amendment to 1979, 1981 and 1987 Stock Option Plans
of the Registrant dated November 4, 1987
Incorporated by reference to Exhibit 10.9 filed with
the Company's Annual Report for the year ended
September 30, 1987 on Form 10-K, File No. 1-7725.
10.07 1989 Non-Employee Director Stock Option Plan.
Incorporated by reference to Exhibit 10.11 filed with
the Company's Annual Report for the year ended
September 30, 1990 on Form 10-K, File No. 1-7725
10.08 1991 Stock Option Plan
Incorporated by reference to Exhibit 10.08 filed
with the Company's Annual Report for the year ended
September 30, 1992 on Form 10-K, File No. 1-7725.
<PAGE>
Exhibit No. Description of Exhibit
10.09 1992 Long-Term Stock Ownership Incentive Plan
Incorporated by reference to Exhibit 10.09 filed
with the Company's Annual Report for the year ended
September 30, 1992 on Form 10-K, File No. 1-7725
10.10 Comdisco, Inc. Employee Stock Purchase Plan
Incorporated by reference to Exhibit 15 to the
Company's Registration Statement on Form S-8 filed
on March 19, 1982 and Post-Effective Amendment filed
December 21, 1982, File No. 2-76569.
10.11 Management Compensation Arrangements and Plans
10.12 Purchase/Sale Agreement - Riverway Project
Incorporated by reference to Exhibit 10.1 filed with
the Company's Form 10-Q dated March 31, 1988,
File No. 1-7725.
10.13 Financing Agreement - Riverway Project
Incorporated by reference to Exhibit 10.18 filed
with the Company's Annual Report for the year ended
September 30, 1988 on Form 10-K, File No. 1-7725.
10.14 Multi-option Facility Agreement dated June 4, 1991,
as amended by Supplement Agreement dated August 27,
1991, US$ 375,000,000 for Comdisco, Inc., arranged
by National Westminster Bank PLC.
Incorporated by reference to Exhibit 10.18 filed
with the Company's Annual Report for the year ended
September 30, 1991 on Form 10-K, File No. 1-7725.
10.15 Second Supplemental Agreement to Multi-Option
Facility Agreement dated April 20, 1992
Incorporated by reference to Exhibit 10.2 filed with
the Company's Quarterly Report on Form 10-Q dated
March 31, 1992, File No. 1-7725.
10.16 Third Supplemental Agreement to Multi-Option Facility
Agreement dated September 21, 1992
Incorporated by reference to Exhibit 10.22 filed with
the Company's Annual Report for the year ended
September 30, 1992 on Form 10-K, File No. 1-7725.
10.17 Fourth Supplemental Agreement to Multi-Option Facility
Agreement dated April 23, 1993
Incorporated by reference to Exhibit 10-1 filed with the
Company's Form 10-Q dated March 31, 1993, File No. 1-7725.
10.18 Fifth Supplemental Agreement to Multi-Option Facility
Agreement dated May 9, 1994
<PAGE>
Exhibit No. Description of Exhibit
10.19 Sixth Supplemental Agreement to Multi-Option Facility
Agreement dated August 12, 1994
10.20 Note Agreement dated as May 31, 1991
Incorporated by reference to Exhibit 10.23 filed with
the Company's Annual Report for the year ended
September 30, 1992 on Form 10-K, file No. 1-7725.
10.21 $50 Million Promissory Note between Comdisco, Inc.
and Continental Bank, N.A. dated June 15, 1994
10.22 Second Amended and Restated Global Credit Agreement
by and among Comdisco, Inc., Citibank, N.A. and
Nationsbank of North Carolina, N.A. as Co-agents and
Co-arrangers and the Financial Institutions Party
thereto dated as of September 30, 1993
Incorporated by reference to Exhibit 10.20 filed with
the Company's Annual Report for the year ended
September 30, 1993 on Form 10-K, File No. 1-7725.
10.23 Notice of Reduction in Tranche Commitments on the
Second Amended and Restated Global Credit
Agreement
10.24 Agreement and Plan of Dissolution of NBB Oil & Gas
Partners (U.S.A.) among Comdisco,
Inc. and Comdisco Exploration, Inc. and Comdisco
Resources, Inc. and NBB Energy Partners I,
L.P.
10.25 Exchange Agreement among NBB Oil & Gs Partners (USA)
11.00 Computation of Earnings Per Share
12.00 Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
13.00 Annual Report to Security Holders
Six Year Summary, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and
the Consolidated Financial Statements on pages 26
through 49 and the Quarterly Financial Data on page 48
and the Independent Auditors' Report on page 50 of the
Annual Report to security holders for the fiscal year
ended September 30, 1994 have been incorporated by
reference as part of this Form 10-K. In accordance
with instructions for electronic filers, such portions
of the 1994 Annual Report have been filed as part of this
Form 10-K.
21.00 Subsidiaries of Registrant
23.00 Consent of KPMG Peat Marwick LLP
dated December 20, 1994
27.00 Financial Data Schedule
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries Exhibit 11.00
COMPUTATION OF EARNINGS PER SHARE
(in millions except per share data)
Average shares used in computing earnings per common and common equivalent share were as
follows:
1994 1993 1992 1991 1990
---------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Average shares outstanding 47 47 47 47 47
Effect of dilutive options 1 - - 1 1
Treasury stock (9) (7) (6) (7) (5)
---------- -------- --------- ---------- ---------
Total 39 40 41 41 43
========== ======== ========= ========== =========
Earnings from continuing
operations before extraordinary items
and cumulative effect of change in
accounting principle, net of
preferred dividends $ 44 $ 80 $ 20 $ 83 $ 83
Earnings (loss) from
discontinued operations
(net of income taxes) - (20) - (14) 2
Extraordinary items
(net of income taxes
in fiscal 1992) - - (29) - 10
Cumulative effect of change in
accounting principle - 20 - - -
---------- -------- --------- ---------- ---------
Net earnings (loss)
to common stockholders $ 44 $ 80 $ (9) $ 69 $ 95
========== ======== ========= ========== =========
Net earnings (loss) per
common and common
equivalent share:
Earnings from continuing
operations $ 1.16 $ 1.97 $ .49 $ 2.03 $ 1.95
Earnings (loss) from
discontinued operations - (.50) - (.34) .05
Extraordinary items - - (.70) - .23
Cumulative effect of change in
accounting principle . - .50 - - -
---------- -------- --------- ---------- ---------
Net earnings (loss) to common
stockholders $ 1.16 $ 1.97 $ (.21) $ 1.69 $ 2.23
========== ======== ========= ========== =========
<FN>
On March 30, 1992, a 5% common stock dividend was distributed to common stockholders of
record as of March 12, 1992. All data with respect to earnings per common share,
dividends per common share, and weighted average number of common shares outstanding has
been retroactively adjusted to reflect the common stock dividend.
</TABLE>
<TABLE>
<CAPTION>
Comdisco, Inc. and Subsidiaries Exhibit 12.00
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(dollars in millions)
For the years ended September 30,
1994 1993 1992 1991 1990
----- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fixed charges
Interest expense1 $ 266 $ 295 $ 355 $ 371 $ 343
Approximate portion of
rental expense representative
of an interest factor 13 22 29 37 39
----- ------- ----- ----- -----
Fixed charges 279 317 384 408 382
Preferred stock dividends2 15 11 - - -
----- ------- ----- ----- -----
Combined fixed charges and preferred
stock dividends 294 328 384 408 382
Earnings from continuing operations
before income taxes, extraordinary
items and cumulative effect of change
in accounting principle, net of preferred
stock dividends 80 137 34 136 134
----- ------- ----- ----- -----
Earnings from continuing operations
before income taxes, extraordinary
items, cumulative effect of change in
accounting principle and combined fixed
charges and preferred stock dividends $ 374 $ 465 $ 418 $ 544 $ 516
===== ======= ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.27 1.42 1.09 1.33 1.35
===== ======= ===== ===== =====
Rental expense:
Equipment subleases $ 30 $ 57 $ 77 $ 103 $ 109
Office space, furniture, etc. 8 8 10 9 8
----- ------- ----- ----- -----
Total $ 38 $ 65 $ 87 $ 112 $ 117
===== ======= ===== ===== =====
1/3 of rental expense $ 13 $ 22 $ 29 $ 37 $ 39
===== ======= ===== ===== =====
<FN>
1 Includes interest expense incurred by disaster recovery services and
included in disaster recovery expense on the consolidated statements of
earnings.
2 There were no preferred stock dividend requirements for fiscal years 1990
through 1992.
</TABLE>
Exhibit 23.00
[KPMG Peat Marwick LLP Letterhead]
Consent of KPMG Peat Marwick LLP
The Board of Directors
Comdisco, Inc.:
We consent to incorporation by reference in Registration Statement No. 2-76569
on Form S-8, Registration Statement No. 33-20715 on Forms S-8 and S-3,
Registration Statement No. 33-48910 on Form S-3 and Registration Statement No.
33-50659 on Form S-8 of Comdisco, Inc. of our reports dated November 7, 1994,
relating to the consolidated balance sheets of Comdisco, Inc. and subsidiaries
as of September 30, 1994 and 1993 and the related consolidated statements of
earnings, stockholders' equity, and cash flows and related schedules for each
of the years in the three-year period ended September 30, 1994 which reports
appear, or are incorporated by reference, in the September 30, 1994 annual
report on Form 10-K of Comdisco, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
December 20, 1994
<TABLE>
<CAPTION>
Exhibit 21.00
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
<S> <C> <C>
Comdisco Australia PTY. Ltd. Australia 100%
Comdisco Aviation, Inc. Delaware 100%
Comdisco Belgium S.A. Belgium 100%
Comdisco Canada Ltd. Canada 100%
Comdisco Canada Exploration Ltd. Canada 100%
Comdisco Canada Resources Ltd. Canada 100%
Comdisco Danmark A/S Denmark 100%
Comdisco Deutschland GmbH Germany 100%
Comdisco Disaster Recovery Services
Canada Ltd. Canada 100%
Comdisco Disaster Recovery Services
Deutschland GmbH Germany 100%
Comdisco Disaster Recovery Services
Nederland B.V. Netherlands 100%
Comdisco Disaster Recovery Services
U.K. Limited United Kingdom 100%
Comdisco Exploration, Inc. Delaware 100%
Comdisco Factoring (Nederland) B.V. Netherlands 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
Comdisco Financial Services, Inc. Delaware 100%
Comdisco Finland OY Finland 100%
Comdisco Finance (Nederland) B.V. Netherlands 100%
Comdisco Financial Services VmbH Germany 100%
Comdisco France S.A. France 100%
Comdisco Funding Limited (U.K.) United Kingdom 100%
Comdisco Group, Inc. Delaware 100%
Comdisco Handelsgesellschaft M.B.H. Austria 100%
Comdisco Holdings U.K. Ltd. United Kingdom 100%
Comdisco Investment Group, Inc. Delaware 100%
Comdisco Italia SRL Italy 100%
Comdisco Leasing Ltd. U.K. United Kingdom 100%
Comdisco Leasing S.A./N.V. Belgium 100%
Comdisco Maintenance Services, Inc. Illinois 100%
Comdisco Medical Equipment Group, Inc. Delaware 100%
Comdisco Medical Exchange, Inc. Delaware 100%
Comdisco Nederland B.V. Netherlands 100%
Comdisco Japan, Inc. Japan 95%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
Comdisco Norway A/S Norway 100%
Comdisco Portugal Computadores, LDA Portugal 100%
Comdisco Receivables, Inc. Delaware 100%
Comdisco Resources, Inc. Delaware 100%
Comdisco, S.A. Switzerland 100%
Comdisco Sweden, A.B. Sweden 100%
Comdisco Switzerland, S.A. Switzerland 100%
Comdisco Systems, Inc. Delaware 100%
Comdisco Trade, Inc. Delaware 100%
Comdisco United Kingdom Limited United Kingdom 100%
Comdisco International Trade
Corporation Virgin Islands 100%
Aegeris International France 100%
Failsafe/Roc Ltd. United Kingdom 100%
ROC Ltd. United Kingdom 100%
<PAGE>
State or Jurisdiction Percentage of Voting
of Incorporation Securities Owned
Comdisco Disaster Recovery
Services (U.K.) Ltd. United Kingdom 100%
CDRS Nederland B.V. Netherlands 100%
Comdisco Computing Services
Corporation Delaware 100%
CDS Foreign Holdings, Inc. Delaware 100%
<FN>
Subsidiaries of the Registrant are included in the consolidated financial
statements.
</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 20th day of October, 1994, between COMDISCO,
INC., a Delaware corporation (hereinafter referred to as "Comdisco") and JOHN
F. SLEVIN (hereinafter referred to as "SLEVIN").
W I T N E S S E T H;
WHEREAS Comdisco wishes to retain SLEVIN as President and Chief Executive
Officer of Comdisco, and
NOW THEREFORE in consideration of the above premises and covenants herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT.
During the course of employment SLEVIN shall be President and Chief
Executive Officer of Comdisco and shall have full charge and authority over
the operation of Comdisco, subject, however, to the orders and direction of
the Board of Directors. SLEVIN shall devote his full working time, attention
and abilities to the business of Comdisco.
2. TERM.
A. The term of this Agreement shall be effective as of October 1,
1994 and shall continue for a period of three (3) years ending on September
30, 1997.
B. In the event of the death of SLEVIN during the term hereof, this
Agreement shall immediately terminate, provided, however, that Comdisco agrees
and shall pay to his estate the monthly salary set forth herein for six full
calendar months following the date of said death, and the incentive
compensation, if any, required to be paid pursuant to paragraph 4.
C. In the event of an illness or injury of SLEVIN which prevents him
from fulfilling his duties for a consecutive six (6) month period, Comdisco
shall thereafter have the right to terminate this Agreement whereupon Comdisco
shall have no further obligations hereunder except for the incentive
compensation, if any, required to be paid pursuant to paragraph 4.
3. SALARY.
During the term of this Agreement, SLEVIN shall receive a fixed salary of
$433,000.00 per year, payable in equal semi-monthly installments.
4. INCENTIVE COMPENSATION.
During the first year of this Agreement, SLEVIN shall receive as
incentive compensation (i) one percent (1%) of Comdisco's fiscal 1995 pre-tax
earnings between $125 million and $170 million, and (ii) two percent (2%) of
pre-tax earnings in excess of $170 million. Incentive compensation for fiscal
years 1996 and 1997 shall be determined on an annual basis by the Compensation
Committee of the Board of Directors of Comdisco and shall be attached as an
Exhibit to this Agreement. The incentive compensation shall also be subject
to the following terms:
(i) In the event of the death or disability of SLEVIN during the term
of this Agreement, then Comdisco shall only be obligated to pay said incentive
compensation on a prorated basis through its fiscal quarter ending immediately
after the date of said death or disability. Any such prorated incentive
compensation shall be determined as follows. The incentive compensation will
be computed based upon Comdisco's pre-tax earnings for the entire fiscal year
and said amount shall be prorated as follows:
<TABLE>
<CAPTION>
Death or Disability
during Quarter Proration Percentage
<S> <C>
1st Quarter 25%
2nd Quarter 50%
3rd Quarter 75%
4th Quarter 100%
</TABLE>
(ii) If the Agreement shall be otherwise terminated by SLEVIN or
terminated for cause by Comdisco, then the obligation of Comdisco to pay said
incentive compensation shall immediately terminate and Comdisco shall have no
further obligations hereunder provided that SLEVIN shall be entitled to
incentive compensation on pre-tax earnings up to the date of termination.
(iii) Any incentive compensation shall be payable on a quarterly
basis, in arrears, within forty-five (45) days after the end of each quarter.
SLEVIN shall also be eligible to participate in the Shareholder
Value Plan as determined by the Compensation Committee of the Board of
Directors of Comdisco.
5. CONFIDENTIAL INFORMATION.
SLEVIN agrees that he will not during the term hereof or at any term
thereafter impart to any competitor of Comdisco or otherwise use for the
purpose of competition with Comdisco any trade secrets or confidential
information which he may acquire during the course of his employment.
6. COVENANT NOT TO COMPETE AND NON-SOLICITATION.
A. In consideration of this Agreement and other good and valuable
consideration and because of his relationship with Comdisco, SLEVIN herewith
agrees that during the course of his employment and for a period of one (1)
year following the termination thereof, he shall not directly or indirectly,
own, manage, operate, join, control, participate or engage as a director,
officer, stockholder, employee, agent, consultant of a corporation or have an
ownership interest in a partnership, sole or joint proprietorship in a
business or activity, competitive to the business engaged in by Comdisco, or
which Comdisco reasonably intends to engage in, at the date his employment
terminates within the Continental United States, recognizing that Comdisco is
currently engaged in business throughout this area as well as overseas.
Notwithstanding anything to the contrary contained in the foregoing, SLEVIN
shall not be prohibited hereby from owning stock or other security of a
corporation listed and admitted for trading on any national security exchange
not to exceed, however, 3% of the issued and outstanding shares of any such
company, providing such stock is non-restricted stock and is not subject to
any investment or control restrictions.
B. During the term hereof, SLEVIN agrees that he shall not solicit or
divert any business from Comdisco to any other company or party nor for a
period of two (2) years thereafter shall he solicit any officer of Comdisco to
leave Comdisco.
7. MISCELLANEOUS.
A. Failure of either party at any time to require performance by the
other party of any of the provisions of this Agreement shall in no way affect
the right of such other party to require performance of that provision, and
any waiver by either party of any breach of any provision of this Agreement
shall not be construed as a waiver of any succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right under this
Agreement.
B. This instrument sets forth the entire agreement and undertaking
between the parties relating to the subject matter contained in it and merges
all prior undertakings, agreements and discussions between them and neither
party shall be bound by any representations, definition, condition or
provision other than as expressly stated in this Agreement or as subsequently
set forth in writing and executed by an officer of Comdisco other than SLEVIN.
C. The validity, construction and enforceability of this Agreement
shall be governed in all respects by the laws of the State of Illinois.
D. This Agreement may be executed in counterpart copies, all of
which, when taken together, may be deemed to be an original.
E. This Agreement shall be assignable by Comdisco in the event of any
merger or other reorganization where Comdisco is not the successor or in the
event of the sale of substantially all of the assets of Comdisco.
F. Any provision of this Agreement prohibited or unenforceable by law
shall be ineffective without invalidating the remaining provisions of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
___________________________ COMDISCO, INC.
John F. Slevin
By:
John J. Vosicky
Executive Vice President and
Chief Financial Officer
ATTEST:
Jeremiah M. Fitzgerald
Assistant Secretary
JMF:mkc-152slev.agt
COMPENSATION & OTHER TRANSACTIONS WITH DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to compensation for services in all
capacities paid by Comdisco and its subsidiaries for the past three years, to or on behalf of (i) Kenneth N.
Pontikes, who served as Chairman of the Board and Chief Executive Officer until his death on June 24, 1994,
(ii) Jack Slevin, who was named Chief Executive Officer on July 20, 1994, and (iii) each of the four other
most highly compensated executive officers of Comdisco serving at September 30, 1994.
Annual Compensation LONG-TERM COMPENSATION
Awards Payouts
Restricted Long-Term
Name and Principal Other Annual Stock Options Incentive All Other
Position Year Salary Bonus Compensation(1) Awards (shares) Payouts Compensation(1)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth N. Pontikes 1994 $500,000 $565,000 $ -0- $ -0- -0- $ 54,545(3) $ 5,643
Chairman and CEO 1993 500,000 440,605 -0- -0- -0-
1992 500,000 -0- -0- -0- -0-
Jack Slevin 1994 350,000 450,000 -0- -0- 125,000 -0- 5,643
President and CEO 1993 150,000 650,000 -0- -0- -0-
1992 150,000 650,000 -0- 25,000 -0-
Robert A. Bardagy 1994 350,000 509,000 -0- -0- -0- -0- 5,643
Executive Vice President 1993 200,000 663,500 -0- -0- -0-
1992 200,000 600,000 -0- 25,000 -0-
Nicholas K. Pontikes 1994 200,000 385,000 -0- -0- 25,000 -0- 5,643
Executive Vice President 1993 137,500 -0- -0- -0- -0-
1992 15,462 -0- -0- -0- -0-
William N. Pontikes 1994 250,000 251,000 -0- -0- -0- -0- 5,643
Executive Vice President 1993 200,000 400,000 -0- -0- -0-
1992 200,000 400,000 -0- -0- -0-
John J. Vosicky 1994 225,000 276,000 -0- -0- -0- -0- 5,643
Executive Vice President, 1993 150,000 300,000 -0- -0- -0-
Chief Financial Officer & Tres. 1992 150,000 300,000 -0- 25,000 -0-
<FN>
<PAGE>
(1) In accordance with the revised rules on executive officer and director compensation disclosure adopted
by the Securities and Exchange Commission, amounts of Other Annual Compensation and All Other Compensation
are excluded for Comdisco's 1992 and 1993 fiscal years.
(2) Amounts of All Other Compensation are amounts contributed by Comdisco for fiscal 1994 under Comdisco's
Profit Sharing and Employee Stock Ownership Plans for the persons named above.
(3) This amount was earned in 1994, and will be payable to the Estate of Kenneth N. Pontikes. The amount
is payable under an Award Agreement under the Comdisco, Inc. 1992 Long-Term Stock Ownership Incentive
Plan.
</TABLE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to grants of stock
options made to named executive officers during the fiscal year ended September 30, 1994.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS EXERCISEGRANT
SARS GRANTED TO OR BASEDATE
GRANTED EMPLOYEES PRICEMARKET EXPIRATION
NAME (#) IN FISCAL YEAR ($/SH)PRICE DATE 0% 5% ($)10% ($)
<S> <C> <C> <C> <C> <C> <C>
JACK SLEVIN 125,000 6% $ 18.38$21.50 07/19/04 $391,250 $2,052,243$4,584,014
NICHOLAS K. PONTIKES 25,000 1% $ 14.50$19.00 11/07/03 $112,500 $ 411,122$869,206
<FN>
The exercise price for Mr. Slevin's options was based on the closing price of Comdisco
stock on the date he was elected President of Comdisco. The exercise price for Mr.
Pontikes' options was based on the closing price of Comdisco stock on the date he was
elected President of Comdisco Disaster Recovery Services.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUE
<TABLE>
<CAPTION>
The following table sets forth information with respect to the named executive
officers in the Summary Compensation Table concerning the exercise of options during
the last fiscal year and unexercised options held as of the end of the fiscal year.
TOTAL NUMBER OF SHARES
UNDERLYING UNEXERCISED TOTAL VALUE OF UNEXERCISED,
OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD
SEPTEMBER 30, 1994 AT SEPTEMBER 30, 1994(1)
NUMBER OF
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Kenneth N. Pontikes 0 $ 0 0 0 $ 0 $ 0
Jack Slevin 0 0 11,759 163,834 $ 3,819 $ 490,154
Robert A. Bardagy 0 0 18,900 37,600 9,175 192,200
Nicholas K. Pontikes 0 0 0 25,000 0 156,250
William N. Pontikes 0 0 0 0 0 0
John J. Vosicky 0 0 60,639 41,536 167,976 201,699
<FN>
(1) Based on the closing price of the Common Stock on September 30, 1994,
$20.75.
</TABLE>
LONG TERM INCENTIVE PLAN ("LTIP") AWARDS
<TABLE>
<CAPTION>
The following table sets forth information with respect to the named
executive officers concerning the grants of Performance Unit Awards under the
Comdisco, Inc. 1992 Long-Term Stock Ownership Incentive Plan. The target
performance objective is that Comdisco's Total Shareholder Return be ranked at
or above the 60th percentile of the Total Shareholder Return of all companies
in the S&P 500 for the period running from October 4, 1993 through September
30, 1996. The minimum performance objective is a 50th percentile ranking. If
the actual ranking is less than the 50th percentile, then no compensation
would be paid under these awards.
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
(A) (B) (C) (D) (E) (F)
PERFORMANCES OR
OTHER PERIOD UNTIL
NUMBER OF MATURATION OR
NAME UNITS PAYMENT THRESHOLD TARGET MAXIMUM
<C> <C> <S> <C> <C> <C>
Jack Slevin 140 September 30, 1996 $ 70,000 $140,000 $420,000
Robert A.Bardagy 140 September 30, 1996 $ 70,000 $140,000 $420,000
Nicholas K. Pontikes 67 September 30, 1996 $ 33,500 $ 67,000 $201,000
William N. Pontikes 100 September 30, 1996 $ 50,000 $100,000 $300,000
John J. Vosicky 75 September 30, 1996 $ 37,500 $ 75,000 $225,000
</TABLE>
PAYMENTS TO DIRECTORS
Non-employee Directors are paid a quarterly retainer of $6,000, a Board
meeting fee of $2,000 plus expenses and a Committee meeting fee of $2,000 plus
expenses if the Committee meeting is held on a date other than that scheduled
for a full Board meeting. Non-employee Directors are eligible to participate
in the Company's Split Dollar Life Insurance Plan. In October of 1994, each
outside Director was granted an option to acquire 2,000 shares of Comdisco
Common Stock at a price equal to the fair market value on the date of grant
pursuant to Comdisco's Non-Employee Directors' Stock Option Plan. No option is
exercisable within six months from the date granted and options must be
exercised within ten years from the date granted.
OTHER TRANSACTIONS
In 1994, Merrill acted as Comdisco's agent in an established medium term
note program and was a dealer for the sale of Comdisco's domestic and
Euro-commercial paper.
COMPENSATION COMMITTEE REPORT
ROLE OF THE COMMITTEE
In November, 1993, the Board of Directors defined the scope of authority
that would be delegated to the non-employee directors who serve as members of
the Compensation Committee. Overall direction was given to this Committee to
review and approve the Company's compensation policies to ensure that
executive officers are rewarded appropriately for their contributions to
Comdisco's growth and profitability and to ensure that compensation policies
support Comdisco's business objectives, organization structure, culture and
shareholder interests. Specific direction was given to determine the
compensation of the Chief Executive Officer and to review and approve the
compensation of the executive officers of the Company.
COMPENSATION STRATEGY
During fiscal year 1994, the Compensation Committee, with the assistance
of outside compensation consultants, has continued to evaluate Comdisco's
compensation plans. Continuing emphasis is being placed on the strategy of
allocating a greater percentage of compensation to longer-term performance
based compensation. Annual cash incentive plans will be tied to pre-tax
earnings objectives. Long-term incentive plans will be tied to the investment
returns achieved by Comdisco's shareholders.
DISCUSSION OF NEW TAX LAWS
The Compensation Committee has continued to monitor legislation which was
enacted in 1993 which precludes a publicly held corporation from taking a
deduction for compensation in excess of $1 million paid to its chief executive
officer and its four other highest paid executive officers. Certain qualified
performance based compensation is exempt from this deduction limit. It is
important to note that final regulations have not yet been issued by the
Internal Revenue Service on this matter.
In the interim, senior management compensation is being structured to
meet the parameters of performance based compensation utilizing certain
transition rules that are now in effect. Incentive awards to executive
officers are primarily granted under the provisions of the shareholder
approved 1992 Long-Term Stock Ownership Incentive Plan, which Plan meets the
requirements of the regulations at this time.
The Committee will not structure executive compensation solely for tax
purposes, but it agrees with the importance of performance based compensation
and therefore will continue to review the Company's plans accordingly.
1994 CEO COMPENSATION
For services rendered in 1994 Comdisco had an employment agreement with
Kenneth Pontikes which provided for an annual salary of $500,000 plus
incentive compensation equal to 0.5% of Comdisco's 1994 fiscal year pre-tax
earnings between $100 million and $125 million, 1% of pre-tax earnings between
$125 million and $150 million and 2% thereafter (subject to a overall
compensation cap of $3 million). Amounts earned under this agreement are set
forth in the Summary Compensation Table. In fiscal 1994, Mr. Pontikes was
granted 300 Performance Units under the Comdisco, Inc. 1992 Long-Term Stock
Ownership Incentive Plan. The performance objectives are set forth in the
Long-Term Incentive Plan ("LTIP") Awards section above. Under the terms of
the Plan, this award accrued on the death of Mr. Pontikes. Amounts earned
under this award are set forth in the Summary Compensation Table.
Jack Slevin, who was named CEO on July 20, 1994, received an annual base
salary of $350,000 for services rendered in 1994. Mr. Slevin also received
$450,000 in an annual cash incentive bonus which was paid based on the Company
exceeding its pre-tax earnings objective. Mr. Slevin was also a participant
in a long-term incentive program under which he received (i) the LTIP award
specified above and (ii) a stock option for 10,245 shares at $20.50 per share.
1994 EXECUTIVE OFFICER COMPENSATION
During fiscal year 1994, the Company had an incentive compensation plan
for its key salaried employees, including executive officers, which was
comprised of the following elements: base salary; annual bonus based on the
Company meeting its pre-tax earnings objectives; performance units to be paid
if the Company meets 3 year total shareholder return goals; and stock options
to be granted if the company meets its annual pre-tax earnings objectives.
This report has been provided by C. Keith Hartley, Rick Kash, and Thomas
H. Patrick, the members of the Compensation Committee.
THIS FIFTH SUPPLEMENTAL AGREEMENT is made on May 9, 1994 between:-
(1) COMDISCO, INC. (the "COMPANY") for itself and on behalf of those
Additional Borrowers party to the Facility Agreement defined
below;
(2) NATIONAL WESTMINSTER BANK PLC as Arranger;
(3) THE BANKS listed on the signatory pages to this Supplemental
Agreement under the heading
"Extending Banks";
(4) THE BANK listed on the signatory pages to this Supplemental
Agreement under the heading "New Bank ";
(5) THE BANK listed on the signatory pages to this Supplemental
Agreement under the heading "New Extending Bank";
(6) THE BANKS listed on the signatory pages to this Supplemental
Agreement under the heading "Exiting Banks";
(7) NATIONAL WESTMINSTER BANK PLC as facility agent, tender panel
agent and swingline agent (the "FACILITY AGENT"); and
(8) BARCLAYS BANK PLC as letter of credit agent.
WHEREAS
(A) this Supplemental Agreement is supplemental to a facility
agreement dated June 4, 1991 in respect of a revolving credit
facility of up to U.S. $375,000,000 as amended by a supplemental
agreement dated August 27, 1991, a second supplemental agreement
dated April 20, 1992, a third supplemental agreement dated
September 21, 1992 and a fourth supplemental agreement dated
April 23, 1993 (together the "FACILITY AGREEMENT");
(B) at the request of the Company, those Underwriters which are
Extending Banks and New Extending Banks have agreed to extend the
Final Maturity Date of the Facility;
(C) at the request of the Company, those Extending Banks which are
referred to in this Supplemental Agreement as "Increasing Banks"
have agreed to increase the amount of their respective
Commitments;
(D) The Exiting Banks are to be released from their respective
obligations under the Facility Agreement and the New Bank has
agreed to become party to the Facility Agreement, in each case
with effect from the Effective Date of this Supplemental
Agreement; and
(E) the parties to this Supplemental Agreement have agreed to amend
certain of the financial covenants and events of default
contained in the Facility Agreement as set out below.
IT IS AGREED as follows:-
PortraitPortrait
1. INTERPRETATION
(a) A term defined in the Facility Agreement has, unless this
Supplemental Agreement or the context otherwise requires,
the same meaning when used in this Supplemental Agreement.
(b) Clause 1.2 of the Facility Agreement is deemed to be set
out in this Supplemental Agreement as if references
therein to the Facility Agreement are references to this
Supplemental Agreement.
(c) "EXITING BANKS" means those parties to this Supplemental
Agreement listed under the heading "Exiting Banks" on the
signatory pages;
(d) "EXTENDING BANKS" means those parties to this Supplemental
Agreement listed under the heading "Extending Banks" on
the signatory pages.
(e) "INCREASING BANKS" means those Extending Banks which have
agreed to increase the amount of their respective
Commitments as set out in Part I of Exhibit A to the
Facility Agreement as amended by this Supplemental
Agreement.
(f) "NEW BANK" means the party to this Supplemental
Agreement listed under the heading "New Bank" on the
signatory pages.
(g) "NEW EXTENDING BANK" means the party to this Supplemental
Agreement listed under the heading "New Extending Bank"
on the signatory pages, being a bank which was an original
party to the Facility Agreement which did not agree to
become an Extending Bank under the fourth supplemental
agreement referred to in Recital A above (the "Fourth
Supplemental Agreement"), but which now wishes to become
an Extending Bank and to agree to the amendments made by
the Fourth Supplemental Agreement (adjusted in accordance
with Clause 6.2 of this Supplemental Agreement) and this
Supplemental Agreement.
2. AMENDMENTS TO THE FACILITY AGREEMENT
2.1 Subject to the satisfaction of the condition in Clause 4 below
and as provided in Clause 2.2 and 2.3 below, the Facility
Agreement is amended as follows:-
(a) The definition of "BANKS" in Clause 1.1 shall include
the Extending Banks, the New Extending Bank and the New
Bank and shall not include the Exiting Banks.
Part I of Exhibit A (the Underwriters and their Commitments)
shall be deleted and replaced with the form set out in
Schedule 1 to this Supplemental Agreement and Parts II (the
Swingline Banks) and IV (the Tender Panel Members) shall be
deemed to include the New Bank.
(b) In Clause 1.1:
The definitions of "ANNIVERSARY" and "FINAL MATURITY DATE"
shall be deleted and replaced with the following:
"ANNIVERSARY"
means March 31 in any year.
"FINAL MATURITY DATE"
in relation to an Underwriter means, subject to
Clause 2.4, March 31, 1997.
(c) The following new definitions shall be added to
Clause 1.1:
"AGGREGATE MATERIAL AMOUNT"
means, at any time, an amount equal to the higher of
(i) five per cent. of Consolidated Tangible Net Worth of the
Company and its Subsidiaries at such time and (ii)
U.S.$25,000,000.
"INDIVIDUAL MATERIAL AMOUNT"
means, at any time, an amount equal to the higher of
(i) two per cent. of the Consolidated Tangible Net Worth
of the Company and its Subsidiaries at such time and
(ii) U.S.$10,000,000.
(d) In Clause 20.11 (a) (i), the reference to "U.S.$508,000,000"
shall be deleted and replaced with "U.S.$525,000,000".
(e) In Clause 20.11 (a) (ii), the reference to "30 September 1990"
shall be deleted and replaced with "30 September 1992".
(f) The first four lines of Clause 21.1 (i) beginning "There
shall be entered..." and ending "at any one time..." shall
be deleted and replaced with the following:
(i) LITIGATION
There shall be entered against any member of the Group one
or more judgments or decrees in excess of an amount equal to,
individually, the Individual Material Amount or, in the
aggregate, the Aggregate Material Amount at any one time .
(g) Attachment 1 to the Compliance Certificate set out in
Exhibit P shall be deleted and replaced with a new Attachment
in the form set out in Schedule 2 to this Supplemental
Agreement.
2.2 Subject to the satisfaction of the condition set out in
Clause 4 below, the amendments to the Facility Agreement in
Clause 2.1 shall apply as between all the Contracting Parties
including, for the avoidance of doubt, the New Bank.
2.3 Subject to Clause 4 below, the amendments in Clause 2.1 shall be
deemed to be effective on May 12, 1994 (the "EFFECTIVE DATE").
3. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Facility Agent and
the Banks on its own behalf and on behalf of all the
Additional Borrowers that:
(a) POWERS AND AUTHORITY: It has the power to enter into
and perform, and has taken all necessary action to
authorise the entry into, performance and delivery of,
this Supplemental Agreement and the transactions
contemplated by this Supplemental Agreement.
(b) LEGAL VALIDITY: This Supplemental Agreement constitutes
its legal, valid and binding obligation.
(c) NON-CONFLICT: The entry into and performance by it of,
and the transactions contemplated by, this Supplemental
Agreement do not and will not:-
(i) conflict with any law or regulation or any official or
judicial order applicable to it; or
(ii) conflict with its constitutive documents; or
(iii) conflict with any document which is binding on it or any
of its assets.
(d) AUTHORISATIONS: All authorisations, approvals, consents,
licences, exemptions, filings, registrations,
notarisations and other matters, official or otherwise,
required or desirable in connection with the entry into,
performance, validity and enforceability of, and the
transactions contemplated by this Supplemental Agreement
have been obtained or effected (as appropriate) and are in
full force and effect.
(e) REPRESENTATIONS AND WARRANTIES IN THE FACILITY AGREEMENT:
The representations and warranties set out in Clause 19.1
of the Facility Agreement are true as if made on the date
of this Supplemental Agreement and as if references in
that Clause to the Facility Agreement were references to
the Facility Agreement as amended by this Supplemental
Agreement.
(f) OTHER BORROWERS: The other Borrowers are bound by the
terms of this Supplemental Agreement.
4. CONDITION PRECEDENT
(a) Clause 2 above and Clause 6 below shall come into effect
when the Facility Agent has confirmed to the Company
and the Banks (which confirmation the Facility Agent
undertakes to give promptly) that it has received a
legal opinion from Philip A. Hewes, Senior Vice
President - Legal of the Company, reaffirming the
matters set forth in his opinion delivered pursuant to
Clause 4.1(a)(vi) of the Facility Agreement with
reference to this Supplemental Agreement and the
Facility Agreement as amended hereby.
(b) If the above condition is not satisfied on or prior to
May 12, 1994 (or such later date as may be agreed
between the Company and the Facility Agent) this
Supplemental Agreement will lapse and (with the
exception of Clauses 1, 5, 7 and 8) shall cease to
have any effect.
5. INCORPORATION
(a) This Supplemental Agreement is a Finance Document.
(b) This Supplemental Agreement is deemed to be
incorporated as part of the Facility Agreement.
(c) Except as otherwise provided in this Supplemental
Agreement, the Finance Documents remain in full
force and effect.
6. EXITING BANKS, NEW BANK AND NEW EXTENDING BANK
6.1 On the Effective Date:
(a) The Exiting Banks will be released from all of their
respective obligations under the Facility Agreement
and each Exiting Bank's Commitment shall be
reduced to zero.
(b) The New Bank shall become a Bank under the Facility
Agreement and will be bound by the provisions of the
Facility Agreement as if it were an original party
thereto in the capacity as Underwriter, Swingline
Bank and Tender Panel Member.
(c) The Commitment of each Bank in its capacity as
Underwriter shall be the amount in Dollars set
opposite its name in Schedule 1 and the L/C Amount of
each Underwriter shall be adjusted so as to reflect
the proportion of the Letter of Credit Outstandings
which its Commitment bears to the Total Commitments
on the Effective Date.
(d) The New Bank:
(i) represents and warrants that it is a bank whose
ordinary business is or includes the making of, or
the participating in, Sterling and Eurocurrency loans;
(ii) confirms that it has received a copy of the
Facility Agreement together with such other documents
and information as it has requested in connection with
this transaction;
(iii)agrees that it has not relied and will not rely
on any other Contracting Party to assess or keep
under review on its behalf the financial condition,
creditworthiness, condition, affairs, status or
nature of any Borrower or any other party to the
Facility Agreement or any other Finance Document; and
(iv) makes the representations and warranties set
forth in Clause 15.4(d) of the Facility Agreement
and undertakes the obligations set forth in Clause
15.4(e) of the Facility Agreement.
6.2 Subject to the satisfaction of the condition in Clause 4
above, the New Extending Bank agrees to the amendments to
the Facility Agreement effected by Clause 2.1 of the
Fourth Supplemental Agreement as if it were an Extending
Bank (as such term is defined in the Fourth Supplemental
Agreement) provided however that as far as the New
Extending Bank is concerned, the amendments to the
Facility Agreement effected by the Fourth Supplemental
Agreement shall apply to the New Extending Bank with
effect from the Effective Date of this Supplemental Agreement.
7. FEES
7.1 The Company shall pay to the Facility Agent for the
account of the New Bank a fee in Dollars in the amount
agreed between the Company and the Facility Agent on
behalf of the New Bank. Such fee shall be payable on
the Effective Date of this Supplemental Agreement.
7.2 The Company shall pay to the Facility Agent for the account
of each of the Increasing Banks a fee in Dollars (calculated
on the amount by which each such Increasing Bank has
increased its Commitment as compared to its Commitment
prior to the amendment to Part I of the Facility Agreement)
in the amount agreed between the Company and the Facility
Agent on behalf of each Increasing Bank. Such fee shall
be payable on the Effective Date of this Supplemental Agreement.
8. MISCELLANEOUS
The provision of Clauses 15 (payments), 26 (Stamp Duties),
27 (Amendments, Waivers, Remedies Cumulative), 34
(Jurisdiction) and 36 (Counterparts) of the Facility
Agreement shall apply to this Supplemental Agreement as
though they were set out in this Supplemental Agreement,
but as if references in those Clauses to the Facility
Agreement are references to this Supplemental Agreement.
9. GOVERNING LAW
This Supplemental Agreement is governed by English law.
AS WITNESS the hands of the parties (or their duly authorised
representatives) on the date which appears first on page 1.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
PART I
THE UNDERWRITERS AND COMMITMENTS
UNDERWRITERS COMMITMENTS
U.S. $
<S> <C>
WESTMINSTER BANK PLC 75,000,000
BARCLAYS BANK PLC 60,000,000
UNION BANK OF SWITZERLAND 55,000,000
CREDIT LYONNAIS 50,000,000
BHF-BANK 40,000,000
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AG,
NEW YORK BRANCH 25,000,000
DRESDNER BANK AG 25,000,000
WESTDEUTSCHE LANDESBANK GIROZENTRALE 25,000,000
BAYERISCHE VEREINSBANK AG 25,000,000
NORDDEUTSCHE LANDESBANK GIROZENTRALE 20,000,000
_____________
400,000,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
ATTACHMENT 1
CONSOLIDATED TANGIBLE NET WORTH RATIO
<C> <S> <C>
The consolidated capital (including in excess of par value but
excluding effects of deferred translation adjustment) and retained
earnings of the Company and Subsidiaries $
All franchises, patents, patent applications, trademarks, goodwill,
research and development expense, the after-tax effect of
unamortized debt discount and any other unamortized debt
expense and other intangibles shown on the consolidated balance
sheet of the Company and Subsidiaries as at the Quarterly
Compliance Date. $
3. Consolidated Tangible Net Worth
(Item 1 minus Item 2) $
4. 50% of Consolidated Net Income from September 30, 1992, with
no adjustment for losses $
5. 525,000,000 plus Item 4 $
6. Item 3 minus Item 5 (shall not be less than zero) $
</TABLE>
<PAGE>
SIGNATORIES
COMPANY
COMDISCO, INC. (on behalf of itself and on behalf of those Additional
Borrowers party to the Facility Agreement)
By RAYMOND J. SIEGEL
ARRANGER
NATIONAL WESTMINSTER BANK PLC
By: RICHARD DENCH
EXTENDING BANKS
NATIONAL WESTMINSTER BANK PLC
By: RICHARD DENCH
BARCLAYS BANK PLC
By: KEVIN F. HERATY
UNION BANK OF SWITZERLAND, CHICAGO BRANCH
By: WALTER R. WOLFF DENIS J. CAMPBELL
BHF-BANK
By: PAUL TRAVERS PETER J. BECKER
CREDIT LYONNAIS CHICAGO BRANCH
By: ATTILA KOC
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: ATTILA KOC
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AG, NEW YORK BRANCH
By: JOHN QUIGLEY E.S. ATWELL
DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES
By: W.J. MURRAY
By: J.D. SINSHEIMER
NORDDEUTSCHE LANDESBANK GIROZENTRALE
By: STEPHEN K. HUNTER PETRA FRANK-WITT
NEW BANK
BAYERISCHE VEREINSBANK AG
By: EDWIN C. BENNETT THEODORE F. CEGLIA
NEW EXTENDING BANK
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK
AND CAYMAN ISLANDS BRANCHES
By: MICHAEL F. McWALTERS J.M. MALLEY
EXITING BANKS
BANQUE NATIONALE DE PARIS
By: ARNAUD COLLIN DU BOCAGE
BANCO CENTRAL HISPANOAMERICANO, S.A., GRAND CAYMAN BRANCH
By: JOHN ESTRUCH
BANCO CENTRAL HISPANOAMERICANO, SA., PARIS BRANCH
By: JUAN TALAVERA
CENTRAL HISPANO BENELUX, S.A.
By: J.Y. JANSSENS J.P. DE BEAUFFORT
FACILITY AGENT, TENDER PANEL AGENT AND SWINGLINE AGENT
NATIONAL WESTMINSTER BANK PLC
By: RICHARD DENCH
LETTER OF CREDIT AGENT
BARCLAYS BANK PLC
By: KEVIN F. HERATY
CONFORMED COPY
FIFTH SUPPLEMENTAL AGREEMENT
DATED MAY 9, 1994
BETWEEN
COMDISCO, INC.
and
NATIONAL WESTMINSTER BANK PLC
as Arranger
and
THE EXTENDING BANKS
THE NEW EXTENDING BANK
THE NEW BANK
THE EXITING BANKS
and
NATIONAL WESTMINSTER BANK PLC
as Facility Agent, Tender Panel Agent
and Swingline Agent
and
BARCLAYS BANK PLC
as Letter of Credit Agent
________________________________
relating to a U.S.$375,000,000 Agreement dated
June 4, 1991 (as amended by supplemental
agreements dated August 27, 1991, April 20, 1992
September 21, 1992 and April 23, l993)
_________________________________
ALLEN & OVERY
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
THIS SIXTH SUPPLEMENTAL AGREEMENT is made on August 12, 1994 between:-
(1) COMDISCO, INC. (the "COMPANY") for itself and on behalf of those
Additional Borrowers party to the Facility Agreement defined
below;
(2) NATIONAL WESTMINSTER BANK PLC as Arranger;
(3) THE BANKS listed on the signatory pages to this Supplemental
Agreement under the heading
"Banks";
(4) NATIONAL WESTMINSTER BANK PLC as facility agent, tender panel
agent and swingline agent (the "FACILITY AGENT"); and
(5) BARCLAYS BANK PLC as letter of credit agent.
WHEREAS
(A) this Supplemental Agreement is supplemental to a facility
agreement dated June 4, 1991 as amended by a supplemental
agreement dated August 27, 1991, a second supplemental
agreement dated April 20, 1992, a third supplemental
agreement dated September 21, 1992, a fourth supplemental
agreement dated April 23, 1993 and a fifth supplemental
agreement dated May 9, 1994 providing for a revolving credit
facility of up to U.S. $400,000,000 (together the "FACILITY
AGREEMENT");
(B) the parties to this Supplemental Agreement have agreed to
amend certain of the events of default contained in the
Facility Agreement as set out below.
IT IS AGREED as follows:-
1. INTERPRETATION
(a) A term defined in the Facility Agreement has, unless
this Supplemental Agreement or the context otherwise
requires, the same meaning when used in this Supplemental
Agreement.
(b) Clause 1.2 of the Facility Agreement is deemed to be set
out in this Supplemental Agreement as if references therein
to the Facility Agreement are references to this
Supplemental Agreement.
2. AMENDMENTS TO THE FACILITY AGREEMENT
Subject to the satisfaction of the condition in Clause 4 below,
the Facility Agreement is amended as follows:-
(a) Clause 21.1(j) shall be deleted.
(b) There shall be inserted a new clause 21.1(j) as follows:
"CHANGE OF CONTROL
Any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934,
as amended), shall acquire beneficial ownership (within
the meaning of Rule 13d-3 promulgated by the Securities
and Exchange Commission under such Act) of 35 per cent.
or more of the outstanding shares of common stock of
the Company."
3. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Facility Agent
and the Banks on its own behalf and on behalf of all the
Additional Borrowers that:
(a) POWERS AND AUTHORITY: It has the power to enter into
and perform, and has taken all necessary action to
authorise the entry into, performance and delivery of,
this Supplemental Agreement and the transactions
contemplated by this Supplemental Agreement.
(b) LEGAL VALIDITY: This Supplemental Agreement constitutes
ts legal, valid and binding obligation.
(c) NON-CONFLICT: The entry into and performance by it of,
and the transactions contemplated by, this Supplemental
agreement do not and will not:-
(i) conflict with any law or regulation or any official
or judicial order applicable to it; or
(ii) onflict with its constitutive documents; or
(iii)conflict with any document which is binding on it
or any of its assets.
(d) AUTHORISATIONS: All authorisations, approvals, consents,
licences, exemptions, filings, registrations, notarisations
and other matters, official or otherwise, required or
desirable in connection with the entry into, performance,
validity and enforceability of, and the transactions
contemplated by this Supplemental Agreement have been
obtained or effected (as appropriate) and are in full
force and effect.
(e) REPRESENTATIONS AND WARRANTIES IN THE FACILITY AGREEMENT:
The representations and warranties set out in Clause 19.1
of the Facility Agreement are true as if made on the date
of this Supplemental Agreement and as if references in
that Clause to the Facility Agreement were references to
the Facility Agreement as amended by this Supplemental
Agreement.
(f) OTHER BORROWERS: The other Borrowers are bound by the
terms of this Supplemental Agreement.
4. CONDITION PRECEDENT
(a) Clause 2 above shall come into effect when the Facility
Agent has confirmed to the Company and the Banks (which
confirmation the Facility Agent undertakes to give promptly)
that it has received a legal opinion from Philip A. Hewes,
Senior Vice President - Legal of the Company, reaffirming
the matters set forth in his opinion delivered pursuant to
Clause 4.1(a)(vi) of the Facility Agreement with reference
to this Supplemental Agreement and the Facility Agreement as
amended hereby.
(b) If the above condition is not satisfied on or prior to
September 10, 1994 (or such later date as may be agreed
between the Company and the Facility Agent) this
Supplemental Agreement will lapse and (with the exception of
Clauses 1, 5, and 6) shall cease to have any effect.
5. INCORPORATION
(a) This Supplemental Agreement is a Finance Document.
(b) This Supplemental Agreement is deemed to be incorporated
as part of the Facility Agreement.
(c) Except as otherwise provided in this Supplemental
Agreement, the Finance Documents remain in full force
and effect.
6. MISCELLANEOUS
The provision of Clauses 15 (payments), 26 (Stamp Duties),
27 (Amendments, Waivers, Remedies Cumulative), 34
(Jurisdiction) and 36 (Counterparts) of the Facility
Agreement shall apply to this Supplemental Agreement as
though they were set out in this Supplemental Agreement, but
as if references in those Clauses to the Facility Agreement
are references to this Supplemental Agreement.
7. GOVERNING LAW
This Supplemental Agreement is governed by English law.
AS WITNESS the hands of the parties (or their duly authorised
representatives) on the date which appears first on page 1.
<PAGE>
SIGNATORIES
COMPANY
COMDISCO, INC. (on behalf of itself and on behalf of those Additional
Borrowers party to the Facility Agreement)
By: JOHN J. VOSICKY
ARRANGER
NATIONAL WESTMINSTER BANK PLC
By: KAREN N. GRAFE
BANKS
NATIONAL WESTMINSTER BANK PLC
By: KAREN N. GRAFE
BARCLAYS BANK PLC
By: KEVIN F. HERATY
UNION BANK OF SWITZERLAND, CHICAGO BRANCH
By: DENIS J. CAMPBELL THOMAS H. MEYERS
BHF-BANK
By: PAUL TRAVERS EVON M. CONTOS
CREDIT LYONNAIS CHICAGO BRANCH
By: ATTILA KOC
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: ATTILA KOC
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AG, NEW YORK BRANCH
By: JOHN QUIGLEY E.S. ATWELL
DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES
By: E. RONALD HOLDER JOHN D. SINSHEIMER
NORDDEUTSCHE LANDESBANK GIROZENTRALE
By: STEPHEN K. HUNTER PETRA FRANK-WITT
BAYERISCHE VEREINSBANK AG
By: ED C. BENNETT THEODORE F. CEGLIA
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK
AND CAYMAN ISLANDS BRANCHES
By: ELIE B. KHOURY CYNTHIA M. NIESEN
FACILITY AGENT, TENDER PANEL AGENT AND SWINGLINE AGENT
NATIONAL WESTMINSTER BANK PLC
By: KAREN N. GRAFE
LETTER OF CREDIT AGENT
BARCLAYS BANK PLC
By: KEVIN F. HERATY.
CONFORMED COPY
SIXTH SUPPLEMENTAL AGREEMENT
DATED AUGUST 12, 1994
BETWEEN
COMDISCO, INC.
and
NATIONAL WESTMINSTER BANK PLC
as Arranger
and
THE BANKS
and
NATIONAL WESTMINSTER BANK PLC
as Facility Agent, Tender Panel Agent
and Swingline Agent
and
BARCLAYS BANK PLC
as Letter of Credit Agent
________________________________
relating to an Agreement dated
June 4, 1991 (as amended by supplemental
agreements dated August 27, 1991, April 20, 1992
September 21, 1992, April 23, l993 and May 9, 1994)
providing for a revolving credit facility
of up to U.S. $400,000,000
_________________________________
ALLEN & OVERY
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
(..continued)
date "MMddyy Hmm'C'"121394 1302C 88787510
date "MMddyy Hmm'C'"121394 1302C 88787510
PROMISSORY NOTE
date "MMddyy Hmm'C'"121394 1302C 88787510
date "MMddyy Hmm'C'"121394 1302C 88787510
$50,000,000.00 Chicago, Illinois: June 8, 1994
date "MMddyy Hmm'C'"121394 1302C 88787510
page arabic_
date "MMddyy Hmm'C'"121394 1302C 88787510
page arabic_
On or before June 7, 1995, COMDISCO, INC., a Delaware corporation (the
"Borrower"), for value received, hereby promises to pay to the order of
CONTINENTAL BANK N.A., a national banking association having its principal
office at 231 South LaSalle Street, Chicago, Illinois 60697 (the "Bank"), the
unpaid principal amount of all Loans (as hereinafter defined) made by the Bank
to the Borrower under the terms of this Note. The aggregate principal amount
of all Loans at any one time outstanding hereunder shall at no time exceed the
remainder of FIFTY MILLION AND 00/100 DOLLARS ($50,000,000.00) minus the
aggregate principal amount of all loans outstanding under the CMS Note. The
Borrower further promises to pay interest on the unpaid principal amount of
the Loans at the rates and at the times as hereinafter provided. The initial
Loan, all subsequent Loans, all payments made on account of principal and the
interest rate applicable to each Loan shall be evidenced by the Bank in its
records or, at its option, on the schedule (or any continuation thereof)
attached to this Note, which records or schedule shall be rebuttable,
presumptive evidence of the subject matter thereof.
1. Definitions. As used herein, the following terms shall have the
following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Adjusted Interbank Rate" means, with respect to each Interest Period for
a Eurodollar Loan, a rate per annum (rounded upward, if necessary, to the
nearest 1/100 of 1%) determined pursuant to the following formula:
Adjusted Interbank Rate = Interbank Rate
1_Eurocurrency
Reserve Requirement
"Alternate Reference Rate" means, for any day, a fluctuating rate per
annum equal to the greater of (i) the Reference Rate in effect on such day or
(ii) a rate per annum (rounded upward to the next highest 1/8 of 1% if not
already an integral multiple of 1/8 of 1%) equal to the sum of 1/2 of 1% plus
the Federal Funds Effective Rate in effect on such day. If for any reason the
Bank shall have determined (which determination shall be conclusive in the
absence of manifest error) that it is unable to ascertain the Federal Funds
Effective Rate for any reason (including, without limitation, the inability or
failure of the Bank to obtain sufficient bids or publications in accordance
with the terms hereof), the Alternate Reference Rate shall be a fluctuating
rate per annum equal to the Reference Rate in effect from time to time until
the circumstances giving rise to such inability no longer exist.
"Alternate Reference Rate Loan" means any Loan which bears interest at a
rate determined with reference to the Alternate Reference Rate.
"Authorized Officer" means any officer or employee designated by the
Borrower from time to time in a schedule delivered to the Bank, which shall
become effective when received by the Bank.
"Banking Day" means any day other than a Saturday, Sunday or legal
holiday on which banks are authorized or required to be closed in Chicago,
Illinois and, with respect to Eurodollar Loans, on which dealings in Dollars
may be carried on by the Bank in the interbank eurodollar market.
"Dollars" and the symbol "$" mean lawful money of the United States of
America.
"CMS Note" means the promissory note dated the date hereof issued by
Comdisco Maintenance Services, Inc. to the Bank.
"Credit Agreement" means the Facility Agreement dated as of June 4, 1991,
as amended and supplemented through the Fifth Supplemental Agreement dated as
of May 9, 1994, among the Borrower and various financial institutions,
including National Westminster Bank PLC as Arranger, Facility Agent and Tender
Panel Agent, as such Agreement is in effect on the date hereof (without giving
effect to any subsequent amendments thereto or waivers or consents thereunder
unless the same shall have been agreed to by the Bank).
"Eurocurrency Reserve Requirement" means, with respect to any Eurodollar
Loan for any Interest Period, a percentage equal to the daily average during
such Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the Federal Reserve Board, for determining the
aggregate maximum reserve requirements (including all basic, supplemental,
marginal and other reserves) applicable to "Eurocurrency liabilities" pursuant
to Regulation D or any other then applicable regulation of the Federal Reserve
Board which prescribes reserve requirements applicable to "Eurocurrency
liabilities," as defined in Regulation D. Without limiting the effect of the
foregoing, the Eurocurrency Reserve Requirement shall reflect any other
reserves required to be maintained by the Bank against (i) any category of
liabilities that includes deposits by reference to which the Adjusted
Interbank Rate is to be determined or (ii) any category of extensions of
credit or other assets that includes Eurodollar Loans. For purposes of this
Note, any Eurodollar Loans hereunder shall be deemed to be "Eurocurrency
liabilities," as defined in Regulation D, and, as such, shall be deemed to be
subject to such reserve requirements without the benefit of, or credit for,
proration, exceptions or offsets which may be available to the Bank from time
to time under Regulation D.
"Eurodollar Loan" means any Loan which bears interest at a rate
determined with reference to the Adjusted Interbank Rate.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Banking Day,
the average of the quotations for such day on such transactions received by
the Bank from three Federal funds brokers of recognized standing selected by
it. In the case of a day which is not a Banking Day, the Federal Funds
Effective Rate for such day shall be the Federal Funds Effective Rate for the
next preceding Banking Day. For purposes of this Note, each change in the
Alternate Reference Rate due to a change in the Federal Funds Effective Rate
shall take effect on the effective date of such change in the Federal Funds
Effective Rate.
"FDIC" means the Federal Deposit Insurance Corporation or
any successor thereto.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"Interbank Rate" means, with respect to each Interest Period for a
Eurodollar Loan, the rate per annum at which Dollar deposits in immediately
available funds are offered to the Bank two Banking Days prior to the
beginning of such Interest Period by major banks in the interbank eurodollar
market at or about 10:00 a.m., Chicago time, for delivery on the first day of
such Interest Period, for a period comparable to such Interest Period and in
an amount equal or approximately equal to the amount of the Eurodollar Loan to
be outstanding during such Interest Period.
"Interest Payment Date" means (i) with respect to any Eurodollar Loan or
Quoted Rate Loan, the last day of each Interest Period with respect thereto
and (ii) with respect to any Alternate Reference Rate Loan, the last day of
each calendar quarter.
"Interest Period" means, (i) with respect to any Eurodollar Loan, the
period commencing on the borrowing date of such Eurodollar Loan or the date an
Alternate Reference Rate Loan is converted into such Eurodollar Loan or the
last day of the prior Interest Period for such Eurodollar Loan, as the case
may be, and ending seven or 14 days thereafter or on the numerically
corresponding day one or two months thereafter or (ii) with respect to any
Quoted Rate Loan, the period commencing on the borrowing date of such Quoted
Rate Loan and ending up to 30 days thereafter, as selected by the Borrower
pursuant to Section 2(c); provided, however, that:
(i) any Interest Period which would otherwise end on a day
which is not a Banking Day shall end on the next succeeding Banking Day
unless, in the case of any Interest Period for a Eurodollar Loan of one or
two months, such next succeeding Banking Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding Banking
Day;
(ii) any Interest Period for a Eurodollar Loan of one or two
months which begins on the last Banking Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Banking Day of the
calendar month at the end of such Interest Period; and
(iii) the Borrower may not select an Interest Period that ends
after the scheduled Termination Date.
"Loan" means a loan by the Bank to the Borrower under this Note and shall
be a Quoted Rate Loan, an Alternate Reference Rate Loan or a Eurodollar Loan
(each of which shall be a "type" of Loan).
"Note" means this Note, as it may be amended, modified or supplemented
from time to time.
"Quoted Rate" means the rate quoted by the Bank on any Banking Day over
the telephone to an Authorized Officer as the rate that would be applicable to
a Quoted Rate Loan made on such Banking Day for a period not exceeding 30 days
selected by the Borrower pursuant to Section 2(c) of this Note.
"Quoted Rate Loan" means any Loan which bears interest at the Quoted
Rate.
"Reference Rate" means, at any time, the rate of interest then most
recently announced by the Bank at Chicago, Illinois as its reference rate.
For purposes of this Note, each change in the Alternate Reference Rate due to
a change in the Reference Rate shall take effect on the effective date of the
change in the Reference Rate.
"Termination Date" means June 7, 1995 or, if earlier, the date on which
(i) the Borrower has paid all of its obligations hereunder and notified the
Bank that it will not request any additional Loans hereunder or (ii) the Loans
have become immediately due and payable pursuant to Section 10.
A Section is, unless otherwise stated, a reference to a section hereof.
Section captions used in this Note are for convenience only, and shall not
affect the construction of this Note.
2. Borrowing Procedure.
(a) Alternate Reference Rate Loans. Each Alternate Reference Rate
Loan shall be made on a Banking Day upon written or telephonic notice from an
Authorized Officer received by the Bank prior to 10:00 a.m., Chicago time, on
such Banking Day. Such notice shall specify (i) the borrowing date and (ii)
the amount of such Loan. Each Alternate Reference Rate Loan shall be in a
minimum amount of $1,000,000 and in an integral multiple of $100,000.
(b) Eurodollar Loans. Each Eurodollar Loan shall be made upon at
least two Banking Days' prior written or telephonic notice from an Authorized
Officer received by the Bank prior to 10:00 a.m., Chicago time. Such notice
shall specify (i) the borrowing date (which shall be a Banking Day), (ii) the
amount of such Loan, and (iii) the initial Interest Period for such Loan.
Each Eurodollar Loan shall be in a minimum amount of $5,000,000 and in an
integral multiple of $1,000,000.
(c) Quoted Rate Loans. Any Authorized Officer may, on any Banking
Day, request and receive, by telephone, a quotation of the Quoted Rate that
would be applicable to a Quoted Rate Loan made on such Banking Day for a
period not exceeding 30 days; provided, however, that the Bank shall be
obligated to make a Quoted Rate Loan at such Quoted Rate only upon prior
telephonic notice from an Authorized Officer received within at least half an
hour after the quotation of such Quoted Rate and received no later than 12:00
noon, Chicago time, on such Banking Day. Each such notice shall specify (i)
the borrowing date, which shall be the Banking Day on which the quotation of
the Quoted Rate was made, (ii) the amount of such Loan and (iii) the Interest
Period for such Loan. Each Quoted Rate Loan shall be in a minimum amount of
$5,000,000 and in an integral multiple of $1,000,000.
(d) Confirmation. The Borrower shall promptly confirm each
telephonic notice in writing (it being understood, however, that the
Borrower's failure to confirm any telephonic notice or otherwise comply with
the provisions of this Section 2 shall not affect the obligation of the
Borrower to repay each Loan in accordance with the terms of this Note).
3. Continuation and/or Conversion of Loans. The Borrower may elect
to (i) continue any outstanding Eurodollar Loan from the current Interest
Period for such Loan into a subsequent Interest Period to begin on the last
day of such current Interest Period, or (ii) convert any outstanding Alternate
Reference Rate Loan into a Eurodollar Loan, or (iii) convert any outstanding
Eurodollar Loan or Quoted Rate Loan into an Alternate Reference Rate Loan on
the last day of the current Interest Period therefor, by giving the Bank prior
written or telephonic notice of such continuation or conversion, which shall
be received by the Bank prior to 10:00 a.m., Chicago time, two Banking Days
prior to the effective date of continuation or conversion. Each such notice
shall specify (a) the effective date of continuation or conversion (which
shall be a Banking Day), (b) the Loan (or portion thereof) to be continued or
converted, and (c) the Interest Period for such Loan, if applicable. Any such
telephonic notice shall be given by an Authorized Officer. Absent timely
notice of continuation or conversion, each Eurodollar Loan shall automatically
convert into an Alternate Reference Rate Loan on the last day of the current
Interest Period for such Loan unless paid in full on such last day. The
Borrower shall promptly confirm each telephonic notice of continuation or
conversion in writing.
4. Interest.
(a) Alternate Reference Rate Loans. The unpaid principal amount of
each Alternate Reference Rate Loan shall bear interest prior to maturity at a
rate per annum equal to the Alternate Reference Rate in effect from time to
time. Accrued interest on each Alternate Reference Rate Loan shall be payable
on each Interest Payment Date and at maturity.
(b) Eurodollar Loans. The unpaid principal amount of each Eurodollar
Loan shall bear interest prior to maturity at a rate per annum equal to the
Adjusted Interbank Rate in effect for each Interest Period with respect to
such Eurodollar Loan plus 0.400%. Accrued interest on each Eurodollar Loan
shall be payable on each Interest Payment Date and at maturity.
(c) Quoted Rate Loans. The unpaid principal amount of each Quoted
Rate Loan shall bear interest prior to maturity at a rate per annum equal to
the Quoted Rate. Accrued interest on each Quoted Rate Loan shall be payable
on each Interest Payment Date and at maturity.
(d) Interest After Demand. The Borrower shall pay to the Bank
interest on any amount of principal of any Loan which is not paid when due (by
acceleration or otherwise) at a rate per annum equal to the greater of (i) 2%
in excess of the rate applicable to the unpaid principal amount of such Loan
immediately before such amount became due and (ii) 2% in excess of the
Alternate Reference Rate in effect from time to time. All such interest shall
be payable on demand.
(e) Method of Calculating Interest. Interest on each Loan shall be
calculated on the basis of a year consisting of 360 days and paid for actual
days elapsed.
5. Payments and Prepayments.
(a) Place of Payment. All payments hereunder shall be made without
setoff or counterclaim and shall be made to the Bank in immediately available
funds prior to 12:30 p.m., Chicago time, on the date due at its office at 231
South LaSalle Street, Chicago, Illinois 60697, or at such other place as may
be designated by the Bank to the Borrower in writing. Any payments received
after such time shall be deemed received on the next Banking Day. Whenever
any payment to be made hereunder shall be stated to be due on a date other
than a Banking Day, such payment shall be due on the next succeeding Banking
Day, and any such extension of time shall be included in the calculation of
interest. The Bank may, but shall not be obligated to, charge any account of
the Borrower at the Bank for the payment when due of all amounts payable by
the Borrower hereunder.
(b) Prepayments. The Borrower may from time to time, upon at least
two Banking Days' prior written or telephonic notice from an Authorized
Officer received by the Bank, prepay the principal of the Loans in whole or in
part; provided, however, that (i) any partial prepayment of principal shall be
in a minimum amount of $1,000,000 and in an integral multiple of $100,000,
(ii) any prepayment of principal shall be subject to the indemnification
provisions of Section 7, but shall otherwise be without any premium or penalty
and (iii) no prepayment of any Quoted Rate Loan shall be permitted prior to
the end of the Interest Period therefor. The Borrower shall promptly confirm
any telephonic notice of prepayment in writing.
6. Additional Provisions Relating to Eurodollar Loans.
(a) Increased Cost. The Borrower agrees to reimburse the Bank for
any increase in the cost to the Bank of, or any reduction in the amount of any
sum receivable by the Bank in respect of, making, continuing or maintaining
any Loans as, or of converting any Loans into, Eurodollar Loans.
Without limiting the generality of the foregoing, the Borrower shall pay
to the Bank such amounts as the Bank may determine to be necessary to
reimburse it for such increased cost or reduced amount which is incurred or
suffered by the Bank by reason of FDIC assessments or other direct or indirect
costs related to FDIC insurance or continuance of FDIC insurance (including,
without limitation, the cost of purchasing equity interests of, or other
investments in, the FDIC) and which is applied or allocated to Eurodollar
Loans hereunder, whether or not the Bank shall fund such Eurodollar Loans with
deposits subject to FDIC insurance.
The additional amounts required to compensate the Bank for such increased
cost or reduced amount shall be payable by the Borrower to the Bank within
five days of the Borrower's receipt of written notice from the Bank specifying
such increased cost or reduced amount and the amounts required to compensate
the Bank therefor, which notice shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such additional
amounts, the Bank may use such averaging, attribution and allocation methods
as it deems reasonable and appropriate.
(b) Deposits Unavailable or Interest Rate Unascertainable;
Impracticability. If the Borrower has any Eurodollar Loan outstanding, or has
notified the Bank of its intention to borrow a Eurodollar Loan as provided
herein, then in the event that, prior to any Interest Period for such
Eurodollar Loan, the Bank shall have determined (which determination shall be
conclusive and binding on the Borrower) that:
(i) deposits of the necessary amount for such Interest Period
are not available to the Bank in the interbank eurodollar market or that, by
reason of circumstances affecting such market, adequate and reasonable means
do not exist for ascertaining the Interbank Rate for such Interest Period; or
(ii) the Adjusted Interbank Rate will not adequately and fairly
reflect the cost to the Bank of making or funding the Eurodollar Loan for
such Interest Period; or
(iii) the making or funding of Eurodollar Loans has become
impracticable as a result of any event occurring after the date of this Note
which, in the opinion of the Bank, materially and adversely affects such
Loans or the interbank eurodollar market;
(x) any notice of a new Eurodollar Loan previously given by the Borrower and
not yet borrowed or converted shall be deemed to be a notice to make an
Alternate Reference Rate Loan, and (y) provided that the Borrower has been
notified of such determination by the Bank, the Borrower shall be obligated
either to prepay in full any outstanding Eurodollar Loans without any premium
or penalty on the last day of the then current Interest Period with respect
thereto or to convert such Eurodollar Loans to Alternate Reference Rate Loans
on such last day.
(c) Changes in Law Rendering Eurodollar Loans Unlawful. If at any
time due to the adoption of any law, rule, regulation, treaty or directive, or
any change therein or in the interpretation or administration thereof by any
court, central bank, governmental authority, agency or instrumentality, or
comparable agency charged with the interpretation or administration thereof,
or for any other reason arising subsequent to the date hereof, it shall become
unlawful or impossible for the Bank to make or fund any Eurodollar Loan,
Eurodollar Loans shall not be made hereunder for the duration of such
illegality or impossibility. If any such event shall make it unlawful or
impossible for the Bank to continue any Eurodollar Loans previously made by it
hereunder, the Borrower shall, after being notified by the Bank of the
occurrence of such event, on the earlier of (i) the last day of the then
current Interest Period with respect thereto or (ii) if required by such law,
rule, regulation, treaty, directive or interpretation, on such date as shall
be specified in such notice, either convert each such Eurodollar Loan to an
Alternate Reference Rate Loan or prepay in full each such Eurodollar Loan,
together with accrued interest thereon, without any premium or penalty (except
as provided in Section 7).
(d) Discretion of the Bank as to Manner of Funding. The Bank shall
be entitled to fund and maintain its funding of all or any part of the Loans
in any manner it sees fit; it being understood, however, that for purposes of
this Note, all determinations hereunder shall be made as if the Bank had
actually funded and maintained each Eurodollar Loan during the Interest Period
for such Loan through the purchase of deposits having a term corresponding to
such Interest Period and bearing an interest rate equal to the Interbank Rate
for such Interest Period (whether or not the Bank shall have granted any
participations in such Loan).
The Bank may, if it so elects, cause a foreign branch or affiliate of the
Bank to make or continue any Eurodollar Loan, provided that in such event, for
purposes of this Note, such Eurodollar Loan shall be deemed to have been made
by the Bank and the obligation of the Borrower to repay such Eurodollar Loan
shall nevertheless be to the Bank and shall be deemed held by the Bank, to the
extent of such Eurodollar Loan, for the account of such branch or affiliate.
The Borrower acknowledges that the Bank may fund all or any part of the
Loans by sales of participations to various participants, and agrees that the
Bank may, in invoking its rights under this Section 6 or under Section 7,
demand and receive payment for costs and other amounts incurred by, or
allocable to, any such participant, or take other action arising from
circumstances applicable to any such participant, to the same extent that such
participant could demand and receive payments, or take other action, under
this Section 6 or under Section 7 if such participant were the Bank under this
Note.
7. Funding Losses. The Borrower will indemnify the Bank upon demand
against any loss or expense which the Bank may sustain or incur (including,
without limitation, any loss or expense sustained or incurred in obtaining,
liquidating or employing deposits or other funds acquired to effect, fund or
maintain any Loan) as a consequence of (i) any failure of the Borrower to make
any payment when due of any amount due hereunder, (ii) any failure of the
Borrower to borrow, continue or convert a Loan on a date specified therefor in
a notice thereof, or (iii) any payment, prepayment or conversion of any
Eurodollar Loan or Quoted Rate Loan on a date other than the last day of the
Interest Period for such Loan.
8. Facility Fee. The Borrower will pay the Bank a facility fee for the
period from and including the date of this Note to but excluding the
Termination Date of 0.225% per annum on remainder of (a) the maximum amount
available to be borrowed hereunder, whether used or unused, minus (b) the
maximum amount available to be borrowed under the CMS Note, whether used or
unused. The facility fee (i) shall be payable on the last Banking Day of each
calendar quarter and on the Termination Date, in each case for any period then
ending for which such fee shall not have been previously paid, and (ii) shall
be computed for the actual number of days elapsed on the basis of a 360-day
year.
9. Covenants. So long as the Termination Date has not occurred, and
thereafter so long as any obligations of the Borrower remain outstanding
hereunder, the Borrower agrees that it will observe and perform each covenant
of the Borrower set forth in Clause 20 (excluding Clauses 20.20, 20.21 and
20.22) of the Credit Agreement as if such covenants (and all related
definitions) were set forth in full herein (it being understood that (a) all
references therein to the "Facility Agent," any "Bank" or the "Majority
Underwriters" shall be deemed to be references to the Bank and (b) so long as
the Credit Agreement is in effect and there has been no amendment to such
Clause 20, the Borrower shall be deemed to have complied with the reporting
requirements incorporated by reference herein if the Borrower delivers to the
Bank a copy of each notice, report and similar item delivered pursuant to the
Credit Agreement no later than the time specified therefor in such Clause 20).
10. Event of Default. Each of the following shall constitute an
"Event of Default" under this Note:
(a) Default in the payment when due of any principal of this
Note; or default and continuance thereof for five days in the payment when
due of any other amount payable by the Borrower hereunder.
(b) The occurrence of any "Event of Default" under the Credit
Agreement.
(c) Failure by the Borrower to comply with any provision of this
Note (including any provision of Clause 20 of the Credit Agreement which is
incorporated herein pursuant to Section 9) which does not constitute an Event
of Default under the preceding clauses (a) and (b), and continuation of such
failure for 30 days after notice thereof to the Borrower from the Bank.
If any Event of Default occurs as a result of an "Event of Default" under
Clause 21.1(e) of the Credit Agreement, the Loans and all other amounts
payable hereunder shall become immediately due and payable, without
presentment, demand or notice of any kind; and if any other Event of Default
occurs, the Bank may declare all Loans and all other amounts payable hereunder
to be immediately due and payable, without presentment, demand or notice of
any kind. In addition, and notwithstanding any other provision of this Note,
the Bank shall have no obligation to make any Loan hereunder at any time that
an Event of Default, or any event that if it continues uncured will, with
lapse of time or notice or both, become an Event of Default, has occurred and
is continuing.
11. General.
(a) Authorization and Indemnity; Expenses. The Borrower hereby
authorizes the Bank to rely upon the instructions of any person identifying
himself or herself as an Authorized Officer and upon any signature which the
Bank believes to be genuine, and the Borrower shall be bound thereby in the
same manner as if such person were actually an Authorized Officer or such
signature were genuine. The Borrower agrees to indemnify the Bank and hold it
harmless from any and all claims, damages, liabilities, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees and other
legal expenses) which may arise or be created by the acceptance of
instructions for making Loans or disbursing the proceeds thereof, and to pay
all legal and other costs and expenses (including, without limitation,
reasonable attorneys' fees and costs of collection) incurred by the Bank in
connection with the preparation, execution, delivery and enforcement of this
Note.
(b) Notices. Except as otherwise expressly provided herein, any
notices under this Note shall be in writing (including facsimile transmission)
addressed to the Borrower or the Bank at the address below its signature
hereto (or to such other address which such party shall have notified the
other party is its address for notices hereunder).
(c) Information. The Bank may furnish any information concerning the
Borrower in the possession of the Bank from time to time to assignees of the
rights of the Bank hereunder and to participants in any Loan (including
prospective assignees and participants) and may furnish information in
response to credit inquiries consistent with general banking practice.
(d) Severability. Wherever possible, each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
(e) Law. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS.
(f) Waiver of Jury Trial. THE BORROWER WAIVES, AND, BY ACCEPTING
THIS NOTE, THE BANK SHALL BE DEEMED TO WAIVE, ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER THIS NOTE
OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY
BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND THE BORROWER
AGREES, AND, BY ACCEPTING THIS NOTE, THE BANK SHALL BE DEEMED TO AGREE, THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
COMDISCO, INC.
By: Title:
_
6111 North River Road
Rosemont, Illinois 60018
Attention: John Vosicky
Telephone: (708) 698-3000
Facsimile: (708) 518-5854
<PAGE>
ACCEPTED AND AGREED
as of June 8, 1994
CONTINENTAL BANK N.A.
By: _
Title: _
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Mark N. Hurley
Telephone: (312) 828-3207
Facsimile: (312) 828-1997
date "MMddyy Hmm'C'"121394 1302C 88787510
date "MMddyy Hmm'C'"121394 1302C 88787510
Schedule attached to Promissory Note dated June 8, 1994 of COMDISCO, INC.
payable to the order of CONTINENTAL BANK N.A.
LOANS AND PRINCIPAL PAYMENTS
Type of Loan Interest Amount of Unpaid
Amount of & Applicable Period (if Principal Principal
Notation
Date Loan Made Interest Rate Applicable) Repaid Balance
Made By _
_
_
_
_
_
_
_
_
_
_
_
_
_
The aggregate unpaid principal amount shown on this schedule shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on
this Note. The failure to record the date and amount of any Loan on this
schedule shall not, however, limit or otherwise affect the Borrower's
obligations under this Note to repay the principal amount of the Loans
together with all interest accruing thereon.
Notice of Reduction in Tranche
[DATE]
Citibank, N.A.
as Administrative Agent, and the Banks
which are signatories to
Credit Agreement referred to below
Ladies and Gentlemen:
Please refer to the Second Amended and Restated Global Credit Agreement
dated as of September 30, 1993 among the undersigned, the financial
institutions from time to time party thereto (the "Banks"), Citibank, N.A. and
Nationsbank of North Carolina, N.A., as co-agents (the "Co-Agents") and
Citibank, N.A. as administrative agent (the "Administrative Agent") (as such
agreement may be amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Pursuant to Section 8.02 of the Credit
Agreement, the undersigned hereby gives notice that (i) the Tranche F
Commitment is being reduced to $50,000,000 from $100,000,000; (ii) the Total
Commitments are being reduced to $400,000,000 from $450,000,000; and (iii) the
Total Commitments are requested to be reallocated among the Tranches in the
manner set forth in the attached Notice of Reallocation. All of the foregoing
are to be effective on June 1, 1994.
The undersigned hereby certifies that the foregoing is in compliance with
the requirements contained in Article VIII of the Credit Agreement.
COMDISCO, INC.
By:__________________________
Title:_______________________
AGREEMENT AND PLAN OF DISSOLUTION OF NBB OIL & GAS PARTNERS (U.S.A.)
AMONG
COMDISCO, INC.
AND
COMDISCO EXPLORATION, INC.
AND
COMDISCO RESOURCES, INC.
AND
NBB ENERGY PARTNERS I, L.P.
DATED AS OF SEPTEMBER 21, 1994
AGREEMENT AND PLAN OF DISSOLUTION OF NBB OIL & GAS PARTNERS (U.S.A.)
THIS AGREEMENT AND PLAN OF DISSOLUTION (this "Agreement") OF NBB OIL &
GAS PARTNERS (U.S.A.), a Colorado general partnership (the "Venture"), is
entered into as of September 21, 1994, by and among Comdisco, Inc., a Delaware
corporation, Comdisco Exploration, Inc., a Delaware corporation, Comdisco
Resources, Inc., a Delaware corporation, and NBB Energy Partners I, L.P., a
Colorado limited partnership.
RECITALS
A. The Venture was formed to engage in the oil and gas business
in the United States and Canada. The Venture contracted
with Duncan Energy Company to manage the acquisition,
exploration, development and operation of oil and gas
properties for the Venture.
B. Unless otherwise indicated or defined herein, the terms set
forth below shall have the indicated meanings when used
herein:
"Adjustment" shall mean the payment to be made by Comdisco to Participant
as provided in Section 3.3 hereof.
"CEI" shall mean Comdisco Exploration, Inc., a Delaware corporation.
"CI" shall mean Comdisco, Inc., a Delaware corporation.
"COG" shall mean Consolidated Oil & Gas, Inc., a Delaware corporation.
"COG Assets" shall mean the rights of the Venture under the Option
Agreement and the assets set forth in Schedule I hereto and more
particularly described in the form of Exchange Agreement attached to
the Letter Agreement dated August 30, 1994 between COG and the Venture.
"-COG Exchange Agreement" shall mean the Exchange Agreement to be
executed by Comdisco and COG in substantially the form attached to
the Letter Agreement dated August 30, 1994, between COG and the
Venture.
"COG Letter of Intent" shall mean the Letter of Intent between the
Venture and COG dated June 2, 1994.
"Comdisco" shall mean CI, CEI and CRI, collectively.
"Comdisco Subordination Obligation" shall mean the Comdisco Subordination
Payment as such term is defined in, and to be made pursuant to, the
Distribution Agreement.
"CRI" shall mean Comdisco Resources, Inc., a Delaware corporation.
"Distribution Agreement" shall mean the Agreement Regarding
Distributions from NBB Oil & Gas Partners (U.S.A.) dated to be
effective as of March 31, 1993, by and among CI, CEI, CRI and
Participant.
"Governmental Approvals" shall mean all consents, approvals, orders,
permits or authorizations of, and registrations, declarations and
filings with, and expirations of waiting periods imposed by, any
governmental entity (including but not limited to, any court,
legislative body, administrative agency, commission or other
governmental authority or instrumentality of the United States,
any State of the United States or any other country), and shall
include, without limitation, approvals under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. 18a, and under the
Exon-Florio Amendment to the Defense Production Act, 50 App.
U.S.C. 2170. "Gulf Coast Properties" shall mean the assets set
forth in Schedule II hereto.
"Lodgepole Leasehold" shall mean the Dickinson area Lodgepole leasehold
described in Schedule III hereto.
"Management Agreement" shall mean the Management Agreement dated to be
effective as of February 1, 1990 by and between the Management
Company and the Venture, including any powers of attorney executed by
the Venture in favor of the Management Company in furtherance of the
Management Agreement.
"Management Company" shall mean Duncan Energy Company, a Colorado general
partnership.
"Management Fee" means the fee payable by the venture to the Management
Company pursuant to paragraph 2.2(a) of the Management Agreement.
"MOA" or "Memorandum of Agreement" shall mean the Memorandum of Agreement
among the Venturers and the Management Company dated August 30, 1994.
"Nominee" shall mean Energy Partners Nominee Company, a Colorado
corporation, and the holder of record title to some of the Venture
Assets (other than monetary assets).
"Nominee Agreement" shall mean the Nominee Agreement dated to be
effective as of February 1, 1990, by and between the Nominee and the
Venture.
"Option Agreement" shall mean the Letter of Intent executed on August 8,
1994, by and among COG, the Venture and the Venturers.
"Other Rocky Mountain Properties" shall mean the assets described in
Schedule IV hereto, excluding any properties included in the COG
Assets.
"Participant" shall mean NBB Energy Partners I, L.P., a Colorado limited
partnership.
"Sharing Ratios" means the Sharing Ratios of the Venturers as set forth
in the Venture Agreement.
"Tax Indemnification Agreement" shall mean the Tax Indemnification
Agreement dated to be effective as of February 1, 1990, between CI
and the Participant.
"Termination Date" shall be the date on which the Venture shall
terminate, in accordance with the provisions of Section 4.1 hereof.
"Valuation Schedule" shall mean Schedule V hereto.
"Venture Agreement" shall mean the NBB Oil & Gas Partners (U.S.A.)
Partnership Agreement effective as of February 1, 1990, as amended
by (i) the First Amendment to NBB Oil & Gas Partners (U.S.A.)
Partnership Agreement dated to be effective as of February 1, 1990;
(ii) the Amendment to NBB Oil & Gas Partners (U.S.A.) Partnership
Agreement dated to be effective as of February 1, 1990;
(iii) the Amended and Restated Modification Agreement dated to be
effective as of June 21, 1990; (iv) the Third Amendment to NBB Oil
& Gas Partners (U.S.A.) Partnership Agreement dated to be effective
as of October 1, 1991 (the "Third Amendment"); (v) the Fourth
Amendment to NBB Oil & Gas Partners (U.S.A.) Partnership Agreement
dated to be effective as of September 30, 1992; and (vi) the
Distribution Agreement.
"Venture Assets" shall mean, collectively, the COG Assets, the Other
Rocky Mountain Properties, the Gulf Coast Properties, and the
Lodgepole Leasehold, and all other property and interests of
the Venture.
"Venture CDO Obligation" shall mean the preferential distribution to be
made by the Venture to Comdisco pursuant to the Third Amendment to
the NBB Oil & Gas Partners (U.S.A.) Partnership Agreement dated
effective as of October 1, 1991.
"Venture Transaction Documents" shall mean the Venture Agreement, Nominee
Agreement, Management Agreement and Tax Indemnification Agreement,
collectively.
"Venturers" shall mean Comdisco and the Participant.
C. The Venture entered into the COG Letter of Intent with COG
but the limited partners of Participant declined to approve
the transaction provided for therein.
D. The Venture and COG entered into the Option Agreement on
August 8, 1994, providing various alternatives for the
Venture or Comdisco to sell the COG Assets to COG.
E. Comdisco and the Participant executed the Memorandum of
Agreement which sets forth their agreements in principle
regarding various options for sale of the COG Assets to COG.
F. By Letter Agreement dated August 30, 1994, the Venture and
COG agreed upon the form of the COG Exchange Agreement to be
executed pursuant to the Option Agreement.
G. The Participant elected, by written notice to Comdisco dated
August 31, 1994, to pursue "Option B: the Comdisco
Redemption" (as defined in the Memorandum of Agreement).
To implement such election, the Venturers have agreed to
dissolve, liquidate and terminate the Venture.
H. By a "Transaction Notice" dated September 6, 1994, the
Venture elected the "Swap" option under the Option
Agreement.
<PAGE>
ARTICLE I
1.1 Dissolution of Venture. The Venturers hereby agree to dissolve
and liquidate the Venture and wind up its affairs in accordance with the terms
of this Agreement. In the event that any provision of this Agreement
conflicts or is otherwise inconsistent with the provisions of any of the
Venture Transaction Documents, the provisions hereof shall control and shall
be deemed to amend and supersede the Venture Transaction Documents as
necessary to be consistent with the provisions hereof.
1.2 Management Company as Liquidator. The Management Company shall
act as liquidator of the Venture. The Management Company and Bruce Johnston
as its authorized signatory shall have authority as such to execute and
deliver all deeds, assignments, bills of sale and other instruments and
documents deemed by it to be necessary or desirable to transfer and convey
Venture Assets to the Venturers in accordance with the terms of this Agreement
and the Venturers hereby confirm that powers of attorney heretofore executed
by the Venture in favor of the Management Company, and the Venturers and the
Management Company hereby confirm that signing authority delegated by the
Management Company to Bruce Johnston are intended and construed by them to
include authority of the Management Company and Bruce Johnston to execute and
deliver all such deeds, assignments, bills of sale and other instruments and
documents for and on behalf and in the name of the Venture.
1.3 Capital Account Adjustments and Allocations of Income and Loss.
The Management Company shall adjust the capital accounts of the Venturers in
accordance with Section 8.2 of the Venture Agreement and this Section 1.3.
Capital accounts will be revalued as of June 1, 1994, in accordance with
Treas. Reg. 1.704-1(b)(2)(iv)(f) (based on the values set forth in Schedule V)
and any simulated gain or loss resulting from the deemed sale will be
allocated in such manner as will cause the capital accounts of the Venturers
as of June 1, 1994 to be in accordance with their Sharing Ratios. Income and
loss for the period beginning on June 1, 1994, and ending on the Termination
Date will be allocated for tax purposes in the same manner that such income
and loss is required to be allocated for accounting purposes under Section 5.1
of this Agreement. Subject only to the second sentence of this Section 1.3
and to Section 704(c) of the Internal Revenue Code of 1986, income and loss
for the period commencing October 1, 1993 and ending May 31, 1994 shall be
allocated to the Venturers in accordance with their Sharing Ratios.
1.4 Dissolution Budget The Management Company shall prepare and
submit to the Venturers for their approval as soon as possible following
execution of this Agreement a budget (the "Dissolution Budget") for its
expenditures as liquidator to be charged to the Venture for the period from
October 1, 1994 to the Termination Date. All expenditures in the Dissolution
Budget approved by the Venturers shall be deemed to be authorized by them.
Expenditures by the Management Company in connection with the dissolution of
the Venture not included in, or more than 10% in excess of, amounts included
in, the Dissolution Budget, shall require the approval of the Venturers.
ARTICLE II
INITIAL DISTRIBUTIONS OF ASSETS
2.1 Distribution of the COG Assets to Comdisco The Management
Company shall cause executed Assignments of the COG Assets to be delivered to
Comdisco as soon as the Management Company executes this Agreement but shall
continue to manage operations of the COG Assets until such operations are
taken over by COG at 7:00 a.m. on October 1, 1994. The date of completing
such distribution for accounting purposes, to the extent not determined by the
special allocations required by Section 5.1 hereof, shall be deemed to be
September 30, 1994 in order to avoid an interim closing of the books of the
Venture on September 21, 1994. On September 27, 1994 the Management Company
shall account for all revenues received and expenses paid with respect to the
COG Assets since June 1, 1994 and deliver the net revenues for such period to
Comdisco. The Management Company shall deliver accountings and payments to
Comdisco with respect to revenues received and expenses paid on the COG Assets
after the initial accounting sufficient to permit Comdisco to comply with
Section 7.3 of the COG Exchange Agreement.
Distributions of Other Operating Assets to Comdisco and Participant.
Subject to Section 8.1 hereof, as soon as practicable following the
distribution of the COG Assets to Comdisco, and with approval of the
distributee Venturer in order to insure a reasonable time for the negotiation
of new management agreements, the Management Company shall cause the
distribution of other Venture Assets to Comdisco and Participant as follows:
All of the Venture's rights in the Other Rocky Mountain Properties,
together with a preliminary accounting for and net revenues from the Other
Rocky Mountain Properties since June 1, 1994, and cash in the amount of
$1,000,000 shall be distributed to Comdisco.
All of the Venture's rights in the Gulf Coast Properties together
with a preliminary accounting for and net revenues of the Gulf Coast
Properties since June 1, 1994, and cash in the amount of $25,000,000 shall be
distributed to Participant.
Equal undivided ownership interests in the Lodgepole Leasehold shall
be distributed to Comdisco and Participant subject to operating agreements
presently in effect and by their acceptance of such distribution, the
Venturers each agree to execute a new Management Agreement with the Management
Company covering the Lodgepole Leasehold.
CONDITION OF PROPERTIES. THE VENTURE MAKES NO WARRANTY, EXPRESS OR
IMPLIED, REGARDING THE TITLES TO, CONDITION, QUALITY OR QUANTITY OF, OR
LIABILITIES THAT MAY BE ASSOCIATED WITH ANY OF THE OIL AND GAS PROPERTIES TO
BE DISTRIBUTED HEREUNDER AND THE VENTURERS AGREE TO ACCEPT DISTRIBUTION OF
SUCH PROPERTIES ON AN "AS IS" BASIS.
2.4 Comdisco Entities. Unless otherwise directed by Comdisco, all
distributions of oil and gas property to Comdisco shall be in undivided
interests to CI, CEI and CRI in proportion to their Sharing Ratios.
2.5 Contractual Rights and Obligations. To the extent assignable, the
Venture will transfer by general quitclaim assignment to the distributee
Venturers its interest in, and such distributee Venturers will assume and
agree to pay and perform the Venture's obligations under, all agreements and
warranties (as to title and other matters) relating to the distributed
properties.
2.6 Termination of Tax Indemnification Agreement. Effective as of the
date on which the distribution of the COG Assets under Section 2.1 and the
distribution of other operating assets under Section 2.2 are completed, the
Tax Indemnification Agreement shall be and hereby is terminated and the
parties hereto shall have no further rights or obligations under said Tax
Indemnification Agreement.
ARTICLE III
PAYMENTS BY COMDISCO
3.1 Option Payment. On or before September 28, 1994, Comdisco shall
pay to the Venture the $500,000 option payment paid by the Venture to COG
pursuant to the Option Agreement.
3.2 Management Fee. On or before September 28, 1994, Comdisco shall
pay to the Management Company a Management Fee of $1,941,050 with respect to
the COG Assets.
3.3 Adjustment. On or before September 28, 1994, Comdisco shall pay
to Participant by wire transfer to an account designated by Participant the
sum of $116,500 in full and final liquidation and settlement of the net
present value of Comdisco's obligations to Participant under the Comdisco
Subordination Obligation in excess of the value to Comdisco of the Venture's
obligation to it under the Venture CDO Obligation, whereupon the Venture and
Comdisco shall be fully and forever released and discharged from any further
obligations under the Venture CDO Obligation, and the Comdisco Subordination
Obligation, respectively.
ARTICLE IV
EFFECT OF DISTRIBUTIONS ON THE MANAGEMENT AGREEMENT
4.1 Limitation of Management Company Authority As of the date of
this Agreement, subject to Sections 4.2 and 4.3 hereof, the authority and
duties of the Management Company to act for the Venture shall be limited to
taking such action as is reasonably required to carry out the terms of this
Agreement to effect an orderly distribution of the Venture Assets and to wind
up the affairs of the Venture. The Management Company shall fix a date (the
"Termination Date"), which shall not be later than March 31, 1995 without the
consent of the Venturers, for completing the distribution of all of the
Venture Assets and winding up the affairs of the Venture.
4.2 Authorization by Venturers. The Management Company shall comply
with the instructions of Comdisco with respect to ongoing operations of the
COG Assets until operations of the COG Assets are taken over by COG at 7:00
a.m. local time on October 1, 1994, and with respect to the Other Rocky
Mountain Properties until distribution of such assets, and shall comply with
the instructions of the Participant with respect to the Gulf Coast Properties
prior to their distribution and shall report to each of Comdisco and the
Participant as to such ongoing operations. Joint instructions of the
Venturers shall be followed in the operation of the Lodgepole Leasehold and
monetary assets prior to their distribution. In the absence of joint
instructions the Management Company shall manage the Lodgepole Leasehold and
monetary assets in accordance with the reasonable judgment of its President as
to the best interests of both of the Venturers.
4.3 Distributed Assets.
(a) Subject to Section 2.1 hereof, the Management Agreement shall
terminate with respect to the COG Assets upon payment by Comdisco of the
Management Fee in accordance with Section 3.2 hereof, and the Management
Company shall thereafter have no rights under the Management Agreement with
respect to the COG Assets.
(b) The Other Rocky Mountain Properties shall be distributed to
Comdisco subject to the rights of the Management Company under the Management
Agreement and Comdisco shall either pay the Management Fee obligations of the
Venture under Section 2.2(a)(ii) of the Management Agreement with respect to
the Other Rocky Mountain Properties or enter into a new agreement with the
Management Company with respect to the Other Rocky Mountain Properties. Any
such new agreement shall be on substantially the same financial terms as the
Management Agreement, but shall provide for control by Comdisco of decisions
regarding, and actions taken with respect to, the management of the Other
Rocky Mountain Properties.
(c)The Gulf Coast Properties shall be distributed to the Participant
subject to the rights of the Management Company under the Management Agreement
and Participant shall either pay the Management Fee obligations of the Venture
under Section 2.2(a)(ii) of the Management Agreement with respect to the Gulf
Coast Properties or enter into a new agreement with the Management Company
with respect to the Gulf Coast Properties on substantially the same financial
terms as the Management Agreement, but shall provide for control by
Participant of decisions regarding, and actions taken with respect to, the
management of the Gulf Coast Properties.
(d) Each Venturer shall receive any monetary assets distributed by
the Venture to such Venturer subject to an obligation of such Venturer to
either pay the Management Company 5% of the amount of the monetary assets
distributed or to enter into an agreement with the Management Company
providing for the Management Company to manage the investment of such monetary
assets.
(e)The Venture shall transfer the stock of Nominee to the Management
Company or Participant, as directed by Participant.
(f) The Management Company shall deliver to the Venturers such files
and records, including geologic and seismic data, pertaining to the respective
properties distributed to them, as they may request from time to time.
4.4 Termination. The obligations of the Venturers to pay Management
Fees or enter into the new management agreements pursuant to Section 4.3 shall
be their several obligations, and the Management Company shall look solely to
such several obligations of the distributee Venturers hereunder.
ARTICLE V
MONETARY ASSETS AND LIABILITIES
Accounting. As soon as practicable after the date hereof, the
Management Company shall cause an accounting of the Venture to be prepared,
and submitted to the Venturers for their approval. The "effective date" of
the distribution of all Venture Assets including cash shall be June 1, 1994,
and revenues from and expenses of oil and gas properties of the Venture
(including the Management Fees which are payable by the Venture but not
Management Fees payable by Comdisco on the COG Assets pursuant to Section 3.2)
and other income or loss thereafter shall be allocated to the Venturers
according to the Venture Assets to be distributed to them pursuant to this
Agreement. From June 1, 1994 through September 30, 1994, general and
administrative expenses chargeable by the Management Company to the Venture
shall be allocated to the Venturers in accordance with their Sharing Ratios.
Thereafter, such expenses shall be allocated in accordance with the Venturer's
actual use of Management Company services.
Liabilities of the Venture. As soon as practicable following
completion and approval of the accounting, the Management Company shall cause
all debts and liabilities of the Venture to be paid in full out of monetary
assets of the Venture.
Payment of Transaction Expenses Other Than Legal Fees. The
Management Company shall pay, for the account of the Venture to be borne by
the Venturers in accordance with their Sharing Ratios, all expenses of the
dissolution of the Venture, including governmental filings referred to in
Section 6.3 and 8.1 hereof, and the expenses reasonably incurred by Comdisco
and not paid by COG in concluding the transfer of the COG Assets to COG;
provided, however, that any such expenses incurred as a result of a second
transfer of the COG Assets by Comdisco to COG, other than expenses that would
have been incurred by the Venture and not paid by COG had the COG Assets been
sold to COG by the Venture, will be borne by Comdisco.
Legal Fees. By their signatures hereto, the Venturers consent, for
themselves and for the Venture, to the representation of Comdisco by the law
firms of Hogan & Hartson LLP and Holme Roberts & Owen LLC, (which have served
as counsel to the Venture) in connection with Comdisco's transfer of the COG
Assets to COG in exchange for stock of COG. Legal fees for such
representation of Comdisco after August 31, 1994, shall be billed to and
payable by Comdisco. Comdisco shall reimburse the Venture for 1/3 of the
legal fees and disbursements paid by the Venture to such law firms for legal
services during August, 1994, provided that such reimbursement shall not
exceed $25,000.
Distribution of Cash. After determining in accordance with Schedule
V to this Agreement (the "Valuation Schedule") the value of the COG Assets,
the Other Rocky Mountain Properties, and the Gulf Coast Properties distributed
to the Venturers, and after paying all expenses of the transaction and
liabilities of the Venture, the Management Company shall distribute the
remaining monetary assets of the Venture to the Venturers such that: (i)
Participant receives 49.9999% of the Venture Assets as of June 1, 1994, plus
or minus the amount of monetary and nonmonetary assets attributable to the
income or loss allocated to Participant pursuant to the second sentence of
Section 5.1 of this Agreement, and (ii) Comdisco receives 50.0001% of the
Venture Assets as of June 1, 1994 plus or minus the amount of monetary and
nonmonetary assets attributable to the income or loss allocated to Comdisco
pursuant to the second sentence of Section 5.1 of this Agreement. At the time
of the final distributions pursuant to the preceding sentence, the Management
Company shall deliver a final accounting to the Venturers. The Venturers
understand and acknowledge that any special allocations made pursuant to
Section 1.3 of this Agreement and the adjustments effected in accordance with
Section 3.3 and Section 5.5 of this Agreement reflect a downward adjustment in
Comdisco's capital account resulting from the resolution of a disagreement
between the Venturers with respect to the balance of Comdisco's capital
account as of October 1, 1993.
Contributions by Venturers. In the event that, before or after the
Termination Date, there is an unpaid claim against or liability of the Venture
which the Management Company determines, subject to the consent of the
Venturers, which shall not be unreasonably withheld, should be defended or
paid and for either purpose it requires funds in excess of the monetary assets
of the Venture, if any, then available to it, the Venturers shall each deliver
one-half the funds required to the Management Company within 15 days after the
Management Company's request. No Management Fee shall be payable with respect
to any such funds.
ARTICLE VI
TAX AND OTHER FILINGS AND NOTICES
6.1 Tax Reporting. The Management Company shall cause a final period
tax return to be prepared for the Venture for the period beginning October 1,
1994 through the Termination Date.
6.2 Withdrawal of Tradename. The Management Company shall cause an
Affidavit of Notice of Withdrawal of Tradename of the Venture to be filed on
the Termination Date.
6.3 Other Filings. The Management Company shall cause to be prepared
and filed such other filings and reports with governmental agencies as the
Management Company, counsel to the Venture, or either of the Venturers
determine to be required or advisable in connection with the dissolution of
the Venture or the distribution of the Venture Assets, or the transfer of the
COG Assets from Comdisco to COG.
6.4 Notices. The Management Company shall cause to be given such
notices to production purchasers, operators, other working interest owners and
any other party as the Management Company determines are necessary or
desirable in connection with the transactions contemplated by this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Venture Participation. Effective as of the Termination Date, each
of the Venturers does hereby release the other Venturer, from any claims such
Venturer may have with respect to its participation in the Venture or its
association with the other Venturer or as a result of the formation, operation
and dissolution of the Venture, excepting only claims for contribution in the
event a Venturer shall thereafter be subject to claims of a third party for
liabilities of the Venture.
7.2 Breaches of Duty. Effective upon the Termination Date,
Participant, the Management Company and the general partners of Participant do
hereby release Comdisco, its officers, directors, employees and agents
(including without limitation any of these persons acting as a member of the
Venture Management Committee) and Comdisco does hereby release Participant,
the general partners of Participant, and their respective partners, officers,
directors, employees and agents (including without limitation any of these
persons acting as a member of the Venture Management Committee), and Comdisco,
Participant and the general partners of Participant do hereby release the
Management Company and its partners and the respective officers, directors,
operating committee members, employees and agents of the Management Company
and its partners from any and all claims of liability for any and all breaches
of duty occurring on or prior to the Termination Date, including without
limitation any claims of liability arising in connection with breaches of duty
(i) by the members of the Venture Management Committee and/or Venturers under
the Venture Agreement with respect to the management of the assets of the
Venture, the COG Letter of Intent, the Option Agreement, the MOA, any
definitive agreement for a transaction contemplated by the MOA and documents
or transactions contemplated by this or any such definitive agreement, or (ii)
by the Management Company, its partners or members of the Management Company
Operating Committee under the Management Agreement.
7.3 Limited Partners of Participant. Effective upon the Termination
Date, Comdisco does and Raymond F. Sebastian by separate instrument shall
(collectively with Comdisco "Releasors") waive and release any and all claims,
known and unknown, that they or either of them may have as of the date and
time they executed the MOA and/or Termination Date against either or both the
general partners of Participant and the officers, directors and employees of
such general partners (collectively, the "Releasees") in connection with any
duties owed by the Releasees to the Releasors as limited partners of
Participant or in connection with any other matter relating to or arising by
virtue of the fact of the Releasors status as limited partners of Participant.
Releasors further acknowledge and agree (a) that the alternative transactions
contemplated in the MOA were in the best interests of the Venturer, (b) that
they are fully aware of all material facts relating to such transactions, and
(c) that they hereby consent to all general partners approving and authorizing
the transactions contemplated by Option B in the MOA.
7.4 Limitation of Releases. The foregoing releases in this Article
VII are not intended to and shall not prevent enforcement against the
Venturers or the Management Company of their obligations to be performed under
this Agreement between September 21, 1994 and the Termination Date.
ARTICLE VIII
GENERAL PROVISIONS
Governmental Approvals. The Venturers shall each use their
reasonable efforts to obtain any Governmental Approvals which may be required
(including without limitation approvals in connection with filings or reports
made pursuant to Section 6.3) and to make in a timely fashion any
registrations, declarations or filings, if any, with all other persons
required to be made in order to permit each party to execute, deliver and
perform its obligations under this Agreement. The parties acknowledge that
the consummation and the timing of the transactions contemplated by this
Agreement shall be subject to the receipt by each of the parties hereto of all
such Governmental Approvals. To the extent the deadlines specified for any of
the transactions herein are not met due to circumstances beyond the reasonable
control of the parties relating to such Governmental Approvals such deadlines
shall be extended until such consents or Governmental Approvals have been
obtained.
8.2 Specific Amendments and Further Assurances. In order to effect
the transactions contemplated by this Agreement, each of the parties hereby
acknowledges that it may be necessary or desirable to execute certain
additional instruments and documents to reflect the substance of the
covenants, agreements and understandings set forth in this Agreement, or to
cure defects in title to distributed oil and gas properties. Accordingly,
each of the parties agrees to reasonably cooperate and to take such actions
and to execute such further documents or instruments as may be reasonably
necessary or desirable in furtherance of the general provisions and intent of
this Agreement. If requested by COG, the Venture and Participant shall
execute and deliver to COG, on or before September 28, 1994, quitclaim
assignments covering the COG Assets. In addition, the Venture, Participant
and the Management Company shall timely execute such certificates as to their
lack of knowledge of undisclosed matters, provide such access to and copies of
such files and records, provide accountings for the revenues and expenses of
the COG Assets from June 1, 1994, and otherwise take such action as may be
contemplated or required by the COG Exchange Agreement or reasonably requested
by Comdisco in connection with its transfer of the COG Assets to COG pursuant
to the COG Exchange Agreement; provided, however, that each of the Venture,
the Participant and the Management Company shall not be required to make any
statement believed by such party to be untrue or misleading.
8.3 Assignment of Agreement. This Agreement may not be assigned by
any party hereto without the prior written consent of the other parties,
except that CEI and CRI may assign their rights hereunder to CI. This
Agreement shall be binding upon and inure to the benefit of any assignee
permitted hereunder or consented to by the parties.
8.4 Effect of Agreement. Subject to Section 1.1 and Article IV
hereof, applicable provisions of the Venture Agreement and Management
Agreement shall continue to govern the affairs of the Venture and the
Management Company until the Termination Date, and capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Venture Agreement. Subject with respect to the Management Agreement to the
continuing obligations of the Venturers under Section 4.3, and to the
provisions of Section 2.6 with respect to the Tax Indemnification Agreement,
on the Termination Date the Venture Transaction Documents shall terminate and
be of no further force or effect.
8.5 Notices. All notices, requests, demands, waivers, consents and
other communications required or permitted hereunder shall be in writing and
shall be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including
delivery by courier), telegram, telex, or facsimile transmission, addressed as
follows:
<PAGE>
If to Participant, Babcock & Brown Resources I, Inc. or
Nomura Babcock & Brown Resources II, Inc.:
NBB Energy Partners I, L.P. or
Babcock & Brown Resources I, Inc. or
Nomura Babcock & Brown Resources II, Inc.
2 Harrison Street, 6th Floor
San Francisco, CA 94705
Telecopier: (415) 267-1500
Attention: James V. Babcock, Rob Tomczak and Jan Blaustein
With a copy (which shall not constitute notice) to:
Holland & Hart
555 - 17th Street, Suite 2900
P.O. Box 8749
Denver, CO 80201
Telecopier: (303) 295-8261
Attention: Davis O. O'Connor, Esquire
If to CI, CEI or CRI:
Comdisco, Inc.
Comdisco Exploration, Inc. or
Comdisco Resources, Inc. (as appropriate)
6111 North River Road
Rosemont, IL 60018
Telecopier: (708) 518-5440
Attention: Alan Andreini, Rick Finocchi and Jerry Fitzgerald
If to the Management Company:
Duncan Energy Company
1777 South Harrison Street #P-1
Denver, CO 80210
Telecopier: (303) 759-0902
Attention: Ronald G. Spence, President
Any party may change its address for notice purposes by providing a written
notice to each of the other parties hereto in accordance with this section.
Each notice, demand, request, or communication which shall be mailed,
delivered or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery
receipt, the affidavit of messenger or (with respect to a telex) the
answerback being deemed conclusive (but not exclusive) evidence of such
delivery) or at such time as delivery is refused by the addressed upon
presentation.
8.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Colorado, without giving effect to
the conflicts of laws provisions thereof.
8.7 Jurisdiction. In the event that judicial proceedings are required
to enforce the arbitration provision of this Agreement or the arbitration
provisions of any of the Venture Transaction Documents, or to enforce any
judgment rendered under any such arbitration provisions, the parties hereto
agree that any such proceeding may be brought in the courts of the state of
Colorado and in the United States District Court for the District of Colorado
(if applicable subject matter jurisdictional requirements are present), as the
enforcing party may elect; and, by execution and delivery of this Agreement,
all of the parties hereto consent and submit to such jurisdiction.
8.8 Arbitration. Any controversy arising out of or relating to this
Agreement shall be submitted to arbitration in Denver, Colorado under the
provisions of the Colorado Uniform Arbitration Act of 1975, Colorado Revised
Statutes 13_22_201 et seq., as it may be amended from time to time and as
modified by this Agreement. The parties hereto intend that arbitration shall
be the sole remedy available as to matters arbitrable hereunder. Arbitration
shall be enforceable by appropriate proceedings at the request of any party.
Any party requesting arbitration hereunder shall do so not later than
three (3) years from the date on which it knew or should have known of the
facts giving rise to the claim or dispute which is the subject of the
arbitration. Failure to request arbitration within the time limit set forth
above shall thereafter bar such claim or dispute in any forum whatsoever. To
constitute a timely request for arbitration, such request must be in writing
and shall be deemed made when it is deemed given in accordance with the notice
provisions of this Agreement.
When one of the parties calls for arbitration, the controversy shall be
determined by a panel of three (3) arbitrators to be selected as follows: the
party desiring to arbitrate an issue shall, incident to giving notice of such
desire to the other party, also notify the other of the name, address,
education and professional or business biography of an arbitrator of its
choosing, and the other party shall, within thirty (30) calendar (not
business) days after tender of such notice, notify the party desiring
arbitration of the name, address, education and professional or business
biography of its arbitrator. The two arbitrators shall, within twenty (20)
calendar days after the notification of the identity of the second arbitrator,
choose a third arbitrator. If any party shall fail to appoint an arbitrator
as herein provided, or if the first two arbitrators are unable to agree on a
third arbitrator within the time required, either party shall have the right
to make application to the Senior Judge of the United States District Court
for the District of Colorado, who (acting in an individual and not official
capacity) shall appoint such arbitrator. All arbitrators appointed pursuant
to this section shall be third-party individuals and shall not be employed by
nor regularly receive remuneration from either party other than for
arbitration services.
Except as explicitly set forth in this Section, arbitration hereunder
shall be governed by the Colorado Uniform Arbitration Act of 1975, as in
effect from time to time. The arbitrators shall determine the rules governing
and the rules of procedure and discovery. The action of a majority of the
members of the panel of arbitrators shall govern and, unless otherwise agreed
by other parties or otherwise set forth in this Agreement, their decision
shall be rendered within thirty (30) calendar days from the conclusion of
submission of the evidence, shall be in writing and shall be final and binding
on the parties, except that it may be appealed in accordance with the
standards or review set forth in Colorado Revised Statutes 13_22_214 and
13_22_215.
Unless otherwise provided by the arbitrators, each party shall pay the
fees and expenses of the arbitrator selected by it or appointed for it and
one_half of the reasonable fees and expenses of the third arbitrator. All
other fees and expenses of each party, including without limitation, the fees
and expenses of its counsel, witnesses and others acting for it, shall be paid
as determined by the arbitrators.
Entire Agreement. This Agreement together with the Venture
Transaction Documents as modified hereby constitutes the entire understanding
among the parties with respect to the matters addressed herein, superseding
all negotiations, prior discussions, letters or memoranda of intent or
agreement (including specifically the MOA), prior agreements and
understandings relating to each such matter.
Attachments. The exhibits and schedules referred to in this
Agreement are hereby incorporated by reference and constitute a part of this
Agreement.
Headings. Section headings in this Agreement are for convenience of
reference only, and are not intended to be a part, or to affect the meaning or
interpretation, of this Agreement.
Severability. The invalidity of any one or more provisions hereof or
of any other agreement or instrument given pursuant to or in connection with
this Agreement shall not affect the remaining portions of this Agreement or
any such other agreement or instrument or any part thereof, all of which are
inserted conditionally on their being held valid in law; and in the event that
one or more of the provisions contained herein or therein should be invalid,
or should operate to render this Agreement or any such other agreement
invalid, this Agreement and such other agreements and instruments shall be
construed as if such invalid provisions had not been inserted.
Amendment. This Agreement may not be amended and no right hereunder
may be waived, except by a writing designated as an amendment or waiver and
executed by the party or parties against whom the amendment or waiver is
asserted. No waiver of any term, provision or condition of this Agreement
shall be construed as a further or continuing waiver of any other term,
provision or condition.
8.14 Execution in Counterparts. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties.
ARTICLE IX
AUTHORITY
9.1 Comdisco. CI, CEI and CRI jointly and severally represent and
warrant to Participant that
Their execution, delivery and performance of this Agreement has been
duly authorized by all necessary corporate action; and
This Agreement does not conflict with any organizational document,
agreement, law, rule or regulation to which any of them is a party or by which
any of them is bound; and
This Agreement is legally binding upon them and enforceable against
them in accordance with its terms.
9.2 Participant. Participant represents and warrants to Comdisco
that:
Its execution, delivery and performance of this Agreement has been
duly authorized by all necessary Partnership action;
This Agreement does not conflict with any organizational document,
agreement, law, rule or regulation to which it is a party or by which it is
bound; and
This Agreement is legally binding upon it and enforceable against it
in accordance with its terms.
9.3 Opinions. On or before September 21, 1994 Comdisco and
Participant shall each provide to the other opinions of their respective
general counsel, in form and substance reasonably satisfactory to the
recipient, covering the matters represented by them in Sections 9.1 and 9.2.
9.4 Certain Fiduciary Matters. The general partners of Participant
represent and warrant to Comdisco that to the best of their knowledge no
limited partner of Participant has any claim against Participant, the Venture,
the Management Company or such general partners of the Participant based on
breach of fiduciary duty by the general partners of the Participant that could
affect the enforceability of this Agreement against Participant or the Venture
or the validity and finality of the distribution of any of the Venture Assets
to Comdisco hereunder, and the general partners of the Participant agree to
indemnify Comdisco against and hold it harmless from any loss, cost, expense
or damage caused by or resulting from any such claim, whether know or unknown
to the general partners of the Participant. The indemnification of this
Section 9.4 shall not apply to: (a) any claim concerning a breach of duty by
Comdisco to the Venture or the Participant; (b) indirect or consequential
losses, costs, expenses or damages incurred by Comdisco; or (c) settlement
amounts as to which the general partners of the Participant have reasonably
withheld their consent. Comdisco shall cooperate with the general partners of
the Participant in the defense of any claim as to which indemnification may be
sought under this Section; and the indemnification of this Section 9.4, in
terms of attorneys' fees, shall only apply to reasonable expenses of outside
counsel of Comdisco.
ARTICLE X
GOOD FAITH AND FAIR DEALING
The Venturers and the Management Company agree to perform their
obligations under this Agreement in good faith and in a spirit of fair dealing
and to conduct the dissolution of the Venture pursuant to this Agreement in a
prudent and businesslike manner.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
AGREEMENT AND PLAN OF DISSOLUTION OF NBB OIL & GAS PARTNERS (U.S.A.), as of
the date first above written.
COMDISCO: COMDISCO, INC., a Delaware corporation
By: ____________________________________
Its: ______________________________
COMDISCO RESOURCES, INC., a Delaware corporation
By: ____________________________________
Its: ______________________________
COMDISCO EXPLORATION, INC., a Delaware corporation
By: ____________________________________
Its: ______________________________
<PAGE>
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged before me this ___ day of _______________, 1994, by
_________________________, ________________ of Comdisco, Inc.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged to before me this ___ day of _______________, 1994, by
_________________________, ________________ of Comdisco Resources, Inc.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
<PAGE>
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged to before me this ___ day of _______________, 1994, by
_________________________, ________________ of Comdisco Exploration, Inc.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
<PAGE>
PARTICIPANT AND : NBB ENERGY PARTNERS I, L.P., a
ITS GENERAL Colorado limited partnership
PARTNERS
By: Nomura Babcock & Brown
Resources II, Inc., a Colorado corporation for itself and as General
Partner
By: ______________________________
Its: _________________________
By: Babcock & Brown
Resources I, Inc., a Colorado
corporation for itself and as
General Partner
By: ______________________________
Its: ________________________
<PAGE>
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged to before me this ___ day of _______________, 1994, by
_________________________, ________________ of NBB Energy Partners I, L.P.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged to before me this ___ day of _______________, 1994, by
_________________________, ________________ of NBB Energy Partners II, L.P.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
<PAGE>
The undersigned acknowledges notice of the foregoing Agreement and Plan
of Dissolution, agrees to act as liquidator thereunder in accordance with the
terms thereof, and agrees to the modifications of the Management Agreement and
its termination as set forth therein, agrees to enter into the new management
agreements contemplated by Article IV thereof, joins in the release set forth
in Section 7.2 thereof, and generally agrees to be bound by all of the terms
thereof applicable to it.
MANAGEMENT DUNCAN ENERGY COMPANY, a Colorado COMPANY: general
partnership
By:
Date:
STATE OF ______________________ )
) ss.
COUNTY OF ____________________ )
Acknowledged to before me this ___ day of _______________, 1994, by
_________________________, ________________ of Duncan Energy Company.
WITNESS my hand and official seal.
My commission expires:
____________________________
Notary Public
Address: ____________________
____________________________
(SEAL)
INDEX TO SCHEDULES
SCHEDULE I - COG ASSETS
SCHEDULE II - GULF COAST PROPERTIES
SCHEDULE III - LODGEPOLE LEASEHOLD
SCHEDULE IV - OTHER ROCKY MOUNTAIN PROPERTIES
SCHEDULE V - VALUATION SCHEDULE
SCHEDULE V
VALUATION
I. COG ASSETS and OTHER
ROCKY MOUNTAIN PROPERTIES $54,781,000
II. GULF COAST PROPERTIES value will be the sum of
(a) the value of producing properties, valued at
the lower of
(I) $28,947,000 or
(ii) the value as of June 1, 1994 determined by the
reservoir engineering firm of Miller & Lents under
the PV 10 Method, basing the oil calculations on a
WTI posted price of $18.50 per barrel with gravity
adjustments and gas calculations at the last six
month (including August, 1994) average price
received for each well, with proved producing
properties valued at 100%, proved non-producing at
75% and proved undeveloped at 50% (provided that
the Beaumont #2 well shall continue to be
classified as proved non-producing) and with Fruge
No. 1 well engineering to be done based on
production history through November, 1994, and
(b) the value of the non-producing properties valued at
$787,000
III. MONETARY ASSETS - At book value, On June 1, 1994 including
as receivables on that date the $1,075,000 payment received
on or about July 1, 1994 from Duncan Oil, Inc. with respect
to the Dickinson acreage and any other funds received after
June 1, 1994, with respect to unbooked receivables as of
June 1, 1994 and including as accounts payable any unbooked
obligations of the Venture at June 1, 1994 paid after that
date.
TABLE OF CONTENTS
Page
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RECITALS 1
ARTICLE I DISSOLUTION AND TERMINATION OF VENTURE 5
1.1 Dissolution of Venture 5
1.2 Management Company as Liquidator 5
1.3 Capital Account Adjustments and Allocations of Income and Loss 5
1.4 Dissolution Budget 5
ARTICLE II INITIAL DISTRIBUTIONS OF ASSETS 6
2.1 Distributions of the COG Assets to Comdisco 6
2.2 Distributions of Other Operating Assets to Comdisco and Participant 6
2.3 CONDITION OF PROPERTIES 7
2.4 Comdisco Entities 7
2.5 Contractual Rights and Obligations 7
2.6 Termination of Tax Indemnification Agreement 7
ARTICLE III PAYMENTS BY COMDISCO 7
3.1 Option Payment 7
3.2 Management Fee 7
3.3 Adjustment 7
ARTICLE IV EFFECT OF DISTRIBUTIONS ON THE MANAGEMENT AGREEMENT 8
4.1 Limitation of Management Company Authority 8
4.2 Authorization by Venturers 8
4.3 Distributed Assets 8
4.4 Termination 9
ARTICLE V MONETARY ASSETS AND LIABILITIES 10
5.1 Accounting 10
5.2 Liabilities of the Venture 10
5.3 Payment of Transaction Expenses Other Than Legal Fees 10
5.4 Legal Fees 10
5.5 Distribution of Cash 11
5.6 Contributions by Venturers 11
ARTICLE VI TAX AND OTHER FILINGS AND NOTICES 11
6.1 Tax Reporting 11
6.2 Withdrawal of Tradename 11
6.3 Other Filings 12
6.4 Notices 12
ARTICLE VII INDEMNIFICATION 12
7.1 Venture Participation 12
7.2 Breaches of Duty 12
7.3 Limited Partners of Participant 13
7.4 Limitation of Releases 13
ARTICLE VIII GENERAL PROVISIONS 13
8.1 Governmental Approvals 13
8.2 Specific Amendments and Further Assurances 13
8.3 Assignment of Agreement 14
8.4 Effect of Agreement 14
8.5 Notices 14
8.6 Governing Law 16
8.7 Jurisdiction 16
8.8 Arbitration 16
8.9 Entire Agreement. 17
8.10 Attachments. 17
8.11 Headings 17
8.12 Severability 17
8.13 Amendment. 18
8.14 Execution in Counterparts 18
ARTICLE IX AUTHORITY 18
9.1 Comdisco 18
9.2 Participant 18
9.3 Opinions 19
9.4 Certain Fiduciary Matters 1 2 19
ARTICLE X GOOD FAITH AND FAIR DEALING 19
EXCHANGE AGREEMENT
AMONG
COMDISCO, INC., COMDISCO
EXPLORATION, INC. AND COMDISCO RESOURCES, INC.
(COLLECTIVELY "COMDISCO")
AND
CONSOLIDATED OIL & GAS, INC.
("COG")
September 27, 1994
ARTICLE 1. - DEFINITIONS 1
ARTICLE 2. - SALE AND PURCHASE OF ASSETS 5
ARTICLE 3. - REPRESENTATIONS AND WARRANTIES OF COMDISCO 6
ARTICLE 4. - COG'S REPRESENTATIONS AND WARRANTIES 10
ARTICLE 5. - ACCESS TO AND COPIES OF INFORMATION 14
ARTICLE 6. - PRICE ADJUSTMENT FOR DEFECTIVE TITLE 14
ARTICLE 7. - COVENANTS 19
ARTICLE 8. Deleted. 20
ARTICLE 9. - EFFECT OF CLOSING 20
ARTICLE 10. Deleted. 20
ARTICLE 11. Deleted. 20
ARTICLE 12. - INDEMNIFICATION 20
ARTICLE 13. - MISCELLANEOUS 25
<PAGE>
EXHIBITS
Exhibit 2.2(c) Assignment, Bill of Sale and Conveyance of
Working Interests, Royalty Interests and
Mineral Interests
SCHEDULES
--------------------
Schedule 1.4(e) Additional Assumed Liabilities
Schedule 1.8(i) Additional Excluded Assets
Schedule 1.11 Leases
Schedule 1.12(f) Pending Insurance, Indemnity, Bond or
Condemnation Claims
Schedule 1.13 Prepaid Expenses
Schedule 2.2(c)(iii) Other Items Delivered at the Closing
Schedule 3.3 List of Comdisco Agreements Violated by
Transaction
Schedule 3.5 List of Comdisco Liabilities Relating to
Assets
Schedule 3.6 Comdisco Environmental Schedule
Schedule 3.7 Preferential Rights to Purchase and
Consents to Assignment
Schedule 3.12 Consents Not Obtained
Schedule 3.13 List of Comdisco Reserve Reports
Schedule 4.2 List of COG Agreements Violated by the
Transaction
Schedule 4.4 List of Claims Against COG
Schedule 4.5 COG Environmental Schedule
Schedule 4.7 COG Stock Ownership and Options
Schedule 4.9(i) COG Financial Information
Schedule 4.9(ii) List of Material Changes Since Effective
Date
Schedule 4.16(a) Information
Schedule 4.16(b) List of COG Reserve Reports
EXCHANGE AGREEMENT
THIS AGREEMENT dated as of the 27th day of September, 1994, is made by
and between Comdisco, Inc., a Delaware corporation, Comdisco Exploration,
Inc., a Delaware corporation and Comdisco Resources, Inc., a Delaware
corporation, (herein collectively referred to as "Comdisco") and CONSOLIDATED
OIL & GAS, INC., a Delaware corporation (herein referred to as "COG").
RECITAL
COG desires to acquire certain assets of Comdisco described in Section
1.3 of this Agreement and Comdisco desires to exchange such assets for certain
capital stock of COG, on the terms and conditions hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the undersigned, Comdisco
and COG hereby agree as follows:
ARTICLE 1. - DEFINITIONS
The following terms, as used herein, shall have the following meanings:
1.1 "Agreement" shall mean this Exchange Agreement between Comdisco and
COG.
1.2 "Allocated Value" shall mean the value assigned to the producing
properties as evidenced on Part II of Schedule 1.11.
1.3 "Assets" shall mean the following described assets and properties
(except to the extent constituting Excluded Assets):
(a) the Leases;
(b) the Personal Property and Incidental
Rights; and
(c) the Inventory Hydrocarbons.
1.4 "Assumed Liabilities" shall mean the duties, liabilities and
obligations assumed by COG under this Agreement which consist solely of:
(a) To the extent in existence at the Effective Time, the proportionate
share of all overriding royalty interests, lessor's royalties, net profit
interests, carried interests, reversionary interests and other interests,
encumbrances and burdens on the production from the Leases after the Effective
Date;
(b) To the extent in existence at the Effective Time, all covenants,
conditions and obligations, in instruments and assignments in the chain of
title of the Leases;
(c) All contracts relating to the operation of the Assets, sale of
production from the Leases, farmout agreements relating to the Leases and
other contracts encumbering or affecting the Leases, except to the extent that
such contracts are with related entities and are not at standard industry
terms;
(d) To the extent in existence at the Effective Time, the obligation to
pay a proportionate share of the costs of plugging and abandoning all wells
located on the Leases; and
(e) Those obligations listed on Schedule 1.4(e).
1.5 "Closing" shall be as defined in Section 2.2(a).
1.6 "Comdisco Predecessors" shall mean NBB Oil & Gas Partners (U.S.A.)
and Energy Partners Nominee Company.
1.7 "Effective Time" or "Effective Date" shall mean 7:00 a.m., local
time at the location of the Asset being exchanged, on June 1, 1994.
1.8 "Excluded Assets" shall mean the following:
(a) (i) all trade credits, accounts receivable, notes receivable and
otherreceivables attributable to Comdisco's interest in the Assets with
respect to any period of time prior to the Effective Time; and (ii) all
deposits, cash, checks in process of collection, cash equivalents and funds
attributable to Comdisco's interest in the Assets with respect to any period
of time prior to the Effective Time;
(b) all corporate, financial and tax records of Comdisco; however, COG
shall be entitled to receive copies of any tax records which directly relate
to any Assumed Liabilities, or which are necessary for COG's ownership,
administration, or operation of the Assets;
(c) Except as specifically listed in Schedule 1.12(g), all rights,
titles, claims and interest of Comdisco (i) under any policy or agreement of
insurance or indemnity; (ii) under any bond; or (iii) to any insurance or
condemnation proceeds or awards;
(d) all Hydrocarbons produced from or attributable to the Assets with
respect to all periods prior to the Effective Time, together with all proceeds
from or of such Hydrocarbons, except the Inventory Hydrocarbons;
(e) all amounts due or payable to Comdisco as adjustments or refunds
under any contracts or agreements (including take-or-pay claims) affecting the
Assets, respecting periods prior to the Effective Time;
(f) all amounts due or payable to Comdisco as adjustments to insurance
premiums related to the Assets with respect to any period prior to the
Effective Time;
(g) all proceeds, benefits, income or revenues accruing (and any
security or other deposits made) with respect to (i) the Assets prior to the
Effective Time; (ii) all accounts receivable attributable to the Assets prior
to the Effective Time; and (iii) any Excluded Assets;
(h) all files, information and data expressly excluded from the
definition of Personal Property and Incidental Rights, including all seismic,
geological, geochemical and geophysical information and data, whether it
relates to the Leases or not; and
(i) all items listed in Schedule 1.8(i) (such items may or may not be
related to the Assets, but Comdisco wishes to clarify that such items are not
being transferred to COG).
1.9 "Hydrocarbons" shall mean crude oil, natural gas, coal gas,
casinghead gas, condensate, sulphur, natural gas liquids and other liquid or
gaseous hydrocarbons (including carbon dioxide), to the extent, and only to
the extent, covered by the Leases, and shall also refer to all other minerals
of every kind and character which may be covered by or included in the Leases
and Assets.
1.10 "Inventory Hydrocarbons" shall mean all merchantable oil and
condensate produced from or attributable to the Leases prior to the Effective
Time which have not been sold by Comdisco and are in storage at the Effective
Time.
1.11 "Leases" shall mean, except to the extent constituting Excluded
Assets, any and all interests owned by Comdisco in, to and under the oil, gas
and mineral leases, lands and units described in Schedule 1.11, or which
Comdisco is entitled to receive by reason of any participation, joint venture,
farm-in, farmout, unit agreements, joint operating agreement or other
agreement, in and to the oil, gas and/or mineral leases, permits, licenses,
concessions, leasehold estates, net revenue interests, executory interests,
net profit interests, working interests, reversionary interests, royalty
interests, overriding royalty interests, fee mineral interests and any other
interests of Comdisco in Hydrocarbons, insofar, and only insofar, as such
leases and interests cover and affect the areas and lands described on
Schedule 1.11. Schedule 1.11 will set forth (a) in Part I the legal
description of each lease being conveyed and (b) in Part II the working,
royalty or other interest being conveyed, the net revenue interest being
conveyed in each producing property being conveyed and the percentage value of
each property as it relates to all properties conveyed.
1.12 "Personal Property and Incidental Rights" shall mean all right,
title and interest of Comdisco in and to or derived from the following
insofar, and only insofar, as the same are attributable to, appurtenant to,
incidental to, or used for the operation of the Leases: (a) all unitization,
communitization and pooling designations, declarations, agreements and orders
covering the Leases, or any portion thereof, and the units and pooled or
communitized areas created thereby; (b) all easements, rights-of-way, permits,
licenses, servitudes or other interests; (c) all equipment and other personal
property, inventory, spare parts, tools, fixtures, pipelines, tank batteries,
appurtenances and improvements situated upon the Leases and used or held for
use in connection with the development or operation of the Leases or the
production, treatment, storage, compression, processing or transportation of
Hydrocarbons from or in the Leases; all producing wells, temporarily abandoned
wells, plugged and abandoned wells and their disposal wells; (d) all
contracts, agreements and title instruments to the extent attributable to and
affecting the Assets in existence at Closing, including but not limited to all
Hydrocarbon sales, purchase, gathering, transportation, treating, marketing,
exchange, processing and fractionating contracts; farmout or farmin
agreements; assignments in the chain of title; and joint operating agreements;
(e) copies of all lease files, land files, well files (including production
records), gas and oil sales contract files, gas processing files, division
order files, abstracts, title opinions and all other books, files and records,
information and data (excluding, however, all seismic, geological, geochemical
and geophysical information and data), and all rights thereto, of Comdisco
insofar as the same are directly related to the Leases and to the extent the
transfer thereof is not prohibited by existing contractual obligations with
third parties; and (f) the right to proceeds from any pending claim for
insurance, indemnity, bond, or condemnation proceeds or awards, if any, listed
in Schedule 1.12(f).
1.13 "Prepaid Expenses" shall mean the prepaid expenses related to the
Assets as of the Effective Date, as set forth in Schedule 1.13.
1.14 "Purchase Price" shall be as defined in Section 2.1.
ARTICLE 2. - SALE AND PURCHASE OF ASSETS
Subject to the terms and conditions of this Agreement, Comdisco shall
sell, convey, assign, transfer and deliver to COG as of the Effective Time and
COG shall purchase all of Comdisco's rights, title and interests in and to the
Assets and assume the Assumed Liabilities.
2.1 Purchase Price
(a) Subject to adjustment after the Closing, as set forth in Article VI,
the "Purchase Price" for the Assets shall be 4,581,000 shares of Class A
Stock, allocated among the Assets as provided in Schedule 1.11 ("Allocated
Value").
(b) The Purchase Price shall be paid at the Closing (as defined in
Section 2.2) by delivery to the following entities of the shares of the Class
A Common Stock of COG ("Class A Stock" or "COG Shares"), set forth below:
(i) Comdisco, Inc. 3,115,080 shares;
(ii) Comdisco Exploration, Inc. 732,960 shares;
(ii) Comdisco Resources, Inc. 732,960 shares;
The Class A Stock delivered has an agreed value equal to the Purchase Price.
The agreed upon per share fair market value of the Class A Stock and the
Common Stock of COG shall be $8.80 per share.
2.2 Closing
(a) The closing of the sale of the Assets (the "Closing") has occurred
simultaneously with the execution of this Agreement on the date hereof (the
"Closing Date").
(b) At the Closing, COG has issued to Comdisco the COG Shares.
(c) At the Closing, (i) Comdisco has delivered to COG the Assignment,
Bill of Sale and Conveyance of Working Interests, Royalty Interests and
Mineral Interests attached hereto as Exhibit 2.2(c) for the Assets, (ii)
Comdisco has paid to COG any and all proceeds received by Comdisco
attributable to the Assets and relating to the period beginning with the
Effective Date and ending with the date hereof (the "Post Effective Period"),
net of all direct costs reasonably incurred and paid by Comdisco and Comdisco
Predecessors attributable to the Assets for the Post Effective Period,
including Prepaid Expenses and (iii) Comdisco and COG have taken such other
action as is required to consummate the transactions contemplated by this
Agreement and relating to the Assets, including without limitation, the
actions, delivery of documents and other matters listed in Schedule
2.2(c)(iii).
(d) From and after the Closing until October 1, 1994 at 7:00 a.m.,
Duncan Energy Company shall continue to operate those properties included in
the Assets that it operated immediately prior to the Closing, to the extent
such continued operation is permitted under the terms of existing operating
agreements, and neither Comdisco nor Duncan Energy Company shall have any
liability to COG for any loss or damage arising out of such continued
operations except to the extent caused by the willful misconduct or gross
negligence of Duncan Energy Company. Duncan Energy Company shall be a
third-party beneficiary of the provisions of this Section 2.2(d).
ARTICLE 3. - REPRESENTATIONS AND
WARRANTIES OF COMDISCO
Comdisco represents and warrants to COG, with respect to Sections 3.1,
3.2, 3.3, 3.4, 3.10, 3.11 and 3.17, as of the date hereof, and with respect to
all other Sections of Article 3, as of August 26, 1994, that:
3.1 Title. Comdisco is conveying to COG all right, title and interest
in the Assets which was held by the Comdisco Predecessors immediately prior to
the distribution of the Assets to Comdisco.
3.2 Corporate Organization.
Each of Comdisco, Inc., Comdisco Exploration, Inc. and Comdisco
Resources, Inc. is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, is duly qualified to
transact business as a foreign corporation and is in good standing in any
jurisdiction where the failure to so qualify may have a material adverse
effect on, the Assets, or the transactions contemplated herein.
3.3 Authority.
Each of Comdisco, Inc., Comdisco Exploration, Inc. and Comdisco
Resources, Inc. has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the other documents
and agreements contemplated hereby, and to perform its obligations under this
Agreement and the other documents and agreements contemplated hereby. It
being expressly understood that each of their execution and delivery of, and
performance of all their respective obligations under this Agreement have been
duly and validly authorized by any necessary corporate action on each of their
part. The consummation of the transactions contemplated by this Agreement
will not violate, nor be in conflict with, (1) any judgment, decree, order,
statute, rule, or regulation applicable to any of them or (2) any provision of
their respective governing documents, or any agreement or instrument to which
any of them is a party or by which any of them is bound, except as waived in
writing prior to the Closing or as listed in Schedule 3.3.
3.4 Legality.
This Agreement, and all documents and instruments required hereunder to
be executed and delivered by Comdisco at the Closing, constitute legal, valid
and binding obligations of Comdisco in accordance with their respective terms.
3.5 Claims.
Except as provided in Schedule 3.5, there are no material claims, suits
or demands pending in any court or before any arbitrator or governmental
agency, domestic or foreign, to which Comdisco is a named party, or of which
Comdisco has knowledge (as defined in Section 13.15), and which pertain
specifically to a portion of the Assets, and which, if decided adversely to
Comdisco, would result in impairment or loss of Comdisco's title to any part
of the Assets or the value thereof, or which might hinder or impede, in any
material respect, the operation of the Assets.
3.6 Environmental.
Except as disclosed in Schedule 3.6, neither Comdisco nor any Comdisco
Predecessor has received any notice, citation or order with respect or
relating to and otherwise have no knowledge of the generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in violation of or which may result in material liability under any
applicable laws, rules, regulations or interpretations thereof, on, in or
around the Leases or any part thereof (for purposes of this Agreement,
"Hazardous Substance" means substances that are defined or listed in, or
otherwise classified pursuant to, any statutes, laws, rules, regulations or
interpretations thereof applicable to Comdisco or any Comdisco Predecessor as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," (or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, or "toxicity,") and
petroleum and drilling fluids, produced waters or other wastes associated with
the exploration, development, or production of crude oil, natural gas or
geothermal energy).
3.7 Preferential Rights.
The only Assets subject to a preferential right to purchase or a consent
to assign are those indicated on Schedule 3.7;
3.8 Contracts.
To Comdisco's knowledge, Comdisco (as the assignee of the Comdisco
Predecessors) is in compliance with all material terms of any and all material
farmout agreements, joint operating agreements and leases relating to the
Assets.
3.9 Duncan Energy Claims.
At the Closing, Comdisco can and is conveying to COG the Assets, free of
any further obligation to pay management fees to Duncan Energy Company and all
rights of Duncan Energy Company or any ownership rights of NBB Oil & Gas
Partners (U.S.A.) or its affiliates other than Comdisco, Inc.
3.10 Participation Rights.
The general partners of Duncan Energy Company or NBB Oil & Gas Partners
(U.S.A.) or their respective past or present affiliates will not have any
rights to participate in wells drilled by COG on the property acquired from
Comdisco.
3.11 Accredited Investor Status.
Each of Comdisco, Inc., Comdisco Exploration, Inc. and Comdisco
Resources, Inc. is an "accredited investor" as defined under the rules
promulgated pursuant to the Securities Act of 1933 and is acquiring Class A
Stock hereunder for investment purposes only and not with a view to
distribution.
3.12 Consents.
Except as listed in Schedule 3.12, all consents, approvals,
authorizations and other requirements prescribed by any law, rule or
regulation which must be obtained or satisfied by Comdisco and which are
necessary for the execution and delivery by Comdisco of this Agreement and the
documents to be executed and delivered by Comdisco in connection herewith have
been obtained and satisfied, other than such consents which (i) may be
obtained in the ordinary course of business after the Closing or (ii) the
failure to obtain prior to the Closing will not have a material and adverse
effect on the property being assigned to COG to which such consent relates.
3.13 Information.
Comdisco has given COG full access to all files in the possession or
control of Comdisco and each Comdisco Predecessor or their affiliates,
relating to the Assets, except where restricted by confidentiality agreements.
Further, to the knowledge of Comdisco, the information provided to the
petroleum engineers of the Comdisco Predecessors for the preparation of the
most recent reserve reports listed in Schedule 3.13, provided to COG was on
the date given, accurate and complete in all material respects.
3.14 Violation of Law.
To the knowledge of Comdisco, neither it nor Duncan Energy Company are in
violation of any applicable federal, state or local law, statute, order, rule
or regulation (collectively "laws") relating to or affecting the operation,
conduct or ownership of the Assets, which violation or violations,
individually or in the aggregate might have a material adverse effect,
individually or in the aggregate, on the Assets or prospects of COG as the
potential owner or operator thereof.
3.15 Recent Developments.
Since the Effective Date, to the knowledge of Comdisco, there has been no
material and adverse development relating to the Assets as a whole, other than
relating to the oil and gas industry as a whole or as listed in Schedules 1.4
and 3.5.
3.16 Plugging Liability.
To the knowledge of Comdisco, there are no wells located on the Leases
other than in the Delaware-Childers Field, in Nowata, Oklahoma, for which
there is a current obligation to plug and abandon.
3.17 Acknowledgment Regarding Dissolution.
Comdisco acknowledges that COG has not reviewed the documents relating to
the dissolution of NBB Oil & Gas Venture (U.S.A.) and that COG may look
exclusively to Comdisco for any remedy due COG for breach of this Agreement.
ARTICLE 4. - COG'S REPRESENTATIONS AND WARRANTIES
COG represents and warrants to Comdisco, with respect to Sections 4.1,
4.2, 4.3 and 4.7, as of the date hereof, and with respect to all other
Sections of Article 4, as of August 26, 1994 that:
4.1 Organization.
COG is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, is duly qualified to
transact business as a foreign corporation and is in good standing in any
jurisdiction where the failure to so qualify would have a material adverse
effect on its business or on the operation of assets acquired hereunder.
4.2 Authority.
COG has all requisite power and authority to carry on its business as
presently conducted, to enter into this Agreement and the other documents and
agreements contemplated hereby, and to perform its obligations under this
Agreement and the other documents and agreements contemplated hereby. COG's
execution and delivery of, and its performance of all its obligations under
this Agreement have been duly and validly authorized by any necessary
corporate action on the part of COG. The consummation of the transactions
contemplated by this Agreement will not violate, nor be in conflict with, (1)
any judgment, decree, order, statute, rule, or regulation applicable to COG or
(2) any provision of COG's governing documents, or any agreement or instrument
to which it is a party or by which it is bound, except as waived in writing
prior to the Closing or as listed in Schedule 4.2.
4.3 Legality.
This Agreement, and all documents and instruments required hereunder to
be executed and delivered by COG at the Closing, constitute legal, valid and
binding obligations of COG in accordance with their respective terms.
4.4 Claims.
Except as provided in Schedule 4.4, there are no material claims, suits
or demands pending in any court or before any arbitrator or governmental
agency, domestic or foreign, to which COG is a named party, or of which COG
has knowledge, which, if decided adversely to COG, would have a material
adverse effect on the operation of COG's business.
4.5 Environmental.
Except as disclosed in Schedule 4.5, COG has not received any notice,
citation or order with respect or relating to and otherwise has no knowledge
of the generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in violation of or which may result in
material liability under any applicable laws, rules, regulations or
interpretations thereof, on, in or around any part of the properties owned or
operated by COG on the Closing Date or, with respect to properties sold prior
to Closing, within the three years preceding the Closing.
4.6 Contracts.
To COG's knowledge, it is in compliance with all material terms of any
and all material farmout agreements, joint operating agreements and leases to
which it is a party or by which it is bound or by which its properties are
affected.
4.7 Capital Structure.
The authorized capital stock of COG consists of 20,000,000 shares of
common stock with $0.01 par value, 5,000,000 shares of Class A Stock and
100,000 shares of preferred stock, with $0.01 par value, 6,903,000 shares of
such common stock are issued and outstanding and are owned as set forth on
Schedule 4.7 (the "COG Issued Stock"). There are no shares of preferred stock
or Class A Stock outstanding other than issued pursuant to this Agreement.
All of the COG Issued Stock has been validly issued and is fully paid and
non-assessable. Schedule 4.7 sets forth the only options, warrants or other
rights to purchase or otherwise acquire capital stock of COG, other than under
this Agreement or the documents executed at the Closing. COG has not declared
or paid any dividend or distribution, other than a stock split or dividend,
since the Effective Date.
4.8 Taxes.
COG has prepared and filed all federal, state and local tax returns and
tax reports required to be filed to date with appropriate governmental
agencies in all jurisdictions in which such returns and reports are required
to be filed. All taxes and estimated taxes (including any penalties or
interest) imposed by or payable to any governmental taxing authority with
respect to the operations or ownership of property and assets of COG have been
fully paid or adequately provided for in COG's consolidated balance sheet
dated December 31, 1993, except taxes based on operations since that date.
All tax returns and reports to date have been, and all such returns and
reports filed were at the time filed, true and correct.
4.9 Financial Information.
The "COG's Financial Information" set forth in Schedule 4.9(i)(A): (a) is
complete and correct in all respects, (b) was prepared in conformity with (in
the case of financial statements) generally accepted accounting principles
consistently applied and (c) together with the June 1, 1994, unaudited
financial statements set forth in Schedule 4.9(B),fairly and accurately
presents the financial condition of COG as at the dates presented and the
results of operations of COG for the periods covered in accordance with the
books and records of COG, which have been maintained in accordance with
generally accepted accounting principles, consistently applied. To the
knowledge of COG, except as listed in Schedule 4.9(ii) there have been no
material changes in the financial condition or business of COG since the date
of the COG Financial Information.
4.10 Violation of Law.
To the knowledge of COG, COG is not in violation of any applicable
federal, state or local law, statute, order, rule or regulation (collectively
"laws") relating to or affecting the operation, conduct or ownership of the
property or business of COG which violation or violations, individually or in
the aggregate might have a material adverse effect, individually or in the
aggregate, on the financial condition, assets, business, properties, or
prospects of COG.
4.11 Insurance.
COG maintains in full force and effect insurance policies which are
standard in the oil and gas industry for the nature and practice of its
business operations or as required by applicable law.
4.12 Old COG Assets.
The Assets which COG purchased from Consolidated Oil & Gas, Inc., a
Colorado corporation, were acquired free and clear of all claims of third
parties, pursuant to the order of the United States Bankruptcy Court and such
assets are not under the continuing jurisdiction of the United States
Bankruptcy Court.
4.13 Benefit Plans.
COG does not have and never has had an employee benefit plan or pension
plan which could create any material liability for COG.
4.14 Other Liabilities.
Except as and to the extent (a) specifically reflected (through a reserve
or otherwise) in the COG Financial Information, (b) arising from the documents
executed at the Closing, or (c) otherwise disclosed in Schedules 4.4, 4.9(i)
or 4.9(ii), COG does not have any liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to
become due (including, without limitation, any liability for taxes and
interest, penalties and other charges payable with respect to any such
liability or obligation) which are material to the condition (financial or
otherwise), assets, properties, business or prospects of COG taken as a whole.
4.15 Recent Developments and Defaults.
Since the Effective Date, to COG's knowledge, there has been no material
and adverse development relating to COG, other than relating to the oil and
gas industry as a whole or as listed in Schedules 4.4 and 4.9(ii). To the
knowledge of COG, it is not in default under any material agreement which will
not be cured within the ordinary course of business.
4.16 Information.
COG has given Comdisco full access to all files in the possession and
control of COG, except where such access may be restricted by confidentiality
agreements. Further, to the knowledge of COG, (a) the information set forth
on Schedule 4.16 as of August 15, 1994 and (b) the information provided by COG
to its petroleum engineers for the preparation of the reserve reports listed
in Schedule 4.16, provided to Comdisco on the date so provided, were accurate
and complete in all material respects.
ARTICLE 5. - ACCESS TO AND COPIES OF INFORMATION
On or before 45 days after the date of the Closing, Comdisco shall
deliver to COG, at Comdisco's sole cost and expense, copies of all abstracts
of title, title opinions, title files, lease maps (black & white copies),
lease files, assignments, division orders, check vouchers, payout statements
and agreements pertaining to the Assets insofar as the same may now be in
existence and in the possession of Comdisco or their affiliates. Prior to the
delivery of such information, COG shall have access to such information during
normal business hours. COG shall have the right to copy, at its own expense,
such other maps or documents as may be useful in its ownership of the Assets.
ARTICLE 6. - PRICE ADJUSTMENT FOR DEFECTIVE TITLE
6.1 Title Procedure.
(a) As used herein, the term "Defensible Title" shall mean, as to the
Assets, such title that, subject to and except for the Permitted Encumbrances
(as hereinafter defined): (i) entitles Comdisco to receive not less than the
"Net Revenue Interest" set forth in Exhibit A of all oil, gas and associated
liquid and gaseous hydrocarbons produced, saved and marketed from the
presently producing formations in the presently producing wells located on the
Assets; (ii) obligates Comdisco to bear costs and expenses relating to the
maintenance, development and operation of the presently producing wells
located on the Assets in an amount not greater than the "Working Interest" set
forth in Exhibit A; and (iii) is free and clear of material encumbrances,
liens and defects.
(b) The term "Permitted Encumbrances," as used herein, shall mean;
(1) lessors' royalties, overriding royalties and division orders and
sales contracts covering oil, gas or associated liquid or gaseous
hydrocarbons, reversionary interests and similar burdens if the net cumulative
effect of such burdens does not operate to reduce the Net Revenue Interest of
any Asset to less than the Net Revenue Interest set forth in Schedule 1.11;
(2) preferential rights to purchase and required third party consents to
assignments and similar agreements with respect to which (i) waivers or
consents are obtained from the appropriate parties, (ii) the appropriate time
period for asserting such rights has expired without an exercise of such
rights, or (iii) with respect to consents, such consent need not be obtained
prior to an assignment, or failure to obtain such consent will not have a
material adverse effect on the value of the producing properties to COG;
(3) liens for taxes or assessments not yet due or not yet delinquent or,
if delinquent, that are being contested in good faith in the normal course of
business;
(4) all rights to consent by, required notices to, filings with, or
other actions by governmental or tribal entities in connection with the sale
or conveyance of oil and gas leases or interests therein if the same are
customarily obtained subsequent to such sale or conveyance;
(5) rights of reassignment;
(6) easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like; conditions, covenants or other
restrictions; and easements for streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other easements and rights-of-way,
on, over or in respect of any of the Assets;
(7) all other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the Assets
(including, without limitation, liens of operators relating to obligations not
yet due or pursuant to which Comdisco is not in default) that are not such as
to interfere materially with the operation, value or use of the Assets;
(8) the terms and conditions of all Leases and all agreements, orders,
instruments, documents and other matters affecting the Assets (including,
without limitation, production sales contracts, division orders, contracts for
sale, purchase, exchange, refining, or processing of hydrocarbons, unitization
and pooling designations, declarations, orders and agreements, operating
agreements, agreements of development, area of mutual interest agreements, gas
balancing or deferred production agreements, processing agreements, plant
agreements, pipeline, gathering and transporting agreements, injection,
repressuring and recycling agreements, carbon dioxide purchase or sale
agreements, salt water or other disposal agreements, seismic or geophysical
permits or agreements) which are customary in the oil, gas, sulphur and other
mineral exploration, development or extraction business or in the business of
processing of gas and gas condensate production for the extraction of products
therefrom, provided that the foregoing do not operate to reduce the Net
Revenue Interest, nor increase the Working Interest, of Comdisco in the Assets
as reflected in Exhibit A (unless, in the case of an increased Working
Interest, Comdisco's Net Revenue Interest is proportionately increased); and
(9) rights reserved to or vested in any municipality or governmental,
tribal, statutory or public authority to control or regulate any of the Assets
in any manner, and all applicable laws, rules and orders of governmental and
tribal authority.
(c) The term "Title Defect" as used herein shall mean any material
encumbrance, encroachment, irregularity, defect in or objection to Comdisco's
title to the Assets (expressly excluding Permitted Encumbrances), that alone
or in combination with other defects renders Comdisco's title to the Assets
less than Defensible Title. In evaluating whether an encumbrance,
encroachment, irregularity, defect in or objection to title is material, due
consideration shall be given to the length of time that the Leases have been
producing hydrocarbon substances, whether the Assets are in "pay status" and
whether such defect is of the type expected to be encountered in the area
involved and is customarily acceptable to prudent operators and interest
owners. (As used herein, "pay status" shall mean payment is being made by a
third party for the production from the Assets without indemnity from Comdisco
or the Comdisco Predecessors except such indemnities as are customarily
included in division orders, transfer orders, product purchase agreements and
similar instruments commonly used in connection with the payment of proceeds
from production.) Such usual and customary defects include, without
limitation, defects that have been cured by possession under applicable
statutes of limitation, defects in the early chain of title such as failure to
recite marital status in documents, omission of heirship or succession
proceedings, lack of survey and failure to record releases of liens,
production payments or mortgages that have expired of their own terms to the
extent such defects represent matters that are not reasonably expected to
result in claims that will adversely affect Comdisco's title to the Interests.
Materialmen's, mechanics', repairmen's, employees', contractors', operators'
or other similar liens or charges arising in the ordinary course of business
incidental to construction, maintenance or operation of the Assets shall not
constitute a Title Defect (i) if they have not been filed pursuant to law,
(ii) if filed, they have not yet become due and payable or payment is being
withheld as provided by law or (iii) if their validity is being contested in
good faith by appropriate action.
(d) "Defective Interests" shall mean those portions of the Assets
affected by Title Defects and of which Comdisco has been given notice by COG
prior to 90 days after the Closing. Such notice shall be in writing and shall
include (i) a description of the Defective Interests, (ii) the basis for the
defects that COG believes causes such portions of the Assets to be treated as
Defective Interests and (iii) the value of the Defective Interests based upon
the Allocated Values of the affected Assets as set forth in Part II of
Schedule 1.11 hereto, and the computations and information upon which COG's
valuation is based. COG shall be deemed to have waived all Title Defects of
which Comdisco has not been given such notice. In determining which portions
of the Assets are Defective Interests, it is the intent of the parties to
include only those portions of the Assets affected by Title Defects. If a
Defective Interest constitutes an interest in, but not totally comprising, a
producing property to which an Allocated Value has been set forth in Part II
of Schedule 1.11, the value of such Defective Interest shall be equal to such
Allocated Value proportionately reduced to the portion of such Asset affected
by the Title Defect.
(e) Comdisco has the right but not the obligation, at its sole cost and
expense, to attempt to cure Title Defects causing any Assets to be treated as
Defective Interests. Such right to cure shall expire 30 days after the
expiration of the 90-day period set forth in paragraph (d) above, or, if a
Title Defect requires a longer period to cure in the exercise of reasonable
diligence, such longer period not to exceed six months after the end of such
90-day period. COG shall grant additional extensions of such cure period as
may be reasonably necessary, to the extent that such Title Defect does not
materially impair the benefit of such property to COG during such period.
(f) If Comdisco disputes the existence of any Title Defect properly
asserted by COG in accordance with paragraph (d) above or the value of a
Defective Interest claimed by COG; if COG disputes the effectiveness of the
cure of a Title Defect pursuant to paragraph (e) above or if either party
disputes the impairment caused by any Title Defect caused during any proposed
extension of the cure period, the parties shall meet to attempt good faith
resolution of such dispute. If the parties fail to resolve such issue within
10 days after such meeting, the dispute shall be submitted for final
resolution to David G. Stolfa, Esq. of Denver, Colorado or, if he is
unavailable, another Denver attorney with at least 10 years' experience
examining title to oil and gas properties in the Rocky Mountain and
mid-continent region and reasonably acceptable to all parties hereto (the
"Title Arbitrator"). The Title Arbitrator may consider such matters and hear
such evidence as the Title Arbitrator deems advisable to render a decision.
The decision of the Title Arbitrator shall be in writing, shall be final and
binding upon the parties, and may be enforced in a court of competent
jurisdiction. COG and Comdisco shall each bear their own legal fees and costs
incurred in presenting their case, but the charges and expenses of the Title
Arbitrator shall be shared equally by COG and Comdisco.
6.2 Rights of the Parties with Respect to Defective Interests.
As used in this Section 6.2 and in Section 6.3, the term "Final
Determination" means the mutual decision of the parties or, if no such
decision is reached by the parties, the decision of the Title Arbitrator
confirming the existence and setting the value of a Defective Interest as to
which the Title Defect has not been cured. Upon Final Determination, COG
shall convey title to such Defective Interest to Comdisco by recordable
assignment containing a special warranty of title against liens, encumbrances
and defects created by, through or under COG but not otherwise, and Comdisco
shall return to COG shares of Class A Common Stock which had a fair market
value at the Closing equal to the value of such Defective Interest. Upon
delivery of such assignment, and from time to time thereafter as necessary,
COG shall pay Comdisco an amount equal to all proceeds of production
theretofore paid to COG with respect to such Defective Interest.
6.3 Excessive Defective Interests.
If the aggregate value of all Defective Interests to be returned to
Comdisco exceeds twenty percent of the Purchase Price, either COG or Comdisco
may elect to withdraw from the transaction described in this Agreement by
delivering written notice to the other party within ten days after the date on
which a Final Determination as to a Defective Interest causes the aggregate
value of all Defective Interests to exceed such amount. The calculation of
the aggregate value of all Defective Interests shall not include those
Defective Interests as to which a cure of the applicable Title Defect has been
effected or those Defective Interests as to which COG has failed to notify
Comdisco as provided in paragraph 6.1(d) or has otherwise waived the Title
Defects affecting such Defective Interests. Upon such election by a party,
all parties shall take such actions as are necessary to return or reassign all
Assets and return all Class A Stock transferred hereunder and return all
parties as nearly as practicable, to the respective positions they held prior
to the execution hereof, with each party bearing its own costs for such
transactions.
ARTICLE 7. - COVENANTS
7.1 Non-Distribution of Class A Stock.
Except as otherwise restricted in the Shareholders Agreement of even date
herewith, until after one year from the Closing Date, Comdisco shall not
distribute or convey, by liquidation, transfer, assignment or otherwise, the
Class A Stock to any person except among the controlled affiliates of
Comdisco, without the consent of COG.
7.2 Consents.
If any contract or agreement relating to an Asset provides for or
requires a preferential right to purchase, consent to assignment or approval
to the assignment of the Assets, which has not been obtained prior to Closing,
then Comdisco and COG shall use their respective best efforts, with respect to
matters which they have the ability to legally influence, to obtain all such
consents, approvals, waiver and/or all agreements from all holders of these
rights.
7.3 Post Effective Revenue and Costs.
Comdisco shall within 20 days of receipt forward to COG all proceeds
attributable to the Assets and relating to the Post Effective Period not paid
at Closing. COG shall within 20 days of receipt of an invoice from Comdisco
reimburse it for any direct costs not deducted from the payment made at
Closing pursuant to Section 2.2(c), which was reasonably incurred by it during
the Post Effective Period, in relation to the operation or ownership of the
Assets.
7.4 Legal Claims.
For one year from the date hereof, Comdisco shall promptly notify COG, if
Comdisco has knowledge of any suit, lessor demand, action, or other proceeding
before any court, arbitrator, or governmental agency and any cause of action
which Comdisco in good faith believe may result in impairment or loss of COG's
interests in any portion of the Assets or which might hinder or impede the
operation of the Assets.
7.5 Additional Covenants of COG.
COG shall cooperate with Comdisco to obtain the release of Comdisco from
all Assumed Liabilities. COG shall in good faith perform or honor its
obligations under the Assumed Liabilities, except to the extent COG is
contesting any such Assumed Liability in a bona fide dispute.
ARTICLE 8. DELETED.
ARTICLE 9. - EFFECT OF CLOSING
9.1 Assumed Liabilities; Pre-Closing Liabilities.
After the Closing, COG shall own the Assets, together with all the
rights, duties, obligations and liabilities accruing after the Effective Time,
including the Assumed Liabilities directly relating to the Assets and COG's
indemnity obligations hereunder. COG agrees to assume and pay, perform,
fulfill and discharge all such Assumed Liabilities. To the extent not
included in such Assumed Liabilities, or those matters for which Comdisco is
indemnified, Comdisco agrees to pay, perform, fulfill and discharge all costs,
expenses and liabilities incurred by Comdisco with respect to the ownership or
operation of the Assets and due and payable or to be performed prior to the
Closing Date, subject to the provisions of Sections 2.2(c) and 7.3.
ARTICLE 10. DELETED.
ARTICLE 11. DELETED.
ARTICLE 12. - INDEMNIFICATION
12.1 Indemnification of Each Party.
(a) Indemnification by Comdisco. Comdisco shall indemnify and hold
harmless COG and its shareholders, agents, officers, directors and affiliates
in respect of any and all claims, losses, damages, liabilities and expenses
(including, without limitation, settlement costs and any legal or other
expenses for investigating or defending any actions or threatened actions),
together with interest thereon at the rate of seven percent (7%) per annum,
compounded annually from the date incurred until paid, reasonably incurred by
COG or such other indemnified persons in connection with or as a result of
losses incurred by them as a result of the breach by Comdisco of any
representation, warranty or covenant of this Agreement, or from any liability
(i) listed in Schedule 3.5 which is not expressly assumed in writing by COG or
(ii) listed in Schedule 3.6.
(b) Indemnification by COG. COG shall indemnify and hold harmless
Comdisco and its owners, agents, officers, directors and affiliates in respect
of any and all claims, losses, damages, liabilities and expenses (including,
without limitation, settlement costs and any legal or other expenses for
investigating or defending any actions or threatened actions), together with
interest thereon at the rate of seven percent (7%) per annum, compounded
annually from the date incurred until paid, reasonably incurred by Comdisco or
such other indemnified persons in connection with or as a result of losses
incurred by Comdisco as a result of the breach by COG of any representation,
warranty or covenant of this Agreement or from any liability referred to in
Schedule 1.4 or otherwise expressly assumed in writing by COG.
12.2 Payment of Claims. The indemnified party or any successor thereto
(the "Indemnified Person") shall give the indemnifying person or any successor
thereto (the "Indemnifying Person") prompt notice of any occurrence of, or any
payment with respect to, any loss. Upon incurrence or payment by the
Indemnified Person or any other indemnitee hereunder of any loss, the
Indemnified Person or such indemnitee shall be entitled to prompt payment in
cash of the amount of such payment or loss. Notwithstanding the foregoing,
the portion of the loss attributable to a breach of a representation or
warranty relating to the value of the Assets or the Class A Common at the
Closing shall be referred to as a "Stock Loss" and shall be paid solely in
Class A Stock. The amount of Class A stock returned by or issued to Comdisco
relating to a Stock Loss shall be determined by readjusting the relative
values of the Assets and the Class A Stock as of the Effective Date, after
accounting for the Stock Loss. All payments made by the Indemnifying Person
to the Indemnified Person pursuant to this Article 12 shall be treated for tax
purposes as an adjustment of the Purchase Price.
12.3 Claims for Indemnification.
Within ten days after receipt by the Indemnified Person of notice of any
claim or the commencement of any action which the Indemnified Person believes
may give rise to a claim for indemnification under this Agreement, the
Indemnified Person shall notify the Indemnifying Person in writing of the
claim or the commencement of such action, but failure to give such notice
shall not relieve the Indemnifying Person of any liability hereunder except
for any fees or expenses unreasonably incurred in connection therewith prior
to such notice or to the extent such failure actually prejudices the
Indemnifying Person with respect to such claim or action. Thereafter, the
Indemnified Person shall deliver to the Indemnifying Person, within seven days
after the Indemnified Person's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Person relating
to such claim or action. Any claims for indemnification hereunder must be
asserted in writing to the Indemnifying Person before the expiration date and
later applicable survival period set forth in Section 12.5 hereof, but
litigation asserting any such claims for indemnification may be commenced
subsequent to the expiration of the applicable survival period.
12.4 Notice and Defense of Third Party Claims.
(a) If any third party demand, claim, action or proceeding shall be
brought or asserted under this Article 12 against an Indemnified Person in
respect of which indemnity may be sought under this Article 12 from an
Indemnifying Person, the Indemnified Person shall give prompt written notice
thereof to the Indemnifying Person who shall have the right to assume its
defense including the hiring of counsel reasonably satisfactory to the
Indemnified Person and shall have the obligation to pay all expenses subject
to the obligation of the Indemnifying Person in good faith to take all steps
reasonably necessary in the defense or settlement thereof; except that any
delay or failure to so notify the Indemnifying Person shall relieve the
Indemnifying Person of its obligations under this Article 12 only to the
extent, if at all, that it is prejudiced by reason of such delay or failure.
(b) The Indemnified Person shall have the right to employ separate
counsel in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless both the Indemnified
Person and the Indemnifying Person are named as parties and the Indemnified
Person shall in good faith determine that the representation by the same
counsel is inappropriate.
(c) If the Indemnifying Person, within ten days after receipt of notice
of any such action or claim, does not assume the defense thereof, the
Indemnified Person shall have the right to undertake the defense, compromise
or settlement of such action, claim or proceeding for the account of the
Indemnifying Person.
(d) Anything in this Article 12 to the contrary notwithstanding, the
Indemnifying Person shall not, without the Indemnified Person's prior consent,
settle or compromise any action or claim or consent to the entry of any
judgment with respect to any action, claim or proceeding for anything other
than money damages paid by the Indemnifying Person. The Indemnifying Person
may, without the Indemnified Person's prior consent, settle or compromise any
such action, claim or proceeding or consent to entry of any judgment with
respect to any such action or claim that requires solely the payment of money
damages by the Indemnifying Person and that includes as an unconditional term
thereof the release by the claimant or the plaintiff of the Indemnified Person
from all liability in respect of such action, claim or proceeding. With
respect to any other proposed settlement or compromise of any such matter, the
Indemnifying Person shall not expressly consent to a settlement or compromise
of, or expressly consent to the entry of any judgment arising from, any such
action, claim or proceeding without the prior written consent of the
Indemnified Person, not to be unreasonably withheld, it being understood that
in considering whether or not to give such consent the Indemnified Person is
entitled to take into account its exposure under such settlement, consent or
other judgment on account of the limitations on the Indemnifying Person's
liability provided in this Article 12 and the implications of such settlement,
compromise or judgment on the future conduct of the business activities of the
Company or of the Indemnifying Person.
(e) If with respect to a third-party claim hereunder, the Indemnifying
Person neither (i) acknowledges nor disclaims its obligation to indemnify each
of the Indemnified Persons pursuant hereto nor (ii) otherwise elects to have
an Indemnified Person assume the defense of such claim, such Indemnified
Person may defend against such third-party claim, as the case may be, or any
related legal proceeding in such manner as, in good faith, it may deem
appropriate, but may not expressly consent to the settlement or compromise of,
or expressly consent to the entry of a judgment arising from, any such claim
or legal proceeding without the prior written consent of the Indemnifying
Person (not to be unreasonably withheld, it being understood that in
considering whether or not to give such consent the Indemnifying Person shall
afford due merit to the limitations on its liability provided in this Article
12 and the Indemnified Person's reasonable assessment of the implications of
such settlement, compromise or judgment on the future conduct of the business
activities of the Company or of the Indemnifying Person). If an Indemnified
Person assumes the defense of any such claim or litigation pursuant to the
foregoing, it shall select counsel reasonably acceptable to the Indemnifying
Person to conduct such defense. The Indemnifying Person shall be entitled to
participate in (but not control) the defense of any such action, employing its
own counsel and at its own expense.
(f) If, with respect to a third-party claim hereunder, the Indemnifying
Person disclaims his obligation to indemnify any Indemnified Person pursuant
hereto, such Indemnified Person may defend against such claim or related legal
proceeding with such counsel and in such manner as it deems appropriate, and
may consent to the settlement or compromise of, or consent to the entry of a
judgment arising from, such claim or legal proceeding without the consent of
the Indemnifying Person and without prejudice to its claim for indemnity under
this Article 12.
(g) Whether or not the Indemnifying Person chooses to defend any claim
or litigation for which an Indemnified Person may be entitled to
indemnification hereunder, each of the parties hereto shall cooperate in good
faith in the defense thereof.
12.5 Survival of Representations and Warranties.
All representations and warranties made in Article 3 hereof by Comdisco
and in Article 4 hereof by COG shall survive the Closing and shall expire
thirty days after the delivery of audited financial statements of COG for
fiscal year ending December 31, 1994 to a representative of Comdisco or the
sale of securities of COG pursuant to public offering registered pursuant to
the provisions of the Securities Act of 1933, whichever is sooner, except (i)
as to any matter as to which a claim has been submitted in writing to the
Indemnifying Party prior to such date and identified as a claim for
indemnification pursuant to this Article 12, or (ii) as to any matter which is
based upon (a) fraud by either party, with respect to which the cause of
action in favor of the other party shall expire only upon expiration of the
applicable statute of limitations, or (b) the authority of either party to
enter into this Agreement or consummate the transactions contemplated herein
which shall survive indefinitely. No claim or action for breach of any
representation or warranty shall be asserted or maintained by any party hereto
after the expiration of such representation or warranty pursuant to the
preceding sentence except for claims made in writing prior to such expiration
or actions (whether instituted before or after such expiration) based on any
claim made in writing prior to such expiration. Any statement that
representations and warranties "shall survive" shall mean that the right to
claim indemnification for the inaccuracy of any representation or warranty
shall continue until the time specified in this Section 12.5.
ARTICLE 13. - MISCELLANEOUS
13.1 Filing and Recording of Assignments.
COG shall be solely responsible for all filings and recording of
assignments and other documents related to the Assets and for all fees
connected therewith, and upon request COG shall advise Comdisco of the
pertinent recording data. Comdisco shall not be responsible for any loss to
COG because of COG's failure to file or record documents correctly or
promptly. COG shall promptly file all appropriate forms, declarations or bonds
with Federal and State agencies relative to its assumption of operations and
Comdisco shall cooperate with COG in connection with such filings.
13.2 Further Assurances and Records.
(a) After the Closing each of the parties will execute, acknowledge and
deliver to the other such further instruments and take such other action, as
may be reasonably requested in order to more effectively assure to said party
all of the respective properties, rights, titles, interests, estates and
privileges intended to be assigned, delivered or inuring to the benefit of
such party in consummation of the transactions contemplated hereby.
(b) Deleted.
(c) To the extent not obtained or satisfied as of Closing, Comdisco
agrees to continue to use all reasonable efforts, but without any obligation
to incur any cost or expense in connection therewith, and to cooperate with
COG's efforts to obtain for COG (i) access to files, records and data relating
to the Assets in the possession of third parties; and (ii) access to wells
constituting a part of the Assets operated by third parties for purposes of
inspecting same.
13.3 Notices.
Except as otherwise expressly provided herein, all communications
required or permitted under this Agreement shall be in writing, and any
communication or delivery hereunder shall be deemed to have been duly given
and received four days after deposit in the U.S. Mail, postage prepaid, the
next business day, if sent by facsimile or sent by nationally recognized
overnight delivery service or upon actual receipt, whichever is sooner, to the
address of the party to be notified as set forth below and addressed as
follows:
If to Comdisco 611 N. River Road
Rosemont, Illinois 60018
Attention: Mr. Richard A. Finocchi
Telephone No.: (708) 518-5090
Fax No.: (708) 518-5540
with respect to title matters:
Bruce Johnston
Duncan Energy Company
1777 S. Harrison St., #P_1
Denver, Colorado 80210
Telephone No.: (303) 759-6221
Fax No.: (303) 759-0902
If to COG: Consolidated Oil & Gas, Inc.
410 17th Street
Suite 2300
Denver, Colorado 80202
Attention: J. W. Decker
President and Chief Executive
Officer
Telephone No.: (303) 893-1225
Fax No.: (303) 893-0946
Any party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made.
13.4 Entire Agreement.
This Agreement, the exhibits hereto and the Schedules hereto delivered
pursuant to this Agreement contain the entire agreement between the parties
hereto with respect to the transactions contemplated herein and, except as
provided herein, supersede all prior oral and written and all contemporaneous
oral negotiations, commitments, writings and understandings. The parties are
not relying on any inducement whatsoever other than that represented by this
Agreement in executing and delivering this Agreement.
13.5 Modifications, Amendments and Waivers.
At any time prior to the 180 days after the Closing or termination of
this Agreement, COG, on the one hand, and Comdisco, on the other hand, may, by
written agreement
(a) extend the time for the performance of any of the obligations or
other acts of the other party hereto;
(b) waive any inaccuracies in the representations and warranties made by
the parties contained in this Agreement or in the Exhibits or Schedules hereto
or any other document delivered pursuant to this Agreement; and
(c) waive compliance with any of the covenants or agreements of the
other parties contained in this Agreement.
13.6 Interpretation.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
13.7 Severability.
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
13.8 Parties in Interest.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors.
13.9 Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW PERTAINING TO CHOICE OR
CONFLICT OF LAWS, OF THE STATE OF COLORADO, EXCEPT AS TO MATTERS OF TITLE AND
CONVEYANCING WHICH SHALL BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
LEASE IS SITUATED. THE PARTIES HEREBY AGREE THAT IN THE EVENT ANY DISPUTE
ARISES OVER THE INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT, VENUE AND
JURISDICTION SHALL BE PROPER IN THE DISTRICT COURT FOR THE CITY AND COUNTY OF
DENVER, COLORADO.
13.10 Arbitration.
Any controversy, dispute, or claim arising out of, in connection with, or
in relation to, the interpretation, performance or breach of this Agreement,
including, without limitation, the validity, scope and enforceability of this
Section, may at the election of Comdisco or COG, delivered pursuant to the
terms hereof, be solely and finally settled by arbitration conducted in
Colorado, by and in accordance with the then existing rules for commercial
arbitration of the American Arbitration Association, or any successor
organization. Judgment upon any award rendered by the arbitrator(s) may be
entered by the state or federal court having jurisdiction thereof. Any of the
parties may demand arbitration by written notice to the other and to the
American Arbitration Association ("Demand for Arbitration"). Any Demand for
Arbitration pursuant to this Section shall be made before the earlier of (i)
the expiration of the applicable statute of limitations with respect to such
claim, or (ii) 60 days from the date on which a lawsuit is brought by the
other party with respect to such claim. The parties intend that this
agreement to arbitrate be valid, enforceable and irrevocable.
13.11 Exhibits.
All Exhibits and Schedules attached to this Agreement, and the terms of
those Exhibits and Schedules which are referred to in this Agreement, are made
a part hereof and incorporated herein by reference.
13.12 Counterparts.
This Agreement may be executed in any number of counterparts, and each
and every counterpart shall be deemed for all purposes one agreement.
13.13 Waiver.
Any of the terms, provisions, covenants, representations, warranties or
conditions hereof may be waived only by a written instrument executed by the
party waiving compliance and specifically referencing the fact that the waiver
relates to the Agreement. Except as otherwise expressly provided in this
Agreement, the failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party's
right to enforce the same. No waiver by any party of any condition, or of the
breach of any term, provision, covenant, representation or warranty contained
in this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other condition or
of the breach of any other term, provision, covenant, representation or
warranty.
13.14 Incidental Expenses.
COG shall pay (i) all State or local government sales, transfer, gross
proceeds, or similar taxes incident to or caused by the transfer of the Assets
to COG; (ii) all documentary, transfer and other State and local government
taxes incident to the transfer of the Assets to COG; and (iii) all filing,
recording or registration fees for any assignment or conveyance delivered
hereunder. Each party shall bear its own costs and expenses, including
attorney's fees and costs, incurred in connection herewith.
13.15 Knowledge.
References to the "knowledge" of a party shall be deemed to mean the
actual conscious knowledge of the officers or managers of such party, or in
the case of Comdisco, including the managers of Duncan Energy Company or
general partners of NBB Oil & Gas Partners (U.S.A.), plus the knowledge which
such people would gain upon a reasonable inquiry into the facts of which they
have a conscious knowledge.
13.16 Press Release.
The parties will not issue a press release relating to the transactions
contemplated herein without the consent of the other parties.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
COMDISCO, INC.
By: _________________________
Name: _______________________
Title: ______________________
COMDISCO EXPLORATION, INC.
By: _________________________
Name: _______________________
Title: ______________________
COMDISCO RESOURCES, INC.
By: _________________________
Name: _______________________
Title: ______________________
CONSOLIDATED OIL & GAS, INC.
By: _________________________
J.W. Decker
President
SCHEDULE 2.2(C)(III)
OTHER ITEMS DELIVERED AT THE CLOSING
1. Officers Certificate of COG as to Certificate of Incorporation,
Bylaws, incumbency, authorization and such other matters reasonably requested
by Comdisco.
2. Officers Certificate of Comdisco as to Certificate of Incorporation,
Bylaws, incumbency, authorization and such other matters reasonably requested
by COG.
3. Legal Opinion of Comdisco's in_house legal counsel in form and
substance acceptable to COG and its counsel regarding valid existence or good
standing of Comdisco, due authorization, execution, delivery and enforcement
of the Agreement and Assignment and the Shareholder Agreement and the
accredited investor status of Comdisco.
4. Legal Opinion of Gibson, Dunn & Crutcher in form and substance
acceptable to the Comdisco and their counsel regarding good standing of COG,
due authorization, execution, delivery and enforcement of the Agreement, the
certificate of designation and Shareholder Agreement and the issuance and
authorization of the Class A Stock.
5. The Amendment of the Certificate of Incorporation of COG to include
the Certificate of Designation.
6. The Shareholder Agreement.
7. Such other certificates and documents reasonably requested by the
parties regarding consents, notices of transfer and any other matter.
8. New COG Options.
9. Return of funds held in relation to Put Option to Comdisco, Inc.
10. Quit Claim Deeds relating to the Assets from Comdisco Predecessor
and partner of NBB Oil & Gas Ventures (U.S.A.).
11. An assignment and assumption agreement relating to contractual
obligations assumed by COG.
12. Letters of resignation as operator for wells operated by Duncan
Energy Company on the Leases and recommending COG as successor operator.
13. Title Arbitration Agreement.
<PAGE>
SCHEDULE 4.2
LIST OF COG AGREEMENTS VIOLATED BY THE TRANSACTION
None.
SCHEDULE 4.5
COG ENVIRONMENTAL SCHEDULE
None.
<PAGE>
SCHEDULE 4.7
COG STOCK OWNERSHIP AND OPTIONS
<TABLE>
<CAPTION>
CONSOLIDATED OIL & GAS, INC.
SHAREHOLDERS - SEPTEMBER 26, 1994
COMMON SHARES
-------------
<S> <C>
AMGO
960,000
AMGO II
501,000
AMGO III
84,000
SEA 2,256,000
FUND V 2,631,000
JWD 300,000
JAL 57,000
JAW 57,000
EDD 57,000
TOTAL 6,903,000
STOCK OPTIONS
-------------
<S> <C>
JWD 370,000
JAL
70,000
JAW
70,000
EDD
70,000
ARL
30,000
</TABLE>
<PAGE>
SCHEDULE 4.9(I)
COG FINANCIAL INFORMATION
<PAGE>
SCHEDULE 4.9(II)
LIST OF MATERIAL EVENTS SINCE EFFECTIVE DATE
1. Acquisition of Chorney Acreage.
2. Exchange of Interests in Tiffany Area Wells with Amoco.
3. Development of Tiffany Area Gathering System in Joint Venture with
Amoco.
4. Commitment to expend less than $1 million on the acquisition and
development/drilling of properties in East Texas.
5. Negotiation of New Bank Loan Facility.
6. Receipt of Tender Offer on 50% of GARI Stock for $16.50.
7. Acceptance of payoff offer of $1,751,000 for GARI Loan.
8. Other events occurring after August 19, 1994 to be discussed with
Comdisco prior to Closing.
9. Payoff of subdebt of $3.6 million with First Reserve Funds for 136
shares of COG Common Stock.
10. Repurchase of 57 shares of COG Common Stock for $1.5 million from a
First Reserve Fund.
<PAGE>
SCHEDULE 4.4
LIST OF CLAIMS AGAINST COG
1. Litigation by Southern Ute Indian Tribe against Amoco Production
Company and others relating to ownership of coal gas produced from Tiffany
Area wells partially owned by COG.
2. Litigation captioned Rancho Blanco Corporation v. Columbus Energy
Corporation, et al., C-94-00154-D3, District Court, Webb County Texas,
relating to the Zachry 26 well, with liability to COG's interests of less than
$10,000.
3. Litigation captioned Maitalino et al. v. Columbus Energy, H-93-1083,
U.S. District Court, Southern District of Texas, relating to the Ulrich Field
Extension with liability to COG's interest of less than $30,000.
<PAGE>
SCHEDULE 4.16(A)
INFORMATION CONCERNING CERTAIN COG ASSETS
1. 292,668 Shares of GARI Common Stock owned by COG.
2. GARI Loan Buyout papers attached.
3. Omega Loan Schedule attached.
<PAGE>
SCHEDULE 4.16(B)
LIST OF COG RESERVE REPORTS
June 1, 1994 Ryder Scott Reserve Report.
<TABLE>
<CAPTION>
SIX-YEAR SUMMARY
COMDISCO, INC. AND SUBSIDIARIES
<S> <C> <C> <C> <C> <C> <C>
Consolidated Summary of Earnings
94 93 92 91 90 89
Revenue
Leasing $1,538 $1,583 $1,662 $1,633 $1,465 $ 1,215
Sales 271 313 311 360 319 336
Diasaster recovery 242 216 193 150 118 87
Other 47 41 39 31 18 24
Total revenue 2,098 2,153 2,205 2,174 1,920 1,662
Costs and expenses
Leasing 1,004 1,040 1,094 1,026 884 694
Sales 225 275 274 313 279 289
Disaster recovery 224 206 175 132 104 79
Selling, general
and administrative 213 197 198 201 181 147
IBM litigation
settlement 70 - - - - -
Litigation and
receivables charge 10 - 45 - - -
Restructuring charge - - 35 - - -
Interest 263 291 350 366 338 286
Total costs and
expenses 2,009 2,009 2,171 2,038 1,786 1,495
Earnings from continuing operations
before income taxes, extraordinary items
and cumulative effect of change in accounting
principle 89 144 34 136 134 167
Income taxes 36 57 14 53 51 61
Earnings from continuing operations
before extrordinary items and cumulative
effect of change in accounting
principle 53 87 20 83 83 106
Earnings (loss) from discontinued
operations (net of income
taxes) - (20) - (14) 2 2
Earnings before extraordinary items and
cumulative effect of change in accounting
principle 53 67 20 69 85 108
Extraordinary items (net of income taxes in
fiscal 1992) - - (29) - 10 -
Earnings (loss) before cumulative effect
of change in accounting
principle 53 67 (9) 69 95 108
Cumulative effect of change in accounting
principle - 20 - - - -
Net earnings (loss) before preferred
dividends 53 87 (9) 69 95 108
Preferred dividends (9) (7) - - -
Net earnings (loss) to common
stockholders $ 44 $ 80 $ (9) $ 69 $ 95 $ 108
Common and Common Equivalent Share Data
Earnings from continuing
operations $1.16 $ 1.97 $ .49 $ 2.03 $ 1.95 $ 2.40
Earnings (loss) from discontinued
operations - (.50) - (.34) .05 .05
Extraordinary items - - (.70) - .23 -
Cumulative effect of change in accounting
principle - .50 - - - -
Net earnings (loss) to common
stockholders 1.16 1.97 (.21) 1.69 2.23 2.45
Common stockholders' equity (per common share
outstanding) 17.47 16.55 15.38 15.63 14.38 12.56
Cash dividends paid on common
stock .35 .29 .28 .27 .26 .23
Average common and common equivalent shares
(in thousands) 38,505 40,208 40,857 40,915 42,638 44,043
Financial Position
Total assets $ 4,807 $4,960 $5,236 $ 5,006 $4,785 $4,045
Notes payable 593 655 766 353 589 549
Total long-term
debt 1,364 1,325 1,314 1,502 1,021 475
Discounted lease
rentals 1,548 1,670 1,823 1,900 2,047 2,053
Stockholders'
equity 741 739 699 634 589 548
Leasing Data
Total noncancelable rents of new
leases $ 1,800 $1,900 $2,400 $2,400 $2,400 $2,000
Future noncancelable lease rentals and disaster recovery
subscription fees 4,185 4,265 4,601 4,363 4,322 3,745
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SUMMARY
During the last three fiscal years, net earnings have been positively impacted
by increased earnings contributions from remarketing and decreases in interest
expense. These positive trends have mitigated the impact of reduced earnings
contributions from operating leases. See "Leasing" for a discussion of
remarketing and operating leases and "Costs and Expenses" for a discussion of
interest expense. The company has also successfully implemented cost
containment programs, including restructuring administrative operations to
improve time management, lower costs and increase responsiveness to customer
concerns. The sales force has been restructured to increase productivity and
customer service. The company will continue to emphasize cost containment in
fiscal 1995 and beyond. The company continues to develop tools and
alliances to focus its efforts on providing integrated solutions (hardware,
software and services) to meet customer needs. In conjunction with these
efforts, the company is developing a systems integration practice to service
customers industrywide, including client/server requirements. The company's
unique approach to the developing client/server market includes mainframe to
open architecture transition, data-base development and other platform related
issues, such as employee training and cost control. As of September 30, 1994,
the company's disaster recovery services include the industry's first, and the
company believes only, back up capability for client/server platforms.
Fiscal 1994 earnings from continuing operations before extraordinary loss and
cumulative effect of change in accounting principle (hereinafter referred to
as "earnings from continuing operations") were $44 million (net of preferred
dividends of $9 million), or $1.16 per common share, compared to $80 million
(net of preferred dividends of $7 million), or $1.97 per common share, and $20
million, or $.49 per common share, in fiscal 1993 and 1992, respectively.
Fiscal year-to-year earnings from continuing operations comparisons are
affected by the following items:
The actions filed by IBM Corporation and IBM Credit Corporation
(collectively the "IBM Litigation") in fiscal years 1991 and 1992.
These actions, which are discussed in Notes 8 and 9 of Notes to
Consolidated Financial Statements, resulted in charges of $70
million ($42 million after-tax, or $1.09 per common share) in fiscal
1994 for the settlement and resolution, and charges of $10 million
($6 million after-tax, or $.16 per common share) and $20 million
($12 million after-tax, or $.29 per common share) in fiscal 1994
and 1992, respectively, for the establishment of, and increases to,
a litigation reserve to cover costs of the ongoing litigation.
<PAGE>
The receipt of key-man life insurance proceeds of $20 million, or $.52
per common share, (the "Insurance Proceeds") as a result of
the death of the company's Founder, Chairman of the Board and
President, Mr. Kenneth N. Pontikes, in June, 1994.
During the quarter ended June 30, 1994, the company recorded a
contribution charge of $10 million ($6 million after-tax, or $.16 per
common share), to establish and fund the Comdisco Foundation (the
"Contribution") (see "Costs and Expenses" for a discussion of the
Contribution).
Charges recorded by the company during the quarter ended March 31,
1992, totaling $60 million ($36 million after-tax, or $.88 per
common share), for a restructuring charge and additions to the
accounts receivable reserve (the "Charges"). The Charges are
discussed in Notes 9 and 10 of Notes to Consolidated Financial
Statements.
1994 net earnings to common stockholders (hereinafter referred to as "net
earnings") were $44 million, or $1.16 per common share, compared to $80
million, or $1.97 per common share, in fiscal 1993 and a loss of $(9) million,
or $(.21) per common share, in fiscal 1992. In addition to the items discussed
above, fiscal year-to-year net earnings comparisons are affected by the
following items:
Fiscal 1993 net earnings include after-tax charges related to
discontinued operations of (20) million, or $(.50) per
common share. The charges resulted from management's
revised estimate of the net realizable value of the
company's oil and gas investment. See Note 11 of Notes to
Consolidated Financial Statements.
Fiscal 1993 net earnings include a noncash cumulative benefit
of $20 million, or $.50 per common share, for adoption of a new
standard of accounting for income taxes effective
October 1, 1992.
In fiscal 1992, the company redeemed its 9.65% Subordinated
Debentures and its 10% Senior Notes due May 15, 1994. These
redemptions resulted in extraordinary losses totaling $(48)
million ($(29) million after-tax, or $(.70) per common share).
FINANCIAL CONDITION
The company's operating activities during the year ended September 30, 1994,
including capital expenditures for equipment, were funded primarily by cash
flow from operations, including the realization of residual values through
remarketing activities, unsecured and secured debt. See Note 6 of Notes to
Consolidated Financial Statements for information on the company's
interest-bearing liabilities, including average daily borrowings and effective
interest rates. During the last five years, equipment purchased for
leasing totaled $8.6 billion. Expenditures for equipment, including portfolio
acquisitions in fiscal 1994, totaled approximately $1.4 billion, a decrease of
7% compared to the prior year. Expenditures for equipment are estimated at
approximately $1.6 billion for fiscal 1995. During fiscal 1994, the
company purchased 1,995,644 shares of its outstanding common stock at an
aggregate cost of $39 million. These purchases, when added to the shares
purchased in prior years, bring the total number of common shares purchased to
12.5 million (1.9 million shares were distributed as a common stock dividend
on March 30, 1992- see Note 14 of Notes to Consolidated Financial Statements),
at an aggregate cost of $197 million. No shares were purchased in fiscal 1992.
On November 7, 1994, the board of directors authorized the company to spend an
additional $25 million under its stock repurchase program. The company's
current financial resources and estimated cash flow from operations are
considered adequate to fund anticipated future growth and operating
requirements. The company expects to continue to utilize a variety of
financial instruments to fund its short- and long-term needs.
Cash Flows: Net cash provided by operating activities was $1.6 billion,
$1.9 billion and $1.8 billion in fiscal 1994, 1993 and 1992, respectively. In
fiscal 1993 and 1992, the company sold direct financing and sales-type lease
receivables for $181 million and $138 million, respectively. There were no
such sales in fiscal 1994. Net cash provided by operating activities has been
used to finance equipment purchases and, accordingly, has had a positive
impact on the level of borrowing required to support the company's investment
in its lease portfolio. The company estimates that existing leasing and
disaster recovery contracts at September 30, 1994 may generate gross cash
receipts of approximately $4.2 billion in the future, including $1.8 billion
in fiscal 1995. The company's liquidity is augmented by the realization of
cash from the future remarketing of leased equipment residual values.
Utilizing independent forecasts of equipment values at lease termination or
management estimates, the projected gross cash receipts to be provided from
remarketing residuals in future years may total in excess of $1.0 billion.
Credit Lines: At September 30, 1994, the company had $1.1 billion of
available domestic and international borrowing capacity under various lines of
credit from commercial banks and commercial paper facilities, of which $457
million was unused. The company had committed credit lines established with
thirty-two banks at September 30, 1994 of $875 million.
Senior Notes: In June, 1992, the company filed a registration statement
on Form S-3 with the Securities and Exchange Commission for a shelf offering
(the "Shelf Offering") of Senior Debt Securities with terms to be set at the
time of sale. During fiscal 1994, the company issued $193 million of senior
notes. At September 30, 1994, $73 million of debt securities remain available
for issuance under the Shelf Offering.
Secured Debt: Proceeds from the discounting of lease rentals, including
proceeds from the sale of lease-backed certificates, were $725 million, $762
million, and $813 million in fiscal 1994, 1993 and 1992, respectively. During
the last five years, discounting of lease rentals provided cash totaling $4.0
billion. In fiscal 1994, 51% of equipment purchased for leasing was financed
by these secured borrowings, compared to 49% and 42% in fiscal 1993 and 1992,
respectively.
REVENUE
Total revenue of approximately $2.1 billion and $2.2 billion for fiscal 1994
and 1993, represented decreases of 3% and 2%, respectively, over the prior
year periods. The declines in operating lease revenue in fiscal 1994, 1993 and
1992 as compared to the prior year reflect the lack of growth in operating
lease volume during the last three fiscal years. The declines in direct
financing revenue in both fiscal 1994 and 1993 as compared to the prior year
reflect both a decline in interest rates and the impact of the reduction in
the net investment in direct financing leases resulting from the company's
offering of lease-backed certificates (see Note 6 of Notes to Consolidated
Financial Statements for additional information). The increase in sales-type
lease revenue in fiscal 1994 compared to fiscal 1993 reflects the company's
strong remarketing activities. See "Disaster Recovery" for a discussion of
disaster recovery revenue and margins and "Sales" for a discussion of sales
revenue and margins. The increase in other revenue as compared to the prior
year period is due to the Insurance Proceeds.
Leasing: Leasing volume in fiscal 1994 and 1993 decreased as compared to
the year earlier periods. However, remarketing activity remained strong, and
overall margins on remarketing activities increased. The decline in leasing
volume is due to a number of factors, including, but not limited to: the slow
growth in worldwide economies, changes in the traditional mainframe business
(including the repositioning of the traditional mainframe as a powerful "file
server" running networks of PCs and newer, transitional mainframe products
leading toward systems integration), delays in equipment acquisition decisions
pending definitive product strategy announcements from the leading high
technology equipment manufacturers, cost pressures and the related impact on
capital budgets, and, with respect to the medical industry, uncertainty
surrounding federal proposals on health care. Conversely, cost pressures have
strengthened the company's remarketing activities as high technology equipment
users opt for remarketed equipment as a cost effective alternative to new
equipment. Additionally, while the company's mainframe portfolio decreased,
its portfolio of other high technology assets increased as a percentage of the
total portfolio, thereby reducing the company's future dependence on mainframe
activity. The higher earnings contributions from remarketing illustrate the
value of the company's lease portfolio and the company's ability to realize
residual values. However, the decline in the overall lease portfolio may have
an impact on the company's future remarketing activities as the company has
less equipment to remarket, particularly computer and related peripheral
equipment. Cost of equipment placed on lease was $1.6 billion in fiscal
1994, compared to cost of equipment placed on lease of $1.7 billion and $2.0
billion in fiscal 1993 and 1992, respectively. Cost of equipment other than
mainframe and related peripheral equipment placed on lease was $775 million
and $704 million for fiscal 1994 and 1993, respectively. European lease
volume decreased in fiscal 1994, with cost of equipment placed on lease of
$190 million in comparison to $272 million in fiscal 1993 (see International
Operations - Europe). In June, 1994, the company signed an agreement under
which the company acquired the computer leasing business of Promodata S. A.,
an independent computer leasing company headquartered in France. The company
believes that this acquisition will enhance its position in the European
market for information technology, while providing the company with equipment
to remarket in the future. The cost of the acquisition was not material.
There have been a number of changes in the information technology industry in
the last five years, including the emergence of technological alternatives to
traditional mainframe processing and applications. While there are few clear
trends, it appears that mainframes remain the primary platform for
enterprisewide computing and, for highly data-intensive applications,
mainframe applications are still the most cost effective. Independent reports
indicate that mainframe capacity increased about 10% in calendar 1993 and is
expected to increase a like amount in 1994. However, the reality is that the
power of computing is moving out of a centralized platform and on to the
desktop. The company believes that the emerging markets for client/server and
distributed processing represent opportunities for hardware, disaster recovery
and consulting services. Early indications are that, similar to the
traditional mainframe market, leasing provides flexibility and preserves
capital, while managing technological risks for the user. Secondly, because of
the costs and complexity of transitioning to client/server, users are looking
to their suppliers for assistance and the company believes consulting revenue,
with its higher margins, will become an important earnings contributor in the
future. The company has been establishing strategic partnerships and alliances
with highly regarded client/server product providers and certain niche
organizations in order to position itself as the supplier of choice in
client/server and distributed computing. Lower hardware costs (including
mainframe costs), and a greater emphasis on client/server and personal
computer leases have resulted in reductions in the average lease transaction,
reduced residual values and shortened lease terms, while putting pressure on
lease margins. Accordingly, the company has focused its efforts on cost
containment, operating efficiencies, and the development of its consulting
services to operate profitability in this changing market. While the company's
customer base and independence remain strong assets, it is clear that
customers are seeking more than financing alternatives or cost per MIPS-
traditional competitive methodologies of the company. Total leasing
revenue minus total leasing costs was $534 million, or 35% of total leasing
revenue (the "Percentage"), and $543 million, or 34% of total leasing revenue,
in fiscal 1994 and 1993, respectively. The operating Percentage has remained
stable the last three fiscal years and the company expects the operating
Percentage to remain at or slightly above current levels in fiscal 1995. The
sales-type lease Percentage increased in fiscal 1994 as compared to fiscal
1993, reflecting higher margins on remarketing of equipment in the lease
portfolio. The following graph presents the Percentage for total leasing,
operating, and sales-type leases for the five years ended September 30, 1994.
(5-year graph)
<PAGE>
Sales: Revenue from sales totaled $271 million in fiscal 1994, compared
to $313 million and $311 million in fiscal 1993 and 1992, respectively. The
decrease in sales revenue in fiscal 1994 compared to the prior year is
primarily due to reduced mainframe sales and lower sales revenue per unit on
mainframes. The increase in fiscal 1993 was primarily due to sales of IBM
ES/9000 and high-end Amdahl mainframes, offset by lower sales prices for IBM
3090 mainframes. Margins on sales were 17% in fiscal 1994 compared to 12% in
fiscal 1993 and 1992. The higher margins in fiscal 1994 reflect improved
margins from remarketing equipment other than mainframe and related peripheral
equipment.
Disaster Recovery: Revenue from disaster recovery services (also referred
to as business continuity services) of $242 million in fiscal 1994 and $216
million in fiscal 1993 represented increases of 12% over each of the preceding
years. The increases are primarily the result of growth in the customer base
and services. As of September 30, 1994, the company had nine major recovery
facilities located throughout the United States and Canada and recovery
facilities in the United Kingdom and France. Disaster recovery costs of
$224 million for fiscal 1994 increased 9% over disaster recovery costs of $206
million in fiscal 1993. Fiscal 1993 costs and expenses were 18% higher than
fiscal 1992. Cost containment efforts by the company, particularly personnel
related, slowed the growth of disaster recovery costs in fiscal 1994, and
improved disaster recovery margins significantly over the prior year. Higher
revenues coupled with successful cost containment efforts in fiscal 1994
resulted in disaster recovery pretax earnings of $18 million in fiscal 1994
compared to $10 million in fiscal 1993. In March, 1994, the company
announced a project to expand and enhance the company's current disaster
recovery services and to provide the industry's first recovery center
dedicated to client/server environments. The project was completed in
September, 1994. Enhanced capabilities include client/server platforms, work
areas, open systems, networks, midrange and mainframe computers.
COSTS AND EXPENSES
Total costs and expenses were $2.0 billion for both fiscal 1994 and 1993.
Excluding the IBM litigation settlement, total costs and expenses decreased 3%
in fiscal 1994 compared to fiscal 1993, primarily due to reduced leasing costs
related to declining operating lease revenue and a decrease in interest
expense. Fiscal 1993 total costs and expenses were 7% lower than fiscal 1992.
The decrease in fiscal 1993 compared to fiscal 1992 was primarily due to the
restructuring, litigation and receivables reserve charges recorded in fiscal
1992, coupled with decreased operating lease costs attributable to reduced
operating lease volume. Selling, general and administrative expenses
totaled $213 million in fiscal 1994, $197 million in fiscal 1993, and $198
million in fiscal 1992, respectively. See "Summary" for a description of the
company's cost containment efforts. The Contribution was recorded in the
quarter ended June 30, 1994 to establish and fund the Comdisco Foundation.
The company has a history of charitable giving because it believes that active
support of charitable organizations helps fulfill the company's social and
philanthropic responsibilities to the communities in which it operates. The
formation of the Comdisco Foundation, which will contribute its funds
periodically to other charitable organizations, will provide an efficient
means by which the company can continue to fulfill its charitable giving
goals. The company estimates that the net effect of the Contribution will be
an annual cash savings and reduction in selling, general and administrative
expense of approximately $700,000 beginning in fiscal 1995. Excluding the
Contribution, selling, general and administrative expenses increased 3% in
fiscal 1994 compared to fiscal 1993, reflecting the impact of the company's
emphasis on cost containment. Costs associated with the IBM Litigation
included in selling, general and administrative expenses were $5 million in
fiscal 1992 (see Note 9 of Notes to Consolidated Financial Statements for a
discussion of the litigation reserve). Interest expense for fiscal 1994
totaled $263 million in comparison to $291 million in fiscal 1993 and $350
million in fiscal 1992. The decrease in interest expense in fiscal 1994 and
1993 primarily reflects declining interest rates and lower average daily
borrowings. In both fiscal 1993 and 1994, net cash from operations, which
exceeded equipment purchases, was utilized to reduce debt. Recent actions by
the Federal Reserve have pushed interest rates higher which are expected to
increase the company's cost of borrowing in fiscal 1995 (see Note 6 of Notes
to Consolidated Financial Statements for information on the company's average
daily borrowings and effective interest rates).
INCOME TAXES
Note 12 of Notes to Consolidated Financial Statements on page 45 provides
details about the company's income tax provision and the impact of adopting
FAS 109 in fiscal 1993.
<PAGE>
INTERNATIONAL OPERATIONS
The company operates principally in four geographic areas: the United States,
Europe, Canada and the Pacific Rim. The company also operates in South
America. Revenue from international operations, including export sales
and disaster recovery operations, was $390 million in fiscal 1994 compared to
$481 million and $519 million in fiscal 1993 and 1992, respectively.
International revenues represented 19% of the company's total revenue in
fiscal 1994, 22% in fiscal 1993 and 24% in fiscal 1992.
Canada: Total revenue, primarily from leasing activities, for fiscal 1994
in Canada was $62 million compared to $79 million and $101 million in fiscal
1993 and 1992, respectively. Cost of equipment placed on lease in fiscal 1994
and 1993 was $58 million and $35 million, respectively. Net cash provided by
operations is the company's primary source of funds for its Canadian
operations, although the company has short-term lines of credit in Canada to
support short-term liquidity requirements.
Europe: The company's European operations, excluding disaster recovery
activities, had pretax earnings of $3 million in fiscal 1994 compared to a
break-even level in fiscal 1993 and a pretax loss of $(9) million in fiscal
1992. Total leasing and sales revenue from European operations was $231
million in fiscal 1994 compared to $303 million in fiscal 1993 and $335
million in fiscal 1992. The European lease base has been financed primarily by
utilizing existing short-term lines of credit and discounted lease rentals.
The company's European operations contributed positively to the company's
results of operations for fiscal 1994. The company believes these results
reflect changes made to improve the financial performance of its European
operations. Remarketing activity in the European marketplace also contributed
to its performance. While the company is pleased with these results, the
company recognizes that sustaining such results over the long-term, especially
considering recent economic indicators in Europe and the related decline in
cost of equipment placed on lease in both fiscal 1994 and 1993, will require
continued management focus (see "Leasing" for discussion of Promodata S. A.
acquisition).
Geographic area data is included in Note 17 of Notes to Consolidated
Financial Statements on page 48.
<PAGE>
DISCONTINUED OIL AND GAS ACTIVITIES
Note 11 of Notes to Consolidated Financial Statements on page 44 contains
information regarding the company's discontinued oil and gas activities.
DERIVATIVE FINANCIAL INSTRUMENTS
Note 6 of Notes to Consolidated Financial Statements on page 40 contains
information about the company's derivative financial instruments, including
the purposes for which such instruments are held.
INFLATION
The primary effects of specific price inflation on the company are in the area
of leased equipment and the related depreciation and amortization expense. The
company operates in an environment of declining prices, depreciation is
generated from an income producing asset, and the depreciation policy
amortizes the lease portfolio to its estimated fair market value at lease
termination. Accordingly, the impact of inflation on the company's operations
is considered insignificant. The effect of specific price inflation on
inventory and related cost of sales is also insignificant because of the rapid
inventory turnover in the buy/sell aspects of the company's activities.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
The company's common stock is listed on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol CDO. At September 30, 1994, there were
approximately 2,240 record holders of the company's common stock. The
following table shows the quarterly price range of the company's common stock,
as traded on the New York Stock Exchange, and cash dividends paid on common
stock for fiscal 1994 and 1993.
<PAGE>
94 93
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
<S> <C> <C> <C> <C> <C> <C>
FIRST $21.00 $16.75 $ .08 $16.50 $14.00 $ .07
SECOND 24.25 19.00 .09 17.38 13.13 .07
THIRD 22.88 17.75 .09 16.25 13.88 .07
FOURTH 22.38 18.13 .09 17.25 14.00 .08
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
CONSOLIDATED STATEMENTS
OF EARNINGS
Comdisco, Inc. and Subsidiaries(in millions except per share data)
<S> <C> <C> <C>
94 93 92
REVENUE
LEASING:
OPERATING $1,002 $1,099 $1,159
DIRECT FINANCING 186 190 197
SALES-TYPE 350 294 306
TOTAL LEASING 1,538 1,583 1,662
SALES 271 313 311
DISASTER RECOVERY 242 216 193
OTHER 47 41 39
TOTAL REVENUE 2,098 2,153 2,205
COSTS AND EXPENSES
LEASING:
OPERATING 746 815 863
SALES-TYPE 258 225 231
TOTAL LEASING 1,004 1,040 1,094
SALES 225 275 274
DISASTER RECOVERY 224 206 175
SELLING, GENERAL AND ADMINISTRATIVE 213 197 198
IBM LITIGATION SETTLEMENT 70 - -
LITIGATION AND RECEIVABLES CHARGE 10 - 45
RESTRUCTURING CHARGE - - 35
INTEREST 263 291 350
TOTAL COSTS AND EXPENSES 2,009 2,009 2,171
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 89 144 34
INCOME TAXES 36 57 14
EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSS
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 53 87 20
LOSS FROM DISCONTINUED OIL AND GAS ACTIVITIES (NET OF INCOME TAXES) - (20) -
EARNINGS BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 53 67 20
EXTRAORDINARY LOSS (NET OF INCOME TAXES) - - (29)
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 53 67 (9)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - 20 -
NET EARNINGS (LOSS) BEFORE PREFERRED DIVIDENDS 53 87 (9)
PREFERRED DIVIDENDS (9) (7) -
NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS $ 44 $ 80 $ (9)
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
EARNINGS FROM CONTINUING OPERATIONS $ 1.16 $ 1.97 $ .49
LOSS FROM DISCONTINUED OIL AND GAS ACTIVITIES - (.50) -
EXTRAORDINARY LOSS - - (.70)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - .50 -
NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS $ 1.16 $ 1.97 $ (.21)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Comdisco, Inc. and Subsidiaries
(in millions except number of shares and per share data)
<S> <C> <C>
94 93
ASSETS
CASH AND CASH EQUIVALENTS $ 51 $ 70
CASH - LEGALLY RESTRICTED 37 48
RECEIVABLES, NET 169 158
INVENTORY OF EQUIPMENT 145 164
LEASED ASSETS:
DIRECT FINANCING AND SALES-TYPE 2,144 2,073
OPERATING (NET OF ACCUMULATED DEPRECIATION) 1,696 1,834
NET LEASED ASSETS 3,840 3,907
BUILDINGS, FURNITURE AND OTHER, NET 168 175
OTHER ASSETS 397 438
$4,807 $4,960
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE $ 593 $ 655
TERM NOTES PAYABLE 291 206
SENIOR AND SUBORDINATED DEBT 1,073 1,119
ACCOUNTS PAYABLE 84 100
INCOME TAXES:
CURRENT - 4
DEFERRED 229 198
OTHER LIABILITIES 248 269
DISCOUNTED LEASE RENTALS 1,548 1,670
4,066 4,221
STOCKHOLDERS' EQUITY:
PREFERRED STOCK $.10 PAR VALUE. AUTHORIZED 100,000,000 SHARES:
8.75% CUMULATIVE PREFERRED STOCK, SERIES A AND SERIES B
$25 STATED VALUE AND LIQUIDATION PREFERENCE, 4,000,000 SHARES ISSUED 100 100
COMMON STOCK $.10 PAR VALUE. AUTHORIZED 200,000,000 SHARES;
ISSUED 47,300,054 SHARES (47,219,823 IN 1993) 5 5
ADDITIONAL PAID-IN CAPITAL 139 138
DEFERRED COMPENSATION (ESOP) (10) (12)
DEFERRED TRANSLATION ADJUSTMENT - (7)
RETAINED EARNINGS 681 650
915 874
COMMON STOCK HELD IN TREASURY, AT COST; 10,604,146 SHARES (8,608,502 IN 1993) (174) (135)
TOTAL STOCKHOLDERS' EQUITY 741 739
$4,807 $4,960
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Comdisco, Inc. and Subsidiaries
Additional Deferred Deferred Common
Preferred Common paid-in compen- translation Retained stock in
(in millions) stock stock capital sation adjustment earnings treasury
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1991 $ - $ 5 $ 134 $ (16) $ 8 $ 632 $ (129)
Net loss (9)
Cash dividends - common
($.28 per share) (11)
Stock dividend 7 (30) 23
Issuance of Series A preferred stock 75 (2)
Translation adjustment 10
Reduction of guaranteed
ESOP debt 2
Balance at September 30, 1992 75 5 139 (14) 18 582 (106)
Net earnings 87
Cash dividends - preferred (7)
Cash dividends - common
($.29 per share) (12)
Issuance of Series B preferred stock 25 (1)
Translation adjustment (25)
Reduction of guaranteed
ESOP debt 2
Purchase of common stock (29)
Balance at September 30, 1993 100 5 138 (12) (7) 650 (135)
Net earnings 53
Cash dividends - preferred (9)
Cash dividends - common (13)
($.35 per share)
Stock options exercised 1
Translation adjustment 7
Reduction of guaranteed
ESOP debt 2
Purchase of common stock (39)
Balance at September 30, 1994 $ 100 $ 5 $ 139 $ (10) $ - $ 681 $ (174)
<FN>
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Comdisco, Inc. and Subsidiaries(in millions)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C> <C>
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
OPERATING LEASE AND OTHER LEASING RECEIPTS $ 1,122 $ 1,246 $ 1,297
DIRECT FINANCING AND SALES-TYPE LEASING RECEIPTS 907 863 871
SALES OF DIRECT FINANCING AND SALES-TYPE LEASE RECEIVABLES - 181 138
LEASING COSTS, PRIMARILY RENTALS PAID (49) (78) (102)
SALES 283 315 308
SALES COSTS (147) (175) (157)
DISASTER RECOVERY RECEIPTS 240 210 179
DISASTER RECOVERY COSTS (200) (187) (158)
OTHER REVENUE 48 36 29
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (193) (215) (207)
IBM LITIGATION SETTLEMENT (70) - -
INTEREST (268) (290) (358)
INCOME TAXES (34) (33) (7)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,639 1,873 1,833
CASH FLOWS FROM INVESTING ACTIVITIES:
EQUIPMENT PURCHASED FOR LEASING (1,433) (1,547) (1,915)
INVESTMENT IN DISASTER RECOVERY FACILITIES (18) (15) (28)
OTHER (12) (19) (15)
NET CASH USED IN INVESTING ACTIVITIES (1,463) (1,581) (1,958)
CASH FLOWS FROM FINANCING ACTIVITIES:
DISCOUNTED LEASE PROCEEDS 725 762 813
NET INCREASE (DECREASE) IN NOTES PAYABLE (62) (111) 413
ISSUANCE OF TERM NOTES, SENIOR NOTES AND SUBORDINATED DEBENTURES 300 123 365
MATURITIES AND REPURCHASES OF TERM NOTES, SENIOR NOTES AND SUBORDINATED DEBENTURES (262) (110) (597)
PRINCIPAL PAYMENTS ON SECURED DEBT (849) (945) (927)
DECREASE (INCREASE) IN LEGALLY RESTRICTED CASH 11 20 (67)
ISSUANCE OF PREFERRED STOCK - 24 73
COMMON STOCK REPURCHASED AND PLACED IN TREASURY (39) (29) -
DIVIDENDS PAID ON COMMON STOCK (13) (12) (11)
DIVIDENDS PAID ON PREFERRED STOCK (9) (7) -
OTHER 3 (11) (3)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (195) (296) 59
NET DECREASE IN CASH AND CASH EQUIVALENTS (19) (4) (66)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 70 74 140
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 51 $ 70 $ 74
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comdisco, Inc. and Subsidiaries
(in millions) Years Ended September 30,
RECONCILIATION OF NET EARNINGS (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES: 94 93 92
<s > <C> <C> <C>
NET EARNINGS (LOSS) $ 53 $ 87 $ (9)
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED
OPERATING ACTIVITIES:
LEASING COSTS, PRIMARILY DEPRECIATION AND AMORTIZATION 955 962 992
LEASING REVENUE, PRIMARILY PRINCIPAL PORTION OF DIRECT
FINANCING AND SALES-TYPE LEASE RENTALS 491 526 506
SALES OF DIRECT FINANCING AND SALES-TYPE LEASE RECEIVABLES - 181 138
COST OF SALES 78 100 117
INCOME TAXES 2 24 7
INTEREST (5) 1 (8)
EXTRAORDINARY LOSS - - 29
RESTRUCTURING CHARGE - - 28
DISCONTINUED OIL AND GAS ACTIVITIES - 20 -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - (20) -
DEPRECIATION AND AMORTIZATION ON BUILDINGS, FURNITURE AND OTHER 37 33 32
BAD DEBT EXPENSE 10 10 30
CONTRIBUTION CHARGE 10 - -
OTHER, NET 8 (51) (29)
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,639 $1,873 $1,833
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
ASSUMPTION OF DISCOUNTED LEASE RENTALS IN LEASE PORTFOLIO ACQUISITION $ 2 $ 30 $ 37
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<PAGE>
NOTE 1 Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of the company and its wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated.
Accouting changes: In the first quarter of fiscal 1993, the company adopted FASB
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("FAS 109") as of October 1, 1992. The adoption of this standard
changed the company's method of accounting for income taxes from the deferred
method to an asset and liability approach. The Statement requires deferred
taxes on the balance sheet to be stated at enacted tax rates expected to be in
effect when these balances reverse, i.e., when taxes actually will be paid or
recovered. Previously, deferred taxes were based on the enacted tax rate when
these amounts were first recognized. See also Note 12 of Notes to Consolidated
Financial Statements. The accounting change did not affect the company's cash
flows.
Lease accounting: See "Leasing" section on pages 38 through 40 for a
description of lease accounting policies, lease revenue recognition and
related costs.
Disaster recovery: Revenue from disaster recovery contracts is recognized
monthly as subscription fees become due.
Cash and cash equivalents: Cash equivalents are comprised of highly liquid
debt instruments with original maturities of 90 days or less.
Cash - legally restricted: Legally restricted cash represents cash and cash
equivalents that are restricted solely for use as collateral in secured
borrowings and are not available to other creditors.
Oil and gas: See Note 11 of Notes to Consolidated Financial Statements for a
discussion of discontinued oil and gas activities.
Inventory of equipment: Inventory of equipment is stated at the lower of cost
or market by categories of similar equipment.
Interest rate derivative instruments: Interest rate differentials on swaps
are accrued as interest rates change over the contract period.
Earnings (loss) per common share: Earnings (loss) per common and common
equivalent share are computed based on the weighted average number of common
and common equivalent shares outstanding during each period.
Dilutive stock options included in the number of common and common equivalent
shares are based on the treasury stock method. The number of common and
common equivalent shares used in the computation of earnings per common share
for the years ended September 30, 1994, 1993, and 1992 were 38,505,429,
40,207,996, and 40,857,133, respectively.
LEASING
Note 2 Lease Accounting Policies
FASB Statement of Financial Accounting Standards No. 13 requires that a lessor
account for each lease by either the direct financing, sales-type or
operating method.
Leased Assets:
Direct financing and sales-type leased assets consist of the present
value of the future minimum lease payments plus the present value of the
residual (collectively referred to as the net investment). Residual is the
estimated fair market value at lease termination.
Operating leased assets consist of the equipment cost, less the amount
depreciated to date.
Revenue, Costs and Expenses:
Direct financing leases - Revenue consists of interest earned on the
present value of the lease payments and residual. Revenue is recognized
periodically over the lease term as a constant percentage return on the net
investment. There are no costs and expenses related to direct financing
leases since leasing revenue is recorded on a net basis.
Sales-type leases - Revenue consists of the present value of the total
contractual lease payments which is recognized at lease inception. Costs and
expenses consist of the equipment's net book value at lease inception, less
the present value of the residual. Interest earned on the present value of
the lease payments and residual, which is recognized periodically over the
lease term as a constant percentage return on the net investment, is included
in direct financing lease revenue in the statement of earnings.
Operating leases - Revenue consists of the contractual
lease payments and is recognized on a straight-line basis over the lease term.
Costs and expenses are principally depreciation of the equipment.
Depreciation is recognized on a straight-line basis over the lease term to
the company's estimate of the equipment's fair market value at lease
termination, also commonly referred to as "residual" value.
<PAGE>
Equity transactions - The company enters into equity transactions with
third-party investors who obtain ownership rights, which include tax
depreciation deductions and residual interests. The company retains control
and the use of the equipment generally throughout its economic life by
leasing back the equipment from the third-party investor. Accordingly, the
leased asset cost related to the period of control remains on the balance
sheet. Revenue consists of the profit recognized on equity transactions and
is included in operating lease revenue. Profit is recognized on a
straight-line basis over the leaseback term (life of the transaction).
Initial direct costs related to operating and direct financing leases,
including salesperson's commissions, are capitalized and amortized over the
lease term.
<TABLE>
<CAPTION>
NOTE 3 Leased Assets
The components of the net investment in direct financing and sales-type leases
as of September 30 are as follows:
(in millions) 94 93
<S> <C> <C>
Minimum lease payments receivable $2,177 $2,080
Estimated residual values 260 305
Less: unearned revenue (293) (312)
Net investment in direct financing and
sales-type leases $2,144 $2,073
</TABLE>
<TABLE>
<CAPTION>
Unearned revenue is recorded as leasing revenue over the lease terms. Operating
leased assets include the following as of September 30:
(in millions) 1994 1993
<S> <C> <C>
Operating leased assets $3,132 $3,308
Less: Accumulated depreciation and
amortization (1,436) (1,474)
Net $1,696 $1,834
</TABLE>
<PAGE>
NOTE 4 Lease Portfolio Information
The size of the company's lease portfolio can be measured by the cost of leased
assets at the date of lease inception. Cost at lease inception represents
either the equipment's original cost or its net book value at termination of a
prior lease. The following table summarizes, by year of lease commencement and
by year of projected lease termination, the cost at lease inception for all
leased assets recorded at September 30, 1994 (in millions):
<TABLE>
<CAPTION>
PROJECTED YEAR OF LEASE TERMINATION
COST AT 99
YEAR LEASE LEASE AND
COMMENCED INCEPTION 95 96 97 98 AFTER
<S> <C> <C> <C> <C> <C> <C>
1990
AND PRIOR $ 936 $ 659 $ 166 $ 69 $ 18 $ 24
1991 1,017 441 399 93 78 6
1992 1,514 612 387 409 53 53
1993 1,473 234 557 323 278 81
1994 1,582 83 334 662 270 233
$ 6,522 $2,029 1,843 $1,556 $697 $ 397
</TABLE>
The following table summarizes the estimated net book value at lease
termination for all leased assets recorded at September 30, 1994. The table is
presented by year of lease commencement and by year of projected lease
termination (in millions):
<TABLE>
<CAPTION>
PROJECTED YEAR OF LEASE TERMINATION
NET BOOK
VALUE AT 99
YEAR LEASE LEASE AND
COMMENCED TERMINATION 95 96 97 98 AFTER
<S> <C> <C> <C> <C> <C> <C>
1990
AND PRIOR $ 73 $ 64 $ 7 $ 1 $ 1 $ -
1991 97 47 47 3 - -
1992 179 89 41 44 - 5
1993 193 36 68 40 36 13
1994 241 20 56 101 40 24
$ 783 $256 $219 $189 $77 $ 42
NOTE 5 Owned Equipment - Future Noncancelable Lease Rentals and Disaster
Recovery Subscription Fees
Presented below is a summary of future noncancelable lease rentals on owned
equipment and future subscription fees on noncancelable disaster recovery
contracts (collectively, "cash in-flows"). The summary presents expected
cash in-flows, except for cash to be received on non-owned equipment of $35
million, due in accordance with the contractual terms in existence as of
September 30, 1994. The table also presents the amounts to be received by
financial institutions for leases discounted on a nonrecourse basis (see Note 6
of Notes to Consolidated Financial Statements).
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
99
and
(in millions) 95 96 97 98 after Total
<S> <C> <C> <C> <C> <C> <C>
Expected future cash in-flows:
Operating leases $ 737 $ 441 $190 $ 58 $ 22 $1,448
Direct financing and sales-type leases 912 645 361 160 99 2,177
Disaster recovery contracts 190 149 101 58 27 525
Total 1,839 1,235 652 276 148 4,150
Less: To be received by financial institutions
Operating leases 391 234 94 19 3 741
Direct financing and sales-type leases 405 286 159 77 30 957
Total 796 520 253 96 33 1,698
To be received by the company $1,043 $ 715 $399 $180 $ 115 $2,452
</TABLE>
FINANCING
NOTE 6 Interest-Bearing Liabilities
Interest-bearing liabilities include the following (dollars
in millions):
<TABLE>
<CAPTION>
<PAGE>
94 93
AT SEPTEMBER 30 AVERAGE AT SEPTEMBER 30 AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOTES PAYABLE:
Credit lines $ 223 5.00% $ 182 4 .91% $ 248 4.99% $ 225 5.96%
Commercial paper 370 5.04% 416 5.43% 407 4.04% 445 5.28%
Term notes 291 6.36% 240 5.54% 206 5.23% 212 5.31%
Senior notes 1,040 8.24% 1,083 8.45% 1,107 8.37% 1,085 8.71%
Subordinated debt 33 7.97% 14 9.75% 12 11.00% 12 11.05%
Discounted lease rentals 1,548 6.90% 1,618 7.27% 1,670 7.53% 1,741 8.26%
$ 3,505 6.95% $ 3,553 7.19% $ 3,650 7.10% $ 3,720 7.73%
</TABLE>
The changes in financing activities for the years ended September 30 were as
follows (notes payable changes are shown net):
<TABLE>
<CAPTION>
94 93
OUT- OUT- OUT-
STANDING MATURITIES STANDING STANDING MATURITIES
BEGINNING ISSU- AND END FAIR BEGINNING ISSU- AND
(in millions) OF YEAR ANCES REPURCHASES OTHER OF YEAR VALUE OF YEAR ANCES REPURCHASES OTHER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Credit lines $ 248 $ - $ (25) $ - $ 223 $ 223 $ 246 $ 2 $ - $ -
Commercial paper 407 - (37) - 370 370 520 - (113) -
Term notes 206 87 ( 2) - 291 293 238 - (32) -
Senior notes 1,107 193 (260) - 1,040 1,061 1,062 123 ( 78) -
Subordinated debt 12 20 - 1 33 33 14 - - (2)
Discounted lease rentals 1,670 725 (849) 2 1,548 1,521 1,823 762 (945) 30
$ 3,650 $ 1,025 $ (1,173) $ 3 $ 3,505 $3,501 $ 3,903 $ 887 $ (1,168) $ 28
OUT-
STANDING
END FAIR
(in millions) OF YEAR VALUE
<S> <C> <C>
Notes payable:
Credit lines $ 248 $ 248
Commercial paper 407 407
Term notes 206 215
Senior notes 1,107 1,207
Subordinated debt 12 12
Discounted lease rentals 1,670 1,707
$ 3,650 $ 3,796
</TABLE>
The fair value of the company's interest-bearing liabilities was estimated
based generally on quoted market prices for the same or similar instruments or
on current rates offered the company for similar debt of the same maturity.
The annual maturities of all interest-bearing liabilities at September 30,
1994 were as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
99
AND
(in millions) 95 96 97 98 AFTER TOTAL
<S> <C> <C> <C> <C> <C> <C>
NOTES PAYABLE:
CREDIT LINES $ 223 $ - $ - $ - $ - $ 223
COMMERCIAL PAPER 370 - - - - 370
TERM NOTES 182 34 28 47 - 291
SENIOR NOTES 262 279 255 - 244 1,040
SUBORDINATED DEBT - 13 - - 20 33
DISCOUNTED LEASE
RENTALS 709 479 236 92 32 1,548
$1,746 $805 $519 $139 $ 296 $3,505
</TABLE>
Notes payable: The company had the following unsecured bank lines available in
the United States and foreign countries at September 30:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
TOTAL CREDIT LINES:
COMMITTED $ 875 $ 900
UNCOMMITTED (BID RATE FACILITIES) 175 215
$1,050 $1,115
CREDIT LINES UTILIZED AT
SEPTEMBER 30:
COMMITTED $ 500 $ 608
UNCOMMITTED 93 47
$ 593 $ 655
CREDIT LINES AVAILABLE AT SEPTEMBER 30 $ 457 $ 460
MAXIMUM AMOUNT OUTSTANDING
AT ANY MONTH END $ 828 $ 803
</TABLE>
The company had outstanding interest rate caps totaling $27 million on foreign
short-term borrowings to mitigate interest rate risks.
Committed lines: The company's committed lines have been established with
thirty-two banks, nine of which are U.S. banks. A majority of the banks are
rated AA or better by rating agencies. At September 30, 1994, the company had
committed domestic and foreign unsecured lines of credit as follows:
Number
Facility of banks Expiration date
$400 million Multi-Option Facility
with Letter of Credit Enhancement
for Commercial Paper 10 March, 1997
$400 million Global Facility with
Letter of Credit Enhancement for
Commercial Paper 19 December, 1996
Other credit agreements:
$50 million 1 June, 1995
$25 million 3 Various
There are no compensating balance requirements on any of the committed lines.
At September 30, 1994, the company had $500 million outstanding under its
committed lines, including $370 million supporting the company's commercial
paper program. The $400 million multi-option revolving credit agreement
and the $400 million global revolving credit agreement (collectively, the
"Facilities") permit the company to borrow in U.S. dollars or in other
currencies, on a revolving credit basis. The Facilities include four letter of
credit facilities to support the issuance of commercial paper notes by the
company. Interest rates on debt outstanding under the Facilities are
negotiated at the time of the borrowings based either on "bid rates" from the
participating banks, LIBOR plus forty basis points, or at the banks' then
current base rates. The Facilities call for the company to pay: 1) an annual
fee of thirty-five basis points per annum on the committed amount, plus 2)
forty basis points on the total letters of credit issued to support the
company's commerical paper issuances and 3) other annual facility and
letter of credit fees. The $50 million other credit agreement permits
the company to borrow in U.S. dollars or other currencies. Interest rates
on debt outstanding are set at the time of the borrowings based on
LIBOR plus forty basis points, or other alternative rates. The company
also pays a facility fee at annual rates of twenty to twenty-two and
one-half basis points on the committed amount, plus, where applicable,
a usage fee.
Uncommitted lines: In addition to the committed lines, the company
maintains various domestic and international lines of credit for short-term
debt with banks under which $175 million may be borrowed on an unsecured basis
on such terms as the company and banks may mutually agree. The majority of
these arrangements do not have maturity dates, and can be withdrawn at the
banks' option. There are no fees or compensating balances associated with
these lines.
Commercial paper: At September 30, 1994, the company had $600 million of
commercial paper facilities (of which $370 million was outstanding at
September 30, 1994) including $400 million of European and domestic credit
enhanced commercial paper facilities, all of which are supported by its
committed lines of credit. Domestically, the facilities were rated A-1+ by
Standard & Poors, and either D-1+ by Duff & Phelps or P-1 by Moodys.
Term notes payable: Term notes payable include the following at September 30:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
RECEIVABLE-BACKED COMMERCIAL PAPER
(FLOATING RATE; DUE 1995) $ 150 $ 150
FLOATING RATE; DUE 1995 87 -
BUILDING MORTGAGE (9.70%; DUE 1998) 44 44
GUARANTEED SENIOR ESOP
NOTES (8.19%; DUE 1998) 10 12
$ 291 $ 206
</TABLE>
Subsequent to the issuance of the mortgage, the company entered into
an interest rate swap agreement that effectively converted this
obligation to a floating rate obligation through maturity. See Note 15
of Notes to Consolidated Financial Statements regarding the senior ESOP
notes.
Senior and subordinated debt: Senior and subordinated debt include the
following at September 30:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
SENIOR NOTES:
MEDIUM TERM NOTES ( 4.87% TO 9.99%)<FN1> $ 564 $ 398
6.50% SENIOR NOTES DUE 1994 - 159
8.95% SENIOR NOTES DUE 1995<FN2> 150 150
9.75% SENIOR NOTES DUE 1997<FN3> 200 200
7.75% SENIOR NOTES DUE 1999 89 100
8.73% SENIOR NOTES, SERIES A, DUE 1994 - 63
9.02% SENIOR NOTES, SERIES B, DUE 1995 18 18
9.38% SENIOR NOTES, SERIES C, DUE 1996 19 19
TOTAL SENIOR NOTES 1,040 1,107
SUBORDINATED DEBT 33 12
$1,073 $1,119
<FN>
1The company had outstanding interest rate swap agreements at September 30,
1994 and 1993 that effectively converted $51 million and $46 million,
respectively, of medium-term fixed rate borrowings to floating rate
obligations with an effective interest rate of 5.200% and 3.375%,
respectively. The remaining terms of these swap agreements were more than one
year at September 30, 1994.
2Subsequent to the issuance of these notes, the company entered into interest
rate swap agreements that effectively converted $50 million of these notes to
a floating rate obligation through May, 1994 and the balance to a floating
rate obligation through maturity.
3Subsequent to the issuance of these notes, the company entered into an
interest rate swap agreement to effectively convert $50 million of these notes
to a floating rate obligation.
</FN>
</TABLE>
There are no sinking fund requirements associated with any of the
company's senior notes. At September 30, 1994, $ 73 million remains
available for the sale of debt securities under the most recent Form S-3
registration statement. In fiscal 1992, the company purchased
and redeemed the balance of its then outstanding 10% Senior Notes and
the balance of its then outstanding 9.65% Senior Subordinated Debentures
(the "Senior Securities"). The difference between the purchase and/or
redemption price and the outstanding principal amount of the Senior
Securities, along with any remaining deferred issuance costs and bond
discount, were recorded as an extraordinary loss of $48 million
($29 million after-tax).
Discounted lease rentals: The company utilizes its lease rentals
receivable and underlying equipment in leasing transactions as collateral
to borrow from financial institutions at fixed rates on a nonrecourse
basis. In return for this secured interest, the company receives a
discounted cash payment. In the event of a default by a lessee, the
financial institution has a first lien on the underlying leased
equipment, with no further recourse against the company.
Proceeds from discounting are recorded on the balance sheet as discounted
lease rentals; as lessees make payments to financial institutions, lease
revenue (i.e., interest income on direct financing and sales-type
leases and rental revenue on operating leases) and interest expense are
recorded. Discounted lease rentals are reduced by the interest method.
Future minimum lease payments and interest expense on leases
that have been discounted as of September 30, 1994 are as follows
(in millions):
<TABLE>
<CAPTION>
Rentals to be
received by Discounted
Years ending financial lease Interest
September 30, Institutions rentals expense
<S> <C> <C> <C>
1995 $ 796 $ 709 $ 87
1996 520 479 41
1997 253 236 17
1998 96 92 4
1999 33 32 1
$ 1,698 $1,548 $150
</TABLE>
Interest expense on discounted lease rentals was $118 million, $144
million, and $168 million in fiscal 1994, 1993, and 1992, respectively.
Comdisco Receivables, Inc., a special purpose subsidiary of the
company, filed registration statements for offerings of Certificates to
be issued by the Comdisco Receivables Trust 1993-A, 1992-A and 1991-A.
In February, 1993, May, 1992, and May, 1991, the Certificates were sold
for $268 million, $243 million and $312 million, respectively, with
limited recourse to the company. Subsequent to the February, 1993
issuance, the company entered into an interest rate cap agreement to
reduce its exposure to rising interest rates.The portion of the proceeds
relating to direct financing leases in 1993, 1992 and 1991 was $180
million, $127 million and $164 million, respectively, which resulted
in a corresponding reduction in the net investment in direct financing
leases. The remaining proceeds of $88 million in 1993, $116 million in
1992 and $148 million in 1991 resulted from operating leases and were
included in discounted lease rentals.
Interest rate swap agreements and other derivative financial instruments:
The company is a party to a variety of interest rate and cross-currency
interest rate swap agreements and other financial instruments in order to
limit its exposure to a loss resulting from adverse fluctuations in foreign
currency exchange and interest rates. Interest rate swap contracts generally
represent the contractual exchange of fixed and floating rate payments of a
single currency. Cross-currency interest rate swap contracts generally
involve the exchange of payments which are based on the interest reference
rates available at the inception of the contract on two different currency
principal balances that are exchanged. The principal balances are
re-exchanged at an agreed upon rate at a specified future date. Credit and
market risk exist with respect to these instruments.
Contract or notional (face) amounts outstanding include the following at
September 30:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
INTEREST RATE SWAP AGREEMENTS $ 359 $ 428
INTEREST RATE CAPS 123 234
</TABLE>
The impact of these contracts on interest expense for fiscal years 1994
and 1993 was immaterial. At September 30, 1994 and 1993, the estimated
fair value of such contracts was ($11) million, including gains of $1
million, and $1 million, including gains of $9 million, respectively,
based generally on their termination values at that date. The average
notional amount outstanding of the floating rate to fixed rate contracts
in fiscal 1994, including those noted above, was $93 million, with an
average interest rate of 9.25%. The average notional amount outstanding
of the fixed rate to floating rate contracts in fiscal 1994, including
those noted above, was $252 million, with an average interest rate of
4.35%. The company is exposed to credit loss in the event of
non-performance by the other parties to the interest rate swap agreements.
However, because of the credit quality of the counterparties, the
company does not anticipate non-performance by the counterparties.
OTHER FINANCIAL INFORMATION
Note 7 Receivables
Receivables (net of allowance for doubtful accounts of $10 million in 1994 and
$13 million in 1993) include the following as of September 30:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
ACCOUNTS, NET $ 99 $ 114
INCOME TAXES 32 8
NOTES 4 3
OTHER 34 33
$ 169 $ 158
</TABLE>
NOTE 8 IBM Litigation Settlement and Contingencies
Note 16 to the 1993 Consolidated Financial Statements discussed contingencies
of the company arising out of three legal actions filed against Comdisco by
International Business Machines Corporation, IBM Credit Corporation and
certain IBM-related limited partnerships. On August 26, 1994, all of the
parties to the three lawsuits entered into a settlement agreement. Pursuant to
the settlement, Comdisco and all of the parties to the litigation exchanged
mutual general release; the company agreed not to engage in the future sale or
lease of altered IBM parts except pursuant to the requirements of the
Stipulation and Order for Permanent Injunction entered into between the
parties and ordered by the Court in IBM v. Comdisco, 91 C 6777 (N.D.Ill.); the
company agreed not to lease, sublease, sell or relocate any ICC-owned
equipment without IBM's prior written consent; the company agreed not to copy
any IBM copyrighted microcode and software other than in accordance with
license agreements pertaining thereto; and the company paid IBM $70 million.
The company is also party to various other legal actions and
administrative proceedings and subject to various claims arising in the
ordinary course of business. The company believes that the disposition of
these matters will not have a material adverse effect on the financial
position of the company.
NOTE 9 Litigation and Receivables Charge
In fiscal 1991 and 1992, International Business Machines Corporation and IBM
Credit Corporation filed actions against the company (see Note 8 of Notes to
Consolidated Financial Statements). Additional costs associated with these
lawsuits, including outside legal counsel and additional in-house personnel,
increased selling, general and administrative expenses in fiscal 1991 and the
first half of fiscal 1992. The company vigorously defended itself in these
matters and, accordingly, during the quarters ended March 31, 1992 and June
30, 1994, recorded charges of $20 million ($12 million after-tax) and $10
million ($6 million after-tax), respectively, for the establishment of, and
increase to, a litigation reserve to cover estimated costs associated with the
litigation. During the quarter ended March 31, 1992, the company
recorded a $25 million charge for estimated receivable losses ($15 million
after-tax), reflecting continued uncertainty in the U.S. economy and its
impact on the company's receivables and the credit quality of the company's
lease portfolio.
NOTE 10 Restructuring Charge
During the quarter ended March 31, 1992, the company undertook several
actions to realign its businesses, reduce its overall cost structure and
withdraw from the leasing of certain high technology equipment. These actions
resulted in a restructuring charge of $35 million ($21 million after-tax) for
employee severance programs, primarily related to planned reorganizations of
the company's headquarters and U.S. marketing operations, lease termination
costs for excess facilities, and for the estimated cost to withdraw from the
leasing of identified product lines. The restructuring plan is complete and
requires no future cash outlays.
NOTE 11 Discontinued Operations
In November, 1991, the company's board of directors voted to discontinue the
company's involvement in the oil and gas business. The board also approved the
retention of outside advisors to assist in the divestiture of its oil and gas
operations. The company's oil and gas activities are accounted for as
discontinued operations. Based on certain events occurring in fiscal
1993, management revised its estimate of the net realizable value of the
company's oil and gas investment, resulting in a loss provision of $33 million
($(20) million after-tax). These events included declines in the price of oil,
unsuccessful exploration and costs associated with such exploration of
previously undeveloped mineral and royalty rights and leasehold interests,
disposition negotiations with the company's joint venture partners, amendments
to the company's plan of disposition based on advice from its outside advisors
(the "Revised Plan"), and the company's inability to attract viable bids from
financially stable third parties. Costs associated with the unsuccessful
exploration were incurred primarily in the fourth quarter of fiscal 1993. The
Revised Plan included staff cut-backs, reduced exploration activities and the
possibility of parceling various properties and assets to multiple buyers.
In September, 1994, the joint venture adopted a plan of dissolution and
transferred certain assets, specifically the leases, personal property and
incidental rights and the crude oil and other hydrocarbons, along with the
assumption of certain liabilities, for a minority interest in Consolidated Oil
& Gas, Inc. The exchange was based on the estimated fair market value of the
assets, which approximated net book value. The company's assets remaining in
the joint venture, though immaterial, are expected to be disposed of during
fiscal 1995. The joint venture used the full-cost method of accounting
for its oil and gas properties. Amortization of the properties is calculated
using the unit of production method. Pretax losses from oil and gas activities
were $0, $(33) million and $0 in fiscal 1994, 1993 and 1992, respectively.
<PAGE>
NOTE 12 Income Taxes
Effective October 1, 1992, the company adopted FAS 109 (see also Note 1 of
Notes to Consolidated Financial Statements). The cumulative effect of the
change increased net earnings to common stockholders by $20 million, or $.50
per share. The cumulative effect primarily represents the impact of adjusting
deferred taxes to reflect the then current Federal tax rate of 34% as opposed
to the higher rates that were in effect when the deferred taxes originated. As
permitted by FAS 109, the company elected not to restate the financial
statements of any prior years. Information shown below for 1992 was determined
under the deferred method. Income taxes included in the Consolidated
Statements of Earnings were as follows:
<TABLE>
<CAPTION>
94 93 92
<S> <C> <C> <C>
CONTINUING OPERATIONS $ 36 $ 57 $ 14
DISCONTINUED OPERATIONS - (13) -
EXTRAORDINARY ITEMS - - (19)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - (20) -
$ 36 $ 24 $ (5)
</TABLE>
The geographical sources of earnings (loss) from continuing operations before
income taxes, extraordinary items and cumulative effect of accounting change
were as follows:
<TABLE>
<CAPTION>
94 93 92
<S> <C> <C> <C>
UNITED STATES $ 63 $ 132 $ 35
OUTSIDE UNITED STATES 26 12 (1)
$ 89 $ 144 $ 34
</TABLE>
Cumulative unremitted earnings of foreign operations amounting to $40
million (net of foreign taxes) at September 30, 1994, were expected by
management to be reinvested. Accordingly, no provision has been made
for additional U.S. taxes which would be payable if such earnings were
to be remitted to the parent company as dividends. The amount of U.S.
taxes, if any, are impracticable to determine.
The components of the income tax provision (benefit) charged (credited) to
continuing operations were as follows:
<TABLE>
<CAPTION>
(in millions) 94 93 92
<S> <C> <C> <C>
CURRENT:
U.S. FEDERAL $ (11) $ 33 $ (1)
U.S. STATE AND LOCAL 8 3 2
OUTSIDE UNITED STATES 7 5 3
4 41 4
DEFERRED:
U.S. FEDERAL 32 11 3
U.S. STATE AND LOCAL (4) 4 -
OUTSIDE UNITED STATES 4 1 7
32 16 10
TOTAL TAX PROVISION $ 36 $ 57 $ 14
</TABLE>
The reasons for the difference between the U.S. Federal income tax rate and the
effective income tax rate for earnings from continuing operations before
extraordinary items were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PRETAX EARNINGS
94 93 92
<S> <C> <C> <C>
U.S. FEDERAL INCOME TAX RATE 35.0% 34.8% 34.0%
INCREASE (REDUCTION) RESULTING
FROM:
STATE INCOME TAXES, NET
OF U.S. FEDERAL TAX BENEFIT 2.8 3.6 4.4
FOREIGN INCOME TAX RATE
DIFFERENTIAL 6.4 0.2 2.4
TAX EFFECT OF FOREIGN
LOSSES (UTILIZED)/DEFERRED (4.8) 1.3 31.7
INSURANCE PROCEEDS (8.7) - -
CHANGES IN ESTIMATES OF
PREVIOUSLY PROVIDED TAXES 12.1 - (27.0)
CUMULATIVE EFFECT OF U.S. TAX
RATE CHANGE - 3.4 -
UTILIZATION OF CAPITAL LOSS (2.7) (3.4) -
OTHER, NET (.1) 0.1 (5.5)
40.0% 40.0% 40.0%
</TABLE>
<PAGE>
During fiscal year 1992 deferred income taxes were provided for the following
significant timing differences as follows:
<TABLE>
<CAPTION>
(in millions) 92
<S> <C>
EQUITY TRANSACTIONS $ (9)
SALES OF RECEIVABLES 13
DIFFERENCE IN LEASE ACCOUNTING FOR TAX
PURPOSES AND FINANCIAL
STATEMENT PURPOSES 12
DIFFERENCE IN INVESTMENT TAX CREDIT
FOR TAX PURPOSES AND FINANCIAL
STATEMENT PURPOSES (3)
DEFERRED FOREIGN TAXES 7
OTHER, NET (10)
$ 10
</TABLE>
Deferred tax assets and liabilities at September 30, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
(in millions) 94 93
<S> <C> <C>
DEFERRED TAX ASSETS
EQUITY TRANSACTIONS $ 256 $242
FOREIGN LOSS CARRYFORWARDS 30 34
U.S. NET OPERATING LOSS CARRYFORWARDS 171 174
AMT CREDIT CARRYFORWARDS 62 73
DEFERRED INCOME 32 45
SALE OF RECEIVABLE - 5
OTHER, NET 9 4
GROSS DEFERRED TAX ASSETS 560 577
LESS: VALUATION ALLOWANCE (30) (34)
TOTAL DEFERRED TAX ASSETS 530 543
DEFERRED TAX LIABILITIES
LEASE ACCOUNTING 714 689
FOREIGN 44 42
DEFERRED EXPENSES 1 10
TOTAL DEFERRED TAX LIABILITIES 759 741
NET DEFERRED TAX LIABILITIES $ 229 $198
</TABLE>
For financial reporting purposes, the company has approximately $71 million of
foreign net operating loss carryforwards at September 30, 1994, most of which
have no expiration date. The company has recognized a valuation allowance of
$30 million to offset this deferred tax asset at September 30, 1994. During
fiscal 1994, changes in the valuation allowance included a decrease of $7
million from the utilization of foreign loss carryforwards and increases
totaling $3 million due to foreign exchange rate and tax rate changes.
At September 30, 1994, the company has available for U.S. Federal income tax
purposes, the following net operating loss carryforwards (in millions):
<TABLE>
<CAPTION>
NET
YEAR SCHEDULED OPERATING
TO EXPIRE LOSS
<S> <C>
2003 $ 17
2004 4
2005 76
2006 201
2007 147
$ 445
</TABLE>
For U.S. Federal income tax purposes, the company has approximately $62
million of alternative minimum tax ("AMT") credit carryforwards available
to reduce regular taxes in future years. AMT credit carryforwards do not
have an expiration date.
All years prior to fiscal year 1989 are closed to further assessment by
the Internal Revenue Service (the "Service") due to the expiration of the
Statute of Limitations. In February, 1992, the Service commenced an income tax
audit for fiscal years 1989 and 1990. In May, 1994, a 30-Day Letter was
received by the company proposing income tax deficiencies of $9.8 million and
$2.5 million for fiscal years 1989 and 1990, respectively. In August, 1994,
the company filed a protest with the Service requesting a conference with the
Appeals Division ("Appeals") to discuss the issues which are in disagreement.
The company is currently waiting to be contacted by Appeals and expects
discussions to begin with Appeals in the second quarter of fiscal 1995. The
company believes that all issues raised will be resolved with no material
impact on the company's financial statements. Additionally, during March,
1994, the Service commenced routine income tax audits for fiscal years 1991,
1992 and 1993.
NOTE 13 Preferred Stock
There are 100,000,000 authorized shares of preferred stock - $.10 par value.
The board of directors establishes and designates the series and fixes the
number of shares and the relative rights, preferences and limitations of the
respective series. Whenever dividends on preferred stock are in arrears six
quarters or more, holders of such stock (voting as a class) have the right to
elect two directors of the company until all cumulative dividends have been
paid. Dividends on outstanding preferred stock must be declared and paid
before dividends may be paid or set apart for payment on the common stock.
Dividends paid on preferred stock were $9 million and $7 million in fiscal
1994 and 1993 respectively.
8.75% Cumulative Preferred Stock (at $25 stated value and liquidation
preference): The company issued 3,000,000 shares of 8.75% Cumulative Preferred
Stock, Series A (the "Series A Preferred Stock") on September 24, 1992, and
1,000,000 shares of 8.75% Cumulative Preferred Stock, Series B (the "Series B
Preferred Stock") (collectively, the "Series A and B Preferred Stock") on July
12, 1993. The Series A and B Preferred Stock have no preemptive rights, are
not convertible into shares of common stock or any other class of stock of the
company, and are not subject to any sinking fund or other obligation of the
company to repurchase or retire the Series A and B Preferred Stock. The
Series A Preferred Stock and the Series B Preferred Stock are not redeemable
prior to September 24, 1997 and July 12, 1998, respectively. After September
24, 1997 and July 12, 1998, respectively, the Series A Preferred Stock and the
Series B Preferred Stock are subject to redemption at the company's option, at
any time, at $25 per share (plus accrued dividends). Net proceeds received
from the sale of the Series A Preferred Stock and the Series B Preferred
Stock, after deducting underwriting discount and other expenses, were $73
million and $24 million, respectively.
NOTE 14 Common Stock
On March 30, 1992, a 5% common stock dividend was distributed to common
stockholders of record as of March 12, 1992. The stock dividend was recorded
at the fair market value on the date of distribution and was issued from
common stock held in treasury. All data with respect to earnings per common
share, dividends per common share, and weighted average number of common
shares outstanding included in the financial statements and notes has been
retroactively adjusted to reflect the stock dividend. Cash dividends
paid were $.35 per share in fiscal 1994, $.29 per share in fiscal 1993, and
$.28 per share in fiscal 1992. At September 30, 1994, 5,690,271 common
shares were reserved for future issuance under various stock option plans and
the Employee Stock Purchase Plan. In November, 1987, the company adopted
a "Shareholder Rights Plan" (the "Rights Plan") to deter coercive takeover
tactics and to prevent an acquirer from gaining control of
the company without offering a fair price to all of the company's
stockholders. Under the Rights Plan, stockholders of
record on November 27, 1987 received a dividend distribution of one right for
each share of the company's common stock. The Rights Plan was amended by the
board of directors on November 7, 1994. The Rights Plan is incorporated by
reference in the company's Form 10-K for fiscal 1994 and the company's filing
on Form 8-K in December, 1994. The company purchased 1,995,644 shares
and 1,993,730 shares of common stock at an aggregate cost of $39 million and
$29 million in fiscal 1994 and 1993, respectively. On November 7, 1994, the
board of directors authorized the company to spend an additional $25 million
under its repurchase program. See Note 15 of Notes to Consolidated Financial
Statements for the sale of common stock from treasury stock held by the
company.
NOTE 15 Employee Benefits Plans
In fiscal 1988, the company established the Comdisco, Inc. Employee Stock
Ownership Trust (the "Trust"). The Trust borrowed $20 million (the "ESOP
Debt") to purchase 1,005,988 shares of common stock held in treasury by the
company at a market price at the date of purchase of $19.88 per share.
The ESOP Debt is guaranteed by the company. The outstanding balance of
the ESOP Debt has been recorded in term notes payable in the consolidated
balance sheet and a like amount of deferred compensation has been recorded as
a reduction of stockholders' equity. Commencing November 1, 1989 and
continuing over the period of the ESOP Debt, the shares purchased by the Trust
with the ESOP Debt proceeds will be allocated to plan participants and
deferred compensation will be reduced by the amount of the principal payment
on the ESOP Debt. The company's annual contribution to the Trust plus
dividends accumulated on the unallocated common stock held by the Trust are
used to repay the ESOP Debt. The amount of the company's annual contribution
is discretionary except that it must be sufficient to enable the Trust to meet
its current obligations. The company has a profit sharing plan which,
together with the Employee Stock Ownership Plan, (the "Plans"), covers
substantially all domestic employees. Company contributions to the Plans are
based on a percentage of employees' compensation, as defined. Benefits are
accumulated on an individual employee basis. Total expense under the Plans for
the years ended September 30, 1994, 1993 and 1992, including interest expense
of $1 million on the ESOP Debt in each fiscal year, amounted to $4 million, $4
million, and $5 million, respectively. The company utilizes the shares
allocated method for recognizing compensation on the Employee Stock Ownership
Plan. The amount contributed in fiscal 1994, 1993, and 1992 was $3 million,
net of dividends, and was used for debt service in each fiscal year. The
company's stock option plans provide for the granting of incentive stock
options and/or nonqualified options to employees and agents to purchase shares
of common stock. On January 18, 1990, the stockholders approved the 1989
Non-Employee Directors' Stock Option Plan (the "Non-Employee Plan"). Under the
Non-Employee Plan, beginning October 1, 1989, and on each subsequent October
1, each individual who is a non-employee director during the fiscal year shall
automatically be granted an option for 2,000 shares of the company's common
stock at the then fair market value.
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
(in thousands except option prior range)
94 93 92
NUMBER OF SHARES:
SHARES UNDER OPTION AT
<S> <C> <C> <C>
BEGINNING OF YEAR 3,915 4,235 3,163
OPTIONS GRANTED 1,912 23 1,311
OPTIONS EXERCISED (111) (46) (29)
OPTIONS TERMINATED (1,699) (297) (210)
SHARES UNDER OPTION AT
END OF YEAR 4,017 3,915 4,235
OPTIONS AVAILABLE FOR FUTURE
GRANT AT END OF YEAR 1,477 1,690 -
OPTION PRICE RANGE OF
OUTSTANDING OPTIONS $ 9.12- $ 7.07- $ 7.07-
$ 32.03 $ 32.03 $ 32.03
AGGREGATE OPTION PRICE:
SHARES UNDER OPTION AT
BEGINNING OF YEAR $ 65,499 $70,877 $58,166
OPTIONS GRANTED 35,623 350 17,268
OPTIONS EXERCISED (1,209) (367) (231)
OPTIONS TERMINATED (34,546) (5,361) (4,326)
SHARES UNDER OPTION AT
END OF YEAR $ 65,367 $65,499 $70,877
OPTIONS EXERCISABLE AT
END OF YEAR 2,261 2,058 1,502
AGGREGATE OPTION PRICE OF
EXERCISABLE OPTIONS
OUTSTANDING AT END OF YEAR $ 38,650 $38,242 $27,735
</TABLE>
NOTE 16: Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the fiscal years ended
September 30, 1994 and 1993, is
as follows (in millions except for per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
93 92 94 93 94 93 94 93
TOTAL REVENUE $ 536 $ 571 $ 529 $ 530 $ 514 $ 513 $ 519 $ 539
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 21 $ 19 $ 22 $ 19 $ 22 $ 21 $ (21) $ 21
LOSS FROM DISCONTINUED OPERATIONS - - - - - - - (20)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - 20 - - - - - -
NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS $ 21 $ 39 $ 22 $ 19 $22 $21 $ (21) $ 1
NET EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
CONTINUING OPERATIONS $0.54 $0.46 $0.55 $0.48 $0.57 $0.50 $ (0.53) $ 0.53
DISCONTINUED OPERATIONS - - - - - - - (0.51)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - 0.49 - - - - - -
NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS $0.54 $0.95 $0.55 $0.48 $0.57 $0.50 $ (0.53) $ 0.02
</TABLE>
<PAGE>
NOTE 17 Segment Information
The company operates predominantly in the leasing industry. The company
operated in four principal geographic locations during fiscal 1994. The
company also operates in South America. Transfers between geographic
areas include a reasonable profit that is eliminated in consolidation.
Presented below is financial information reflecting the company's leasing and
disaster recovery operations by geographic area for the years ended
September 30, 1994, 1993 and 1992. The disaster recovery disclosure is made
for informational purposes: disaster recovery does not constitute a
significant segment as defined by FASB Statement of Financial Accounting
Standards No. 14 "Financial Reporting for Segments of a Business Enterprise."
<TABLE>
<CAPTION>
UNITED PACIFIC EXPORT ELIMIN- CONSOL-
(IN MILLIONS) STATES EUROPE CANADA RIM SALES ATIONS IDATED
<S> <C> <C> <C> <C> <C> <C> <C>
1994
REVENUE FROM UNAFFILIATED CUSTOMERS
LEASING $ 1,507 $ 231 $ 62 $ 56 $ - $ - $ 1,856
DISASTER RECOVERY 201 25 16 - - - 242
TOTAL REVENUE FROM UNAFFILIATED CUSTOMERS 1,708 256 78 56 - - 2,098
TRANSFERS BETWEEN GEOGRAPHIC AREAS 9 37 6 4 3 (59) -
TOTAL REVENUE $ 1,717 $ 293 $ 84 $ 60 $ 3 $ (59) $ 2,098
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
LEASING $ 57 $ 3 $ 12 $ 1 $ - $ (2) $ 71
DISASTER RECOVERY 19 (2) 1 - - - 18
TOTAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 76 $ 1 $ 13 $ 1 $ - $ (2) $ 89
TOTAL ASSETS (END OF YEAR)
LEASING $ 3,814 $ 545 $ 143 $ 100 $ 22 $ (66) $ 4,558
DISASTER RECOVERY 211 42 16 - - (20) 249
TOTAL ASSETS $ 4,025 $ 587 $ 159 $ 100 $ 22 $(86) $ 4,807
1993
REVENUE FROM UNAFFILIATED CUSTOMERS
LEASING $ 1,501 $ 303 $ 79 $ 54 $ - $ - $ 1,937
DISASTER RECOVERY 171 29 16 - - - 216
TOTAL REVENUE FROM UNAFFILIATED CUSTOMERS 1,672 332 95 54 - - 2,153
TRANSFERS BETWEEN GEOGRAPHIC AREAS 13 8 26 9 4 (60) -
TOTAL REVENUE $ 1,685 $ 340 $ 121 $ 63 $ 4 $ (60) $ 2,153
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
LEASING $ 126 $ - $ 9 $ 2 $ - $ (3) $ 134
DISASTER RECOVERY 11 (1) - - - 10
TOTAL EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES,
EXTRAORDINARY LOSS AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE $ 137 $ (1) $ 9 $ 2 $ - $ (3) $ 144
TOTAL ASSETS (END OF YEAR)
LEASING $3,983 $ 608 $ 169 $ 85 $ 21 $ (90) $ 4,776
DISASTER RECOVERY 151 41 11 - - (19) 184
TOTAL ASSETS $ 4,134 $ 649 $ 180 $ 85 $ 21 $ (109) $ 4,960
1992
REVENUE FROM UNAFFILIATED CUSTOMERS
LEASING $ 1,529 $ 335 $ 101 $ 47 $ - $ - $ 2,012
DISASTER RECOVERY 157 20 16 - - - 193
TOTAL REVENUE FROM UNAFFILIATED CUSTOMERS 1,686 355 117 47 - - 2,205
TRANSFERS BETWEEN GEOGRAPHIC AREAS 23 10 15 1 12 (61) -
TOTAL REVENUE $ 1,709 $ 365 $ 132 $ 48 $ 12 $ (61) $ 2,205
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
LEASING $ 48 $ ( 9) $ 16 $ (3) $ 2 $ (3) $ 51
DISASTER RECOVERY 15 2 1 - - - 18
RESTRUCTURING CHARGE - - -- - - - (35)
TOTAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 63 $ ( 7) $ 17 $(3) $2 $ (3) $ 34
TOTAL ASSETS (END OF YEAR)
LEASING $ 4,119 $ 665 $ 209 $ 94 $ 21 $ (65) $ 5,043
DISASTER RECOVERY 144 47 26 - - (24) 193
TOTAL ASSETS $ 4,263 $ 712 $ 235 $ 94 $ 21 $ (89) $ 5,236
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors, Comdisco, Inc.:
We have audited the accompanying consolidated balance sheets of Comdisco, Inc.
and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1994. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Comdisco, Inc. and
subsidiaries at September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1994 in conformity with generally accepted accounting
principles. As discussed in Note 1 and Note 12 of Notes to Consolidated
Financial Statements, the company adopted the provisions of FASB Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
in 1993.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
November 7, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 179
<ALLOWANCES> (10)
<INVENTORY> 145
<CURRENT-ASSETS> 365
<PP&E> 3,411
<DEPRECIATION> (1,547)
<TOTAL-ASSETS> 4,807
<CURRENT-LIABILITIES> 677
<BONDS> 1,073
<COMMON> 5
0
100
<OTHER-SE> 636
<TOTAL-LIABILITY-AND-EQUITY> 4,807
<SALES> 1,538
<TOTAL-REVENUES> 2,098
<CGS> 1,004
<TOTAL-COSTS> 1,004
<OTHER-EXPENSES> 742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 89
<INCOME-TAX> 36
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
