<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
LDI CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrants Specified In Its Charter)
LDI CORPORATION
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6a(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
Common Stock
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
6,751,457
-----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$4.10
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$28,126,023.70
-----------------------------------------------------------------
5) Total fee paid:
$5,625.20
-----------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Indentify the previous filing by registration
statement number, of the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------
<PAGE> 2
[LDI LOGO]
LDI CORPORATION
April 1, 1996
To the Stockholders of LDI Corporation:
You are cordially invited to attend a Special Meeting of Stockholders
of LDI Corporation to be held at 10:00 a.m. (local time) on April 29, 1996, at
AmeriSuites Cleveland South, 6025 North Rockside Road, Independence, Ohio.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of
February 14, 1996, as amended March 29, 1996 (the "Merger Agreement"), between
NationsCredit Commercial Corporation ("NationsCredit") and LDI Corporation
("LDI" or the "Company"), and the Merger (as defined below) contemplated
thereby. Pursuant to the Merger Agreement, a wholly owned subsidiary of
NationsCredit ("Merger Sub") would be merged with and into the Company (the
"Merger") and each outstanding share of common stock of the Company (the
"Common Stock") would be converted into the right to receive $4.10 in cash on
the terms and subject to the adjustments and conditions set forth in the Merger
Agreement, all as more fully described in the attached Proxy Statement.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED (WITH ONE ABSTENTION) THE MERGER AGREEMENT AND THE MERGER.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement and the Merger by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock of
the Company entitled to vote thereon and the receipt of certain approvals from
regulatory authorities. Certain Stockholders, all of whom are members of the
Company's Board of Directors, have agreed with NationsCredit to vote the shares
of Common Stock controlled by them (representing approximately 50.6% of the
outstanding shares of Common Stock) in favor of the Merger Agreement and the
Merger. Only holders of Common Stock of record at the close of business on
March 15, 1996 are entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements thereof.
If the Merger is consummated, holders of Common Stock who do not vote
in favor of approval of the Merger Agreement and the Merger and who otherwise
comply with the requirements of Section 262 of the Delaware General Corporation
Law will be entitled to statutory appraisal rights.
You are urged to read the accompanying Proxy Statement, which provides
you with a description of the terms of the proposed Merger and a copy of the
Merger Agreement, which is included as Appendix A to the enclosed Proxy
Statement.
Whether or not you plan to attend the Special Meeting, you are
requested to complete, sign, date and return the proxy card in the enclosed
postage-paid envelope. Failure to return a properly executed proxy card or
vote at the Special Meeting would have the same effect as a vote against the
Merger Agreement and the Merger. Executed proxies with no instructions
indicated thereon will be voted for approval and adoption of the Merger
Agreement and the Merger. Please do not send in your stock certificates at
this time. In the event the Merger is consummated, you will be sent a letter
of transmittal providing detailed procedures for exchanging stock certificates
as soon as reasonably practicable thereafter.
Sincerely,
Floyd S. Robinson
President and Chief Executive Officer
<PAGE> 3
[LDI LOGO]
LDI CORPORATION
TO BE HELD ON APRIL 29, 1996
Notice is hereby given that a Special Meeting of Stockholders (the
"Special Meeting") of LDI Corporation (the "Company") will be held at
AmeriSuites Cleveland South, 6025 North Rockside Road, Independence, Ohio, on
April 29, 1996, at 10:00 a.m. (local time), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of February 14, 1996,
as amended March 29, 1996 (the "Merger Agreement"), between
NationsCredit Commercial Corporation, a Delaware corporation
("NationsCredit"), and the Company, a copy of which is
attached to the accompanying Proxy Statement as Appendix A.
Pursuant to the Merger Agreement: (i) a wholly owned
subsidiary of NationsCredit ("Merger Sub") will be merged with
and into the Company (the "Merger"), with the Company
continuing as the surviving corporation; (ii) the Company will
thereupon become a wholly owned subsidiary of NationsCredit;
and (iii) each outstanding share of common stock, par value
$.01 per share, of the Company (the "Common Stock") (other
than certain shares owned by the Company or its subsidiaries
or by NationsCredit, which will be canceled, and other than
"Dissenting Shares" as described in the Proxy Statement) will
be converted, upon the effectiveness of the Merger, into the
right to receive $4.10 in cash on the terms and subject to the
adjustments and conditions set forth in the Merger Agreement,
all as more fully described in the attached Proxy Statement.
2. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof.
Only stockholders of record at the close of business on March 15,
1996, will be entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
By Order of the Board of Directors
DENNIS J. DIEMER
Assistant Secretary
April 1, 1996
________________________________________________________________________________
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
________________________________________________________________________________
<PAGE> 4
[LDI LOGO]
LDI CORPORATION
4770 Hinckley Industrial Parkway
Cleveland, Ohio 44109
Proxy Statement
_________
This Proxy Statement is furnished to holders of common stock, par
value $.01 per share (the "Common Stock") of LDI Corporation, a Delaware
corporation (the "Company") in connection with the solicitation of proxies for
use at the Special Meeting of Stockholders of the Company to be held on April
1, 1996, at 10:00 a.m. (local time), at AmeriSuites Cleveland South, 6025 North
Rockside Road, Independence, Ohio, and at any adjournments or postponements
thereof (the "Special Meeting"). The Board of Directors has fixed the close of
business on March 15, 1996 as the record date (the "Record Date") for the
Special Meeting. This statement and the accompanying notice and proxy are
first being sent to Stockholders on or about April 1, 1996.
At the Special Meeting, the holders of Common Stock on the Record Date
(the "Stockholders") will consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger, dated as of February 14, 1996, as
amended March 29, 1996 (the "Merger Agreement"), between NationsCredit
Commercial Corporation, a Delaware corporation ("NationsCredit"), and the
Company, a copy of which is attached to this Proxy Statement as Appendix A.
Pursuant to the Merger Agreement: (i) a wholly owned subsidiary of
NationsCredit ("Merger Sub") will be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation; (ii) the
Company will thereupon become a wholly owned subsidiary of NationsCredit; and
(iii) each outstanding share of Common Stock, other than certain shares owned
by the Company or its subsidiaries or by NationsCredit, which will be canceled,
and other than shares with respect to which Stockholders have properly
exercised and perfected appraisal rights in accordance with Delaware law
("Dissenting Shares"), will be converted, upon the effectiveness of the Merger,
into the right to receive $4.10 in cash on the terms and subject to the
adjustments and conditions set forth in the Merger Agreement, all as more fully
described in this Proxy Statement.
Consummation of the Merger is subject to certain conditions, including
approval and adoption of the Merger Agreement and the Merger by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock of
the Company entitled to vote thereon. Certain Stockholders, all of whom are
members of the Board of Directors, have agreed with NationsCredit to vote the
shares of Common Stock controlled by them, representing approximately 50.6% of
the outstanding shares of Common Stock, in favor of the Merger Agreement and
the Merger.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
________________________
The date of this Proxy Statement is April 1, 1996
________________________
<PAGE> 5
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, NATIONSBANK OR NATIONSCREDIT. THE DELIVERY OF THIS
PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY, NATIONSBANK OR
NATIONSCREDIT SINCE THE DATE HEREOF.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC located at Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, Seven
World Trade Center, New York, New York 10048. Copies of such material also can
be obtained at prescribed rates from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock is quoted on
the Nasdaq National Market System, and certain reports, proxy statements and
other information concerning the Company can also be inspected at the offices
of the National Association of Securities Dealers, Inc., Market Listing
Section, at 1735 K Street, N.W., Washington, D.C. 20006. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
This Proxy Statement incorporates by reference documents that are not
presented herein or delivered herewith. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
All information contained in this Proxy Statement under the captions
"PARTIES TO THE MERGER--NationsCredit," "--Merger Sub," "THE MERGER--Reasons for
Engaging in the Merger--NationsBank and NationsCredit," "REGULATORY MATTERS"
and "ACCOUNTING TREATMENT" has been supplied by NationsCredit and has not been
independently verified by the Company.
ii
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Matters To Be Considered at the Special Meeting . . . . . . . . . . . . . . . . . 1
Record Date and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Vote Required; Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . 1
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NationsCredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sale of Certain Businesses; Partnership Interest . . . . . . . . . . . . . . . . . 3
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Termination; Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . 4
Stockholders' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Market Prices of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
General; Date and Place of the Special Meeting . . . . . . . . . . . . . . . . . . . . . . 5
Matters To Be Considered at the Special Meeting . . . . . . . . . . . . . . . . . . . . . 5
Record Date and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Vote Required; Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PARTIES TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
NationsCredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reasons for Engaging in the Merger--The Company . . . . . . . . . . . . . . . . . . . . . 12
Reasons for Engaging in the Merger--NationsBank and NationsCredit . . . . . . . . . . . . 13
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Stock Trading Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
iii
<PAGE> 7
<TABLE>
Page
----
<S> <C>
Comparable Company Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Analysis of Management Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Directors and Officers; Governing Documents . . . . . . . . . . . . . . . . . . . 16
Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Payments to Holders of Good LDI Options . . . . . . . . . . . . . . . . . . . . . 17
Cancellation and Retirement of Common Stock . . . . . . . . . . . . . . . . . . . 18
Sale of Certain Businesses; Partnership Interest . . . . . . . . . . . . . . . . . . . . . 18
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Conduct of the Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . 20
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Employee Matters; Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Both Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
NationsCredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Termination Fee and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
REGULATORY MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Capital and Operational Requirements . . . . . . . . . . . . . . . . . . . . . . . 22
Federal Reserve Board; Status of Regulatory Approvals and Other Information . . . . . . . 23
INTERESTS OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Stockholders' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Payments Relating to Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Officer and Director Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 24
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 25
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
iv
<PAGE> 8
<TABLE>
Page
----
<S> <C>
MARKET PRICES OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 31
APPENDIX A Agreement and Plan of Merger dated as of February 14, 1996
between NationsCredit and the Company and Amendment dated
March 29, 1996 among NationsCredit, Merger Sub and the Company . . . . . A-1
APPENDIX B Fairness Opinion of Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . B-1
APPENDIX C General Corporation Law of Delaware Section 262 . . . . . . . . . . . . . C-1
APPENDIX D Annual Report on Form 10-K
for the Fiscal Year Ended January 31, 1995 . . . . . . . . . . . . . . . D-1
APPENDIX E Quarterly Report on Form 10-Q for the
Fiscal Quarter Ended October 31, 1995 . . . . . . . . . . . . . . . . . . E-1
</TABLE>
v
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be a complete
description and is qualified in its entirety by reference to the more detailed
information contained in this Proxy Statement or incorporated by reference in
this Proxy Statement or in the documents attached as Appendices hereto.
Stockholders are urged to give careful consideration to all the information
contained in this Proxy Statement and the Appendices.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING. The Special Meeting
is scheduled to be held at 10:00 a.m. (local time) on April 29, 1996 at
AmeriSuites Cleveland South, 6025 North Rockside Road, Independence, Ohio. At
the Special Meeting, Stockholders will consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and the Merger and (ii) such other
matters as may properly be brought before the Special Meeting. See "THE
SPECIAL MEETING--Matters To Be Considered at the Special Meeting."
RECORD DATE AND VOTING. The Record Date for the Special Meeting is
the close of business on March 15, 1996. At the Record Date, there were
6,751,457 shares of Common Stock outstanding and entitled to vote, held by
approximately 474 Stockholders of record. Each holder of Common Stock on the
Record Date will be entitled to one vote for each share of Common Stock held of
record by such holder. The presence, either in person or by proxy, of a
majority of the outstanding shares of Common Stock entitled to vote is
necessary to constitute a quorum at the Special Meeting. Abstentions
(including broker non-votes) are included in the calculation of the number of
votes represented at a meeting for purposes of determining the presence of a
quorum. See "THE SPECIAL MEETING--Record Date and Voting."
VOTE REQUIRED; REVOCABILITY OF PROXIES. The affirmative vote of
holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon is required to approve and adopt the Merger Agreement and the
Merger. Certain Stockholders, all of whom are members of the Company's Board
of Directors, have agreed with NationsCredit to vote the shares of Common Stock
controlled by them, representing approximately 50.6% of the outstanding shares
of Common Stock, in favor of the Merger Agreement and the Merger. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGER--Stockholders' Agreements."
Because the required vote of the Stockholders on the Merger Agreement
and the Merger is based upon the total number of outstanding shares of Common
Stock, the failure to submit a proxy card (or to vote in person at the Special
Meeting) or the abstention from voting by a Stockholder (including broker
non-votes) will have the same effect as an "against" vote with respect to
approval and adoption of the Merger Agreement and the Merger.
The presence of a Stockholder at the Special Meeting will not
automatically revoke such Stockholder's proxy. However, a Stockholder may
revoke a proxy at any time prior to its exercise by (i) delivering to Dennis J.
Diemer, Assistant Secretary, LDI Corporation, 4770 Hinckley Industrial Parkway,
Cleveland, Ohio 44109, a written notice of revocation prior to the Special
Meeting, (ii) delivering prior to the Special Meeting a duly executed proxy
bearing a later date or (iii) attending the Special Meeting and voting in
person. See "THE SPECIAL MEETING--Vote Required; Revocability of Proxies."
PARTIES TO THE MERGER
THE COMPANY. The Company was organized in 1972 as Leasing Dynamics,
Inc., an Ohio corporation. In October 1986, LDI Corporation, a Delaware
corporation, became a holding company for Leasing Dynamics, Inc. and certain of
its affiliated corporations. Subsequently, the Company completed an internal
realignment pursuant to which most of its subsidiaries were merged into the
Company pursuant to applicable parent-subsidiary merger statutes.
<PAGE> 10
The Company's operations are managed in three product lines: Leasing
Services, Technology Services and PC Rentals. Leasing Services provides
customers with selected high technology and data processing equipment,
telecommunications products, and other capital equipment through sale or lease
transactions. Technology Services provides technical support services,
including system installation, integration, maintenance and other system
support related services both in-house and at customer locations. PC Rentals
provides state-of-the-art personal computer technology to corporate customers
for short-term rentals, normally ranging from one week to one year. The
Company's principal executive offices are located at 4770 Hinckley Industrial
Parkway, Cleveland, Ohio 44109, and its telephone number is (216) 661-5400.
See "PARTIES TO THE MERGER--The Company."
NATIONSCREDIT. NationsCredit is a Delaware corporation and an
indirect, wholly owned subsidiary of NationsBank Corporation ("NationsBank").
NationsCredit provides a broad range of commercial financial services primarily
in the United States and has subsidiaries that acquire certain consumer
financial transactions. NationsBank, a multi-bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), was
organized under the laws of the State of North Carolina in 1968 and has as its
principal assets the stock of its subsidiaries. Through its banking and
non-banking subsidiaries, including NationsCredit, NationsBank provides banking
and banking-related services, primarily throughout the Southeast and
Mid-Atlantic states and Texas. On December 31, 1995, NationsBank had $187
billion in assets, making it the third largest banking company in the United
States. NationsCredit's principal executive offices are located at One
Canterbury Green, Stamford, Connecticut 06901-2056, and its telephone number is
(203) 352-4000. NationsBank's principal executive offices are located at
NationsBank Corporate Center, Charlotte, North Carolina 28255, and its
telephone number is (704) 386-5000. See "PARTIES TO THE
MERGER--NationsCredit."
MERGER SUB. Merger Sub is a direct wholly owned subsidiary of
NationsCredit. Pursuant to the terms of the Merger Agreement, at the Effective
Time, Merger Sub will be merged with and into the Company, with the Company
continuing as the Surviving Corporation and a wholly owned subsidiary of
NationsCredit. See "PARTIES TO THE MERGER--Merger Sub."
THE MERGER
APPROVAL OF BOARD OF DIRECTORS. The Board of Directors of the Company
has determined that the Merger Agreement and the Merger are advisable and fair
to, and in the best interests of, the Company and the Stockholders and has
unanimously (with one abstention) approved the Merger Agreement and the Merger.
In determining to approve the Merger Agreement, the Board of Directors
considered a number of factors, as more fully described under "THE
MERGER--Background of the Merger" and "--Reasons for Engaging in the
Merger--The Company."
OPINION OF FINANCIAL ADVISOR. On February 14, 1996, Bear, Stearns &
Co. Inc. ("Bear Stearns"), financial advisor to the Company, delivered its
opinion to the Board of Directors that, as of the date of such opinion, the
Merger is fair to the Company's stockholders from a financial point of view. A
copy of a written confirmation of such opinion of Bear Stearns, dated April 1,
1996, which sets forth the assumptions made, general procedures followed,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix B. Stockholders should read such
opinion carefully and in its entirety. See "THE MERGER--Opinion of Financial
Advisor."
THE MERGER AGREEMENT
GENERAL. In the Merger, the purchase price for the Common Stock will
be $4.10 per share (the "Per Share Amount"), on the terms and subject to the
conditions set forth in the Merger Agreement, and the consideration for the
cancellation of the LDI Options (as defined below) will be an amount equal to
(x) the difference between the Per Share Amount and the exercise prices of the
Good LDI Options (as defined below) multiplied by (y) the respective number of
shares of Common Stock represented thereby. "Good LDI Options" means those LDI
Options with respect to which the exercise price is less than the Per Share
Amount immediately prior to the Effective Time. See "THE MERGER
AGREEMENT--General."
2
<PAGE> 11
CONVERSION OF SECURITIES. Subject to the provisions of the Merger
Agreement, at the Effective Time: (i) each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall remain
outstanding as a share of common stock of the Surviving Corporation, (ii) each
share of Common Stock of the Company held by the Company or its subsidiaries or
by NationsCredit shall be canceled and retired and no consideration shall be
issued in exchange therefor, (iii) each share of Common Stock of the Company
(other than the shares described in clause (ii) of this sentence and other than
Dissenting Shares) shall be converted into and become the right to receive the
Per Share Amount, and (iv) each Good LDI Option shall be converted into and
become the right to receive in cash an amount equal to (x) the difference
between the Per Share Amount and the exercise prices of the Good LDI Options
multiplied by (y) the respective number of shares of Common Stock represented
thereby. See "THE MERGER AGREEMENT--The Merger."
SALE OF CERTAIN BUSINESSES; PARTNERSHIP INTEREST. In the Merger
Agreement, the Company has agreed to use commercially reasonable efforts to
sell each of its Technical Services line of business and its PC Rentals line of
business (together, the "To Be Sold Businesses") as an ongoing line of
business, prior to the Effective Time for consideration and pursuant to
documentation satisfactory to NationsCredit. Pursuant to the Merger Agreement,
the obligation of NationsCredit to consummate the Merger is subject to the
Company having sold its general partnership interest in a partnership called
the Picker Financial Group (the "Picker Joint Venture") for consideration
specified in the Merger Agreement. See "THE MERGER AGREEMENT--Sale of Certain
Businesses; Partnership Interest."
NO SOLICITATION. Pursuant to the Merger Agreement, the Company has
agreed that prior to the date of the Special Meeting, neither it nor any of its
directors, officers, employees, agents or representatives will solicit,
encourage or respond to any inquiries or proposals by any other person
(including the furnishing of non-public information) in connection with any
proposal or inquiry involving a potential acquisition of the stock or the
assets of the Company, whether by merger, purchase of securities or assets,
tender offer or otherwise, other than any proposal or inquiry relating only to
the To Be Sold Businesses or the Picker Joint Venture and except in certain
cases if the Board of Directors of the Company is advised by counsel to the
Company that the failure to deliver information may constitute a breach of its
fiduciary duties. See "THE MERGER AGREEMENT--No Solicitation."
TERMINATION; TERMINATION FEE. The Merger Agreement may be terminated,
and the Merger abandoned, at any time prior to the Effective Time, either
before or, if applicable, after its approval by the Stockholders, as follows:
(i) by mutual written consent of the Board of Directors of each of
NationsCredit and the Company; (ii) by either NationsCredit or the Company if
(A) the Effective Time has not occurred on or before July 1, 1996, (B) a court
of competent jurisdiction shall have issued an order permanently enjoining the
Merger and such order shall have become final and nonappealable, (C) the
Stockholders fail to approve the Merger at the Special Meeting, or (D) the
conditions to such party's obligation to effect the Merger are not satisfied
(see "THE MERGER AGREEMENT--Conditions to the Merger"); or (iii) by
NationsCredit if the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") has denied approval of the Merger and such denial has
become final and nonappealable or if the Federal Reserve Board has approved the
Merger subject to conditions that in the judgment of NationsCredit would
restrict it or its affiliates in their business activities or otherwise be
materially burdensome to NationsCredit or its affiliates. Under certain
circumstances, termination of the Merger Agreement and the consummation by the
Company of certain transactions following such termination would require the
payment by the Company to NationsCredit of a termination fee in the amount of
$1,000,000. See "THE MERGER AGREEMENT--Termination" and "--Termination Fee and
Expenses."
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board,
which approval has been received and is acceptable to NationsBank. See "THE
MERGER AGREEMENT--Conditions to the Merger" and "REGULATORY MATTERS."
3
<PAGE> 12
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will be a taxable transaction to Stockholders.
Stockholders will generally recognize gain or loss for federal income tax
purposes in an amount determined by the difference between the Per Share Amount
and their tax basis in the Common Stock exchanged therefor. Each holder of
Good LDI Options will generally recognize ordinary income for federal income
tax purposes in an amount equal to the full cash amount paid in respect of such
Good LDI Options in the Merger. For further information, see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES TO STOCKHOLDERS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers of the Company and members of the Board of
Directors will receive economic benefits in the event that the Merger is
consummated, including consideration payable under the Merger Agreement for
shares of Common Stock and Good LDI Options and benefits pursuant to employment
agreements or severance agreements previously entered into between the Company
and certain of such individuals. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
STOCKHOLDERS' AGREEMENTS. The three founders of the Company (each of
whom is a Director of the Company) together control a majority of the voting
power of the outstanding shares of Common Stock. Each of the three founders
has entered into a separate agreement with NationsCredit (collectively, the
"Stockholders' Agreements") to vote the shares of Common Stock controlled by
them in favor of the Merger Agreement and the Merger. See "INTERESTS OF
CERTAIN PERSONS IN THE MERGER--Stockholders' Agreements."
EMPLOYMENT AGREEMENT. In connection with the execution of the Merger
Agreement, Floyd S. Robinson, President and Chief Executive Officer of the
Company, entered into an employment agreement (the "Employment Agreement") with
NationsCredit, effective as of the Effective Time, to serve as President and
Chief Operating Officer of the Surviving Corporation. See "INTERESTS OF
CERTAIN PERSONS IN THE MERGER--Employment Agreement."
APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "Delaware GCL"),
Stockholders who properly demand appraisal prior to the Stockholder vote on the
Merger Agreement, do not vote in favor of approval of the Merger Agreement and
otherwise comply with the requirements of Section 262 of the Delaware GCL will
be entitled to statutory appraisal rights. See "THE SPECIAL MEETING--Appraisal
Rights" and Section 262 of the Delaware GCL, a copy of which is attached hereto
as Appendix C.
MARKET PRICES OF COMMON STOCK
The Common Stock is traded in the over-the-counter market on the
Nasdaq National Market ("Nasdaq") under the symbol LDIC. On February 14, 1996,
the last trading day before the public announcement of the execution of the
Merger Agreement, the reported closing sale price per share of Common Stock was
$3.125. On March 29, 1996, the last full trading day prior to the date of this
Proxy Statement, the reported closing sale price per share of Common Stock was
$4.00. For additional information concerning historical market prices of the
Common Stock, see "MARKET PRICES OF COMMON STOCK."
SELECTED CONSOLIDATED FINANCIAL DATA
Certain selected historical financial data of the Company are set
forth under SELECTED CONSOLIDATED FINANCIAL DATA." That data should be read in
conjunction with the financial statements and related notes incorporated by
reference in this Proxy Statement. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
Attached to this Proxy Statement as Appendices D and E, respectively,
are copies of the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1995 and the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1995.
4
<PAGE> 13
THE SPECIAL MEETING
GENERAL; DATE AND PLACE OF THE SPECIAL MEETING
Each copy of this Proxy Statement mailed to Stockholders is
accompanied by a proxy card furnished in connection with the solicitation of
proxies by the Board of Directors for use at the Special Meeting. The Special
Meeting is scheduled to be held at 10:00 a.m. (local time), on April 29, 1996
at AmeriSuites Cleveland South, 6025 North Rockside Road, Independence, Ohio.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Stockholders will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the Merger and (ii) such
other matters as may properly be brought before the Special Meeting.
The Board of Directors of the Company has determined that the Merger
is fair to, and in the best interests of, the Company and its Stockholders and
has unanimously (with one abstention) approved the Merger Agreement and the
Merger. Mr. Robinson abstained from voting on the Merger Agreement because he
intended to enter into the Employment Agreement with NationsCredit to serve as
President and Chief Operating Officer of the Surviving Corporation in the event
the Merger is consummated. See "THE MERGER--Background of the Merger" and
"--Reasons for Engaging in the Merger" and "INTERESTS OF CERTAIN PERSONS IN THE
MERGER--Employment Agreement."
RECORD DATE AND VOTING
The Board of Directors has fixed the close of business on March 15,
1996 as the Record Date for the determination of the holders of Common Stock
entitled to notice of and to vote at the Special Meeting. Only Stockholders of
record at the close of business on that date will be entitled to vote at the
Special Meeting. At the close of business on the Record Date, there were
6,751,457 shares of Common Stock outstanding and entitled to vote at the
Special Meeting, held by approximately 474 Stockholders of record.
Each holder of Common Stock on the Record Date will be entitled to one
vote for each share held of record. The presence, in person or by proxy, of a
majority of the outstanding shares of Common Stock entitled to be voted at the
Special Meeting is necessary to constitute a quorum thereat. Abstentions
(including broker non-votes) will be included in the calculation of the number
of votes represented at the Special Meeting for purposes of determining whether
a quorum has been achieved.
If the enclosed proxy card is properly executed and received by the
Company in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed proxies with no instructions indicated thereon will be voted FOR
approval and adoption of the Merger Agreement and the Merger.
The Board is not aware of any matters other than that set forth in the
Notice of Special Meeting of Stockholders that may be brought before the
Special Meeting. If any other matters properly come before the Special
Meeting, the persons named in the accompanying proxy will vote the shares
represented by all properly executed proxies on such matters in such manner as
shall be determined by a majority of the Board, except that shares represented
by proxies which have been voted "against" the Merger Agreement and the Merger
will not be used to vote "for" postponement or adjournment of the Special
Meeting for the purpose of allowing additional time for soliciting additional
votes "for" the Merger Agreement and the Merger. See "--Vote Required;
Revocability of Proxies."
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES
SHOULD
5
<PAGE> 14
BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL, WHICH WOULD BE SENT TO STOCKHOLDERS BY THE DISBURSING AGENT AS
SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME.
VOTE REQUIRED; REVOCABILITY OF PROXIES
The affirmative vote of holders of a majority of the outstanding
shares of Common Stock entitled to vote thereon is required to approve and
adopt the Merger Agreement and the Merger. Certain Stockholders, all of whom
are members of the Company's Board of Directors, have agreed with NationsCredit
to vote the shares of Common Stock controlled by them, representing
approximately 50.6% of the outstanding shares of Common Stock, in favor of the
Merger Agreement and the Merger.
Because the required vote of the Stockholders on the Merger Agreement
and the Merger is based upon the total number of outstanding shares of Common
Stock, the failure to submit a proxy card (or to vote in person at the Special
Meeting) or the abstention from voting by a Stockholder (including broker
non-votes) will have the same effect as an "against" vote with respect to
approval and adoption of the Merger Agreement and the Merger.
The presence of a Stockholder at the Special Meeting will not
automatically revoke such Stockholder's proxy. However, a Stockholder may
revoke a proxy at any time prior to its exercise by (i) delivering to Dennis J.
Diemer, Assistant Secretary, LDI Corporation, 4770 Hinckley Industrial Parkway,
Cleveland, Ohio 44109, a written notice of revocation prior to the Special
Meeting, (ii) delivering prior to the Special Meeting a duly executed proxy
bearing a later date or (iii) attending the Special Meeting and voting in
person.
If a quorum is not obtained, or if fewer shares of Common Stock are
voted in favor of approval and adoption of the Merger Agreement and the Merger
than the number required for approval, it is expected that the Special Meeting
will be postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining additional proxies or votes, and, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Special Meeting, except for any proxies which have theretofore effectively
been revoked or withdrawn.
No vote of the shareholder of NationsCredit or shareholders of
NationsBank is required in connection with the Merger Agreement or the Merger.
The obligations of the Company and NationsCredit to consummate the Merger are
subject, among other things, to the condition that the Stockholders approve and
adopt the Merger Agreement and the Merger. See "THE MERGER
AGREEMENT--Conditions to the Merger."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE MERGER.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from
Stockholders. In addition to soliciting proxies by mail, directors, officers
and employees of the Company, without receiving additional compensation
therefor, may solicit proxies by telephone, by telegram or facsimile or in
person. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of shares held of record by such persons, and the Company
will reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
6
<PAGE> 15
APPRAISAL RIGHTS
Under the Delaware GCL, record holders of shares of Common Stock who
follow the procedures set forth in Section 262 and who have not voted in favor
of the Merger Agreement will be entitled to have their shares of Common Stock
appraised by the Delaware Court of Chancery and to receive payment of the "fair
value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court. The following is a summary of
certain of the provisions of Section 262 of the Delaware GCL and is qualified
in its entirety by reference to the full text of such Section, a copy of which
is attached hereto as Appendix C.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of stockholders, as in the case of the
Special Meeting, not less than 20 calendar days prior to the meeting, the
Company must notify each of the holders of Common Stock at the close of
business on the Record Date that such appraisal rights are available and
include in each such notice a copy of Section 262. This Proxy Statement
constitutes such notice. Any Stockholder who wishes to exercise appraisal
rights should review the following discussion and Appendix C carefully because
failure to timely and properly comply with the procedures specified in Section
262 will result in the loss of appraisal rights under the Delaware GCL.
A holder of shares of Common Stock wishing to exercise appraisal
rights must deliver to the Company, before the vote on the approval and
adoption of the Merger Agreement at the Special Meeting, a written demand for
appraisal of such holder's shares of Common Stock. Such demand will be
sufficient if it reasonably informs the Company of the identity of the
Stockholder and that the Stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the Merger Agreement will not constitute
such a demand. In addition, a holder of shares of Common Stock wishing to
exercise appraisal rights must hold of record such shares on the date the
written demand for appraisal is made and must continue to hold such shares
through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to
assert appraisal rights for the shares of Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record fully and correctly, as the holder's name appears on the
stock certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to Dennis J. Diemer,
Assistant Secretary, LDI Corporation, 4770 Hinckley Industrial Parkway,
Cleveland, Ohio 44109, so as to be received before the vote on the approval and
adoption of the Merger Agreement at the Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal
on behalf of a holder of record; however, the agent must identify the record
owner or owners and expressly disclose the fact that, in executing the demand,
the agent is agent for such owner or owners. A record holder such as a broker
who holds Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares as to which appraisal is sought and, where no
number of shares is expressly mentioned, the demand will be presumed to cover
all Common Stock held in the name of the record owner.
Within ten calendar days after the Effective Time, the Company, as the
Surviving Corporation, must send a notice as to the effectiveness of the Merger
to each person who has satisfied the appropriate provisions of Section 262 and
who has not voted in favor of the Merger Agreement. Within 120 calendar days
after the Effective Time, the Company, or any Stockholder entitled to appraisal
rights under Section 262 and who has complied with the foregoing procedures,
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the shares of all such Stockholders. The Company is not
under any obligation, and has no present
7
<PAGE> 16
intention, to file a petition with respect to the appraisal of the fair value
of the shares of Common Stock. Accordingly, it is the obligation of the
Stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 calendar days after the Effective Time, any Stockholder of
record who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statements must be mailed within ten calendar
days after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on
such petition, the Delaware Court of Chancery will determine the Stockholders
entitled to appraisal rights and will appraise the "fair value" of the shares
of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their shares of Common Stock as determined under Section 262 could be more
than, the same as or less than the amount per share that they would otherwise
receive if they did not seek appraisal of their shares of Common Stock. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in the appraisal
proceedings. As described more fully below, Bear Stearns, financial advisor to
the Company, delivered its opinion to the Board of Directors of the Company
that, as of the date of such opinion, the consideration to be received by the
Company's stockholders in the Merger is fair to the stockholders from a
financial point of view. See "THE MERGER--Opinion of Financial Advisor." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. The court will also determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose shares of Common Stock
have been appraised. The costs of the action may be determined by the court
and taxed upon the parties as the court deems equitable. The court may also
order that all or a portion of the expenses incurred by any holder of shares of
Common Stock in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the
shares of Common Stock entitled to appraisal.
The court may require Stockholders who have demanded an appraisal and
who hold Common Stock represented by certificates to submit their certificates
of Common Stock to the court for notation thereon of the pendency of the
appraisal proceedings. If any Stockholder fails to comply with such direction,
the court may dismiss the proceedings as to such Stockholder.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends
or other distributions payable to holders of record of shares of Common Stock
as of a date prior to the Effective Time).
If any Stockholder who demands appraisal of shares under Section 262
fails to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the Delaware GCL, the shares of Common Stock of such holder will be
converted into the right to receive the Per Share Amount in accordance with the
Merger Agreement, without interest. A Stockholder will fail to perfect, or
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 calendar days after the Effective Time. A Stockholder may withdraw
a demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such attempt
to withdraw made more than 60 calendar days after the Effective Time will
require the written approval of the Company. Once a petition for appraisal has
been filed, such appraisal proceeding may not be dismissed as to any
Stockholder without the approval of the court.
8
<PAGE> 17
PARTIES TO THE MERGER
THE COMPANY
The Company was organized in 1972 as Leasing Dynamics, Inc., an Ohio
corporation. In October 1986, LDI Corporation, a Delaware corporation, became
a holding company for Leasing Dynamics, Inc. and certain of its affiliated
corporations. Subsequently, the Company completed an internal realignment
pursuant to which most of its subsidiaries were merged into the Company
pursuant to applicable parent-subsidiary merger statutes. The address of the
Company's principal executive offices is 4770 Hinckley Industrial Parkway,
Cleveland, Ohio 44109. Its telephone number at that address is (216) 661-5400.
During the fiscal year ended January 31, 1994, the Board of Directors
determined the need to commence preparation of a new long-term strategic
business plan for the Company. The plan included the sale or other divestiture
of certain product lines and non-strategic businesses, the consolidation of
facilities and other measures to increase the Company's overall profitability.
During the fiscal year ended January 31, 1995, the Company completed the
strategic realignment, including the sale or divestiture of all non-strategic
businesses, consolidated its Cleveland-based facilities and hired Floyd S.
Robinson as the President and Chief Executive Officer of the Company. Since
that time, the Company has continued to focus on the development of its
previously identified "core" businesses as described below.
The Company's operations have been managed in three product lines:
Leasing Services, Technology Services and PC Rentals. Leasing Services
provides customers with selected high technology and data processing equipment,
telecommunications products, and other capital equipment through sale or lease
transactions. Technology Services provides technical support services,
including system installation, integration, maintenance and other system
support related services both in-house and at customer locations. PC Rentals
provides state-of-the-art personal computer technology to corporate customers
for short-term rentals, normally ranging from one week to one year. See the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995
(a copy of which is attached to this Proxy Statement as Appendix D) for a more
detailed description of the Company's business.
Prior to entering into the Merger Agreement, the Company had
considered the sale of the To Be Sold Businesses and the Picker Joint Venture.
In the Merger Agreement, the Company has agreed to use commercially reasonable
efforts to sell the To Be Sold Businesses prior to the Effective Time. Also in
the Merger Agreement, the obligation of NationsCredit to consummate the Merger
is subject to the Company having sold its general partnership interest in the
Picker Joint Venture. On the date of this Proxy Statement, the Company has
sold the PC Rentals business and expects to consummate the sales of the
Technology Services business and its general partnership interest in the Picker
Joint Venture during April 1996. See "THE MERGER AGREEMENT--Sale of Certain
Businesses; Partnership Interest."
NATIONSCREDIT
NationsCredit is a Delaware corporation and an indirect, wholly owned
subsidiary of NationsBank. NationsCredit provides a broad range of
predominantly commercial financial services primarily in the United States.
NationsBank is a multi-bank holding company registered under the BHCA, was
organized under the laws of the State of North Carolina in 1968 and has as its
principal assets the stock of its subsidiaries. Through its banking and
non-banking subsidiaries, including NationsCredit, NationsBank provides banking
and banking-related services, primarily throughout the Southeast and
Mid-Atlantic states and Texas. On December 31, 1995, NationsBank had $187
billion in assets, making it the third largest banking company in the United
States. NationsCredit's principal executive offices are located at One
Canterbury Green, Stamford, Connecticut 06901-2056, and its telephone number is
(203) 352-4000. NationsBank's principal executive offices are located at
NationsBank Corporate Center, Charlotte, North Carolina 28255, and its
telephone number is (704) 386-5000. Merger Sub is a direct wholly owned
subsidiary of NationsCredit.
9
<PAGE> 18
NationsBank provides a diversified range of banking and certain
non-banking financial services and products through its various subsidiaries.
NationsBank manages its activities through three major business units: the
General Bank, Global Finance and Financial Services.
The Financial Services unit consists of NationsCredit Corporation, a
holding company, NationsCredit Consumer Corporation, primarily a consumer
finance operation, and NationsCredit (formerly named Greyrock Capital Group
Inc. and Nations Financial Capital Corporation). NationsCredit Consumer
Corporation, which has approximately 371 offices located in 34 states, provides
personal, mortgage and automobile loans to consumers and retail finance
programs to dealers. NationsCredit, which has approximately 79 offices located
in 24 states, consists of six divisions that specialize in one or more of the
following commercial financing areas: equipment loans and leasing; loans for
debt restructuring, mergers and acquisitions and working capital; real estate,
golf/recreational and health care financing; and distribution finance to
manufacturers, distributors and dealers.
MERGER SUB
Merger Sub is a direct wholly owned subsidiary of NationsCredit
incorporated for the purpose of entering into the Merger. Pursuant to the
terms of the Merger Agreement, at the Effective Time, Merger Sub will be merged
with and into the Company, with the Company continuing as the Surviving
Corporation and a wholly owned subsidiary of NationsCredit.
THE MERGER
BACKGROUND OF THE MERGER
During the fiscal year ending January 31, 1994, the Board of Directors
of the Company (the "Board") determined the need to commence preparation of a
new long-term strategic business plan for the Company. The plan included the
sale or other divestiture of certain product lines and non-strategic
businesses, the consolidation of facilities and other measures to increase the
Company's overall profitability. As part of this business plan, the Board and
senior management of the Company regularly reviewed the current and future
state of the Company's strategic position and short-term and long-term
prospects. This review included analysis of various methods of providing the
liquidity needed in the Company's business, including consideration of
refinancing existing indebtedness and entering into alliances with strategic
partners.
In July 1995, the Company entered into a new revolving credit and term
loan agreement with its existing lenders. Management believed that cash
generated from operations, borrowings under this facility and the Company's
other financing sources would provide sufficient funds to meet the Company's
reasonably foreseeable liquidity needs. However, the agreement requires
substantial principal amortization and debt financing fee payments, which might
have required that additional liquidity be generated through other sources. As
a result, since the execution of this new credit agreement, the Board, together
with senior management, has continued to explore financing alternatives.
The Company has actively sought lenders who would be willing to
refinance the Company's senior recourse indebtedness. In addition, in October
1995, the Company decided to engage Bear Stearns to assist the Company in
identifying third parties who might be interested in undertaking a strategic
alliance, merger or other business combination involving the Company. With the
assistance of Bear Stearns, the Company prepared a set of characteristics that
would help identify potential partners or acquirors of the Company. These
characteristics included the ability to utilize the Company's existing net
operating losses and other tax attributes, provide access to capital at a lower
cost and realize synergies in certain staff functions. Using these criteria, a
list of candidates was prepared and contact was made, either by Bear Stearns or
by a representative of the Company, with those candidates determined by Bear
Stearns to have a reasonable likelihood of consummating a successful
transaction.
Eight of the parties contacted expressed sufficient interest in the
Company to enter into confidentiality agreements in order to have access to
detailed non-public information about the Company. After receiving the
10
<PAGE> 19
information prepared by the Company and then making requests for additional
information, several of these parties, one of which was NationsCredit, had
face-to-face meetings with senior members of the Company's management team.
During the first two weeks of December 1995, four of these parties
submitted non-binding expressions of interest or letters of intent relating to
an acquisition of the Company. Each of these proposals, including
NationsCredit's, set forth a preliminary estimate of the price to be paid to
the Company's stockholders, subject to adjustment based on the occurrence of
certain events or changes in the Company's financial condition, and subject to
additional information learned in the due diligence process. During this
period, the Company's management continued discussions with each party to
provide additional information and to clarify various terms and conditions in
the proposals.
On December 13, 1995, after a regularly-scheduled Board meeting,
members of the Board met with representatives of Bear Stearns and senior
members of the Company's management to review the four proposals. Each of the
proposals was limited in duration and provided that it would be exclusive, when
accepted. One of the proposals was rejected because the preliminary price
proposed was significantly lower than the others. With respect to the other
proposals, management and the Board decided to continue discussions with those
parties to clarify certain terms and to attempt to increase the prices being
offered.
During the next week, the Company's senior management, representatives
of Bear Stearns and the Company's outside legal counsel held discussions with
the three remaining bidders, providing them with additional information about
the Company and attempting to provide bases for increasing the bids. These
discussions included an in-person meeting between the Company's senior
management and representatives of NationsCredit at the headquarters of
NationsCredit in Stamford, Connecticut. As a result of these discussions, two
of the bidders, including NationsCredit, modified their proposals, and the
third withdrew its proposal after obtaining a greater understanding of the tax
implications of the proposed transaction.
On December 20, 1995, the Board met with representatives of Bear
Stearns, with outside legal counsel in attendance, to review in detail the
remaining two proposals. Members of management made a presentation regarding
the economic terms of the two proposals and the Company's counsel reviewed with
the Board the legal issues presented in the two proposals, including the
regulatory aspects of each. Each of the proposals provided for a range of
consideration being paid, based on a variety of assumptions relating to
refinancing of indebtedness, possible asset sales and changes in the Company's
financial condition and results of operations during the period from the date
of the proposal to the consummation of a transaction. Management reviewed with
the Board the impact of various scenarios on each proposal and the likelihood
of each scenario. As a result of this discussion, the Board directed
management to continue discussions with each party in an attempt to clarify and
perhaps improve the proposals.
Management and Bear Stearns held additional discussions with each
bidder over the next two days and the Board met again on December 22, 1995. At
that meeting, management reviewed further modifications to each proposal and
repeated the analysis from the December 20 meeting under the modified
proposals. The Board reviewed the economic analysis and then asked questions
of management and Bear Stearns as to the extent of due diligence that had been
done by each party and the expected timing of a transaction. The Board also
considered the likelihood that each bidder would eventually consummate a
transaction on the terms contained in its proposal and the probable intentions
of each bidder with respect to the Company's employees.
As a result of these considerations, and after taking into account the
range of prices being offered and other relevant factors, the Board authorized
management to explore further the possibility of a merger with NationsCredit
and the value to be realized in such a combination by stockholders of the
Company. The Board noted that conditions of NationsCredit's proposal included
(i) that the Company agree to pay a termination fee under certain circumstances
if a definitive agreement was not reached, (ii) that Mr. Robinson, the
Company's President and Chief Executive Officer, enter into an employment
agreement with NationsCredit and (iii) that the Company's principal
stockholders enter into agreements with NationsCredit indicating their support
of the transaction. The Board authorized the officers of the Company to
negotiate and enter into an agreement providing for a termination fee and also
expressed
11
<PAGE> 20
its view that the Company would not be authorized to enter into a merger
agreement unless NationsCredit and Mr. Robinson had previously agreed on
an acceptable employment agreement.
On January 3, 1996, the Company and NationsCredit entered into an
agreement with respect to a termination fee. That agreement provided that the
Company would pay NationsCredit a fee of $250,000 if, at any time prior to
February 15, 1996, the Company terminated negotiations with NationsCredit to
proceed with another proposal. Such fee arrangement was superseded by the
Merger Agreement.
On or about January 19, 1996, NationsCredit provided to the Company a
preliminary draft of a merger agreement which set forth a proposed structure
for the transaction, but not the price. Thereafter, until the day the Merger
Agreement was approved by the Board, the Company and NationsCredit, assisted by
their respective counsel, negotiated the proposed structure and other principal
terms of the proposed merger agreement, including the price. During this
period, especially during the first three weeks of January, NationsCredit
continued its due diligence review of the Company, including several meetings
at the Company's headquarters and extensive analysis of the Company's leasing
portfolio and the tax effects of the proposed transaction.
From late January 1996 to the date of approval of the Merger
Agreement, NationsCredit was also engaged in discussions with Mr. Robinson
respecting the terms of his employment arrangement with NationsCredit and with
the Company's three principal stockholders respecting the terms of the
Stockholders' Agreements.
On February 14, 1996, negotiations concluded and NationsCredit
presented to the Company for consideration a definitive Merger Agreement. The
Agreement was considered the same day at a special meeting of the Board. Among
other things, the Company's management and outside legal counsel reviewed with
the Board, and responded to inquiries of the Board regarding: (a) the Per
Share Amount; (b) the treatment of outstanding LDI Options; (c) the conditions
to the consummation of the Merger; (d) the termination provisions and the
termination fee; and (e) alternatives available to the Company. Bear Stearns
then responded to questions from the Board and delivered its opinion to the
effect that the proposed Merger was fair to the Company's stockholders, from a
financial point of view. The Board then approved the Merger Agreement and
authorized management to execute and deliver it.
Following the Board meeting, officers of the Company and NationsCredit
executed the Merger Agreement, NationsCredit and the principal Stockholders
entered into the Stockholders' Agreements, and Mr. Robinson and NationsCredit
entered into the Employment Agreement, the effectiveness of which would be
subject to the consummation of the Merger.
REASONS FOR ENGAGING IN THE MERGER--THE COMPANY
The Board has determined that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the Company and its
stockholders and has approved the Merger Agreement and the Merger. In making
this determination, the Board considered a number of factors, including the
following:
1. The opinion of Bear Stearns to the effect that the Merger was
fair to the Stockholders from a financial point of view;
2. The terms and conditions of the Merger Agreement, which the
Board concluded are advisable and fair to the Company and its stockholders in
light of the nature of the transaction with NationsCredit and which led the
Board to conclude that, in its opinion, there is a high likelihood of the
Merger being consummated;
3. The fact that the Company, with the assistance of Bear
Stearns, went through an extensive process of identifying possible acquirors or
strategic partners and provided significant amounts of non-public information
to parties who expressed an interest in a business combination with the
Company;
12
<PAGE> 21
4. The historical market prices for the Common Stock,
particularly during the last year, including the fact that the Per Share Amount
represented a premium of approximately 31% over the closing price of $3.125 per
share on February 14, 1996, the day on which the Merger Agreement was approved;
5. Information relating to the financial condition, results of
operations and prospects of the Company, including the prospects of the Company
in the absence of a business combination or other strategic transaction;
6. The fact that the Company's principal stockholders had agreed
to enter into the Stockholders' Agreements and to cause all of the shares
controlled by them to be voted to approve the Merger Agreement, which
represented sufficient votes to assure approval of the Merger Agreement; and
7. The regulatory approvals required to consummate the Merger and
the prospects of receiving such approvals.
The Board did not assign relative weight to the above factors or
determine that any factor was of particular importance. Rather, the Board
viewed its determination to approve the Merger Agreement and the Merger as
being based on the totality of the information presented to it and considered
by it.
REASONS FOR ENGAGING IN THE MERGER--NATIONSBANK AND NATIONSCREDIT
The strategy of the NationsBank Board of Directors for building
long-term value for NationsBank shareholders includes, in part, expanding its
Financial Services unit. Pursuant to this strategy, management of NationsBank
and its subsidiaries, including NationsCredit, continually explores and
evaluates acquisition opportunities, both in the banking and non-banking areas.
Consistent with this strategy, after being approached by the Company's
financial advisor in November 1995, NationsBank and NationsCredit conducted
discussions and negotiated an agreement with the Company during January and
February 1996. On February 14, 1996, NationsCredit and the Company entered
into the Merger Agreement.
NationsBank and NationsCredit considered several factors in arriving
at the decision to approve the acquisition of the Company. No relative or
specific weights were assigned to the factors considered. Such factors
included, without limitation, the following:
1. The Merger will improve NationsCredit's commercial equipment
leasing operations; and
2. The Merger will enhance the financial performance of the
Company and customers of the Company will have available to them a broader
range of products and services.
OPINION OF FINANCIAL ADVISOR
The Company retained Bear Stearns by letter agreement dated November
7, 1995, to act as financial advisor and to render a fairness opinion in
connection with the Company's decision to pursue a merger or sale transaction.
Bear Stearns was selected because of its reputation as a nationally recognized
investment banking firm with substantial experience in mergers and acquisitions
and corporate restructurings, and because Bear Stearns previously advised the
Company in restructuring the Company's debts and the sale of the Company's
retail and distribution business. No limitations were imposed by the Company
upon Bear Stearns with respect to the investigations made or procedures
followed by it in rendering its opinions. On February 14, 1996, Bear Stearns
advised the Board that the Merger was fair, from a financial point of view, to
the stockholders of the Company. Bear Stearns confirmed its opinion in writing
as of the date of this Proxy Statement (such opinion, as updated on the date
hereof, being referred to herein as the "Bear Stearns Fairness Opinion").
THE FULL TEXT OF THE WRITTEN BEAR STEARNS FAIRNESS OPINION UPDATED TO
THE DATE HEREOF, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED,
AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B AND
IS INCORPORATED HEREIN BY REFERENCE, AND SHOULD BE READ IN ITS ENTIRETY IN
CONNECTION WITH
13
<PAGE> 22
THIS PROXY STATEMENT. THE SUMMARY OF THE BEAR STEARNS FAIRNESS OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. THE
BEAR STEARNS FAIRNESS OPINION DISCUSSED HEREIN IS NOT A CONDITION TO
CONSUMMATION OF THE MERGER.
The Bear Stearns Fairness Opinion is directed only to the fairness of
the Merger, from a financial point of view, to the stockholders of the Company
and does not constitute a recommendation to any Stockholder as to how such
Stockholder should vote at the Special Meeting.
The consideration to be paid by NationsCredit in the Merger was
determined pursuant to negotiations between the respective representatives and
management of the Company and NationsCredit. Each holder of Common Stock will
receive $4.10 for each share of Common Stock or in aggregate terms,
$28,126,023.70 (including amounts paid on account of LDI Options), subject to
increase or decrease as described in the Merger Agreement. The $4.10 price per
share represents a 43% premium over the closing price of the Common Stock of
$2-7/8 on January 24, 1996, one week prior to the public announcement that the
Company was in discussions regarding a possible sale.
For purposes of rendering the Bear Stearns Fairness Opinion, Bear
Stearns: (i) reviewed this Proxy Statement in substantially the form to be
sent to Stockholders, including a copy of the Merger Agreement; (ii) reviewed
the Company's Annual Reports on Form 10-K for the fiscal years ended January
31, 1994 and 1995, and its Quarterly Reports on Form 10-Q for the periods ended
April 30, July 31 and October 31, 1995; (iii) reviewed certain operating and
financial information, including projections, provided to Bear Stearns by
management relating to the Company's business and prospects; (iv) met with
certain members of the Company's senior management to discuss operations,
historical financial statements, regulatory environment and future prospects,
including negotiations with the Company's banks to restructure its debt; (v)
visited the Company's facilities in Cleveland, Ohio; (vi) reviewed the
historical stock price and trading volume of the Common Stock; (vii) reviewed
publicly available financial data and stock market performance data of publicly
traded companies which Bear Stearns deemed generally comparable to the Company;
and (viii) conducted such other studies, analyses, inquiries and investigations
as Bear Stearns deemed appropriate.
In conducting its review and arriving at and updating the Bear Stearns
Fairness Opinion, Bear Stearns relied upon and assumed the accuracy and
completeness of the financial and other information regarding the Company
provided to Bear Stearns by the Company or publicly available, and Bear Stearns
did not independently verify such information. With respect to the Company's
projected financial results, Bear Stearns assumed that such results have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Company as to the expected future
performance of the Company. Bear Stearns did not assume any responsibility for
the information or projections provided to Bear Stearns and further relied upon
the assurances of the management of the Company that they were unaware of any
facts that would make the information or projections provided to Bear Stearns
incomplete or misleading. In arriving at its opinion, Bear Stearns did not
perform or obtain any independent appraisal of the assets of the Company.
The following is a summary of the analysis performed by Bear Stearns
in connection with its opinion rendered on February 14, 1996 (which are
substantially the same types of analyses performed by Bear Stearns in
connection with the updated Bear Stearns Fairness Opinion):
STOCK TRADING ANALYSIS. Bear Stearns reviewed and analyzed the
historical trading prices and volume for the shares of Common Stock on a weekly
basis from March 20, 1992 to February 2, 1996. Bear Stearns also compared the
historical trading prices of the Common Stock and certain companies with
operations that for purposes of analysis may be considered similar to the
Company, also on a weekly basis from March 20, 1992 to February 2, 1996 (the
"Peer Company Composite Index"). The Peer Company Composite Index is composed
of the following companies: Amplicon, Inc., Comdisco, Inc., DVI, Inc., and the
FINOVA Group Inc. (the "Peer Companies"). The Common Stock significantly
underperformed the Peer Company Composite Index during the comparison period (a
total return of -74% for the Company, an average total return of 108% for the
Peer Company Composite Index). The Company did not close above $4.10 at any
date after October 27, 1995.
14
<PAGE> 23
COMPARABLE COMPANY ANALYSIS. Using publicly available information,
Bear Stearns compared the financial performance and stock market valuation of
the Company with the Peer Companies. Indications of such financial performance
and stock market valuation included profitability (return on average assets)
and return on average equity for the latest twelve month period (-4.95% and
- -34.76%, respectively, for the Company, a median of 1.78% and 12.69%,
respectively, for the Peer Companies); the ratio of price to earnings for the
latest twelve month period (not meaningful for the Company because of net
losses, a median of 13.86x for the Peer Companies); the ratio of price to book
value (.49x for the Company, a median of 1.80x for the Peer Companies); and the
ratio of price to revenues for the latest twelve months (.17x for the Company,
a median of 1.30x for the Peer Companies). These ratios are based upon the
latest publicly available financial statements, October 31, 1995 for the
Company and September 30, 1995 for the Peer Companies, and closing stock price
information as of February 8, 1996.
ANALYSIS OF MANAGEMENT FORECASTS. Bear Stearns reviewed certain
internal financial forecasts prepared by the management of the Company,
including a liquidation analysis prepared as of January 31, 1995. Such
forecasts showed continued negative financial results, including net losses and
declining book value.
Bear Stearns' opinion on February 14, 1996 and the updated Bear
Stearns Fairness Opinion were based solely upon the information available to it
and economic, market and other conditions as they existed as of the dates of
such opinions; events occurring thereafter could materially affect the
assumptions used in preparing the opinions.
In connection with rendering its opinion on February 14, 1996 and the
updated Bear Stearns Fairness Opinion, Bear Stearns performed a variety of
financial analyses. The evaluation of the fairness, from a financial point of
view, is a subjective one based on the experience and judgment of Bear Stearns,
and not merely the result of mathematical analysis of financial data.
Accordingly, Bear Stearns believes that its analyses must be considered as a
whole and that not considering all such analyses and factors could create an
incomplete view of the process underlying the opinion. In its analyses, Bear
Stearns made numerous assumptions with respect to business, market, monetary
and economic conditions, industry performance, business and economic
conditions, and other matters, many of which are beyond Bear Stearns' and the
Company's control. Any estimates contained in Bear Stearns' analyses are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than such estimates. No company used in
the above analyses as a comparison is identical to the Company. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which the Company is
being compared. The analyses performed by Bear Stearns are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Bear Stearns' analysis of the fairness, from a
financial point of view, of the Merger to the Company's stockholders. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Based upon these analyses, Bear Stearns has delivered its opinion that
the Merger is fair, from a financial point of view, to the stockholders of the
Company.
FEES. In a letter agreement dated November 7, 1995, the Company
retained Bear Stearns to act as financial advisor in connection with a
potential merger or sale transaction. Bear Stearns will receive $693,780 for
its role in the Merger, including rendering its opinion. In addition, the
Company has agreed to reimburse Bear Stearns for its reasonable out-of-pocket
costs and expenses incurred in connection with the services rendered to the
Company pursuant to this letter agreement. Pursuant to the letter agreement,
the Company has agreed to indemnify Bear Stearns, its affiliates and their
respective partners, directors, officers, agents, consultants and employees and
controlling persons against certain expenses and liabilities, including
liabilities under the federal securities laws.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
attached hereto as Appendix A and which is incorporated by reference herein.
All references to and summaries of the Merger Agreement in this
15
<PAGE> 24
Proxy Statement are qualified in their entirety by reference to the Merger
Agreement. Stockholders are urged to read the Merger Agreement carefully and in
its entirety.
GENERAL
In the Merger, the purchase price for the Common Stock will be $4.10
per share (the "Per Share Amount") and the consideration for the cancellation
of the LDI Options (as defined below) will be an amount equal to (x) the
difference between the Per Share Amount and the exercise prices of the Good LDI
Options (as defined below) multiplied by (y) the respective number of shares of
Common Stock represented thereby, resulting in aggregate consideration payable
by NationsCredit under the Merger Agreement of $28,126,023.70 (the "Purchase
Price"), subject to adjustment as described below. "Good LDI Options" means
those LDI Options with respect to which the exercise price is less than the Per
Share Amount immediately prior to the Effective Time.
The Per Share Amount was calculated based on assumptions as to the
number of outstanding shares of Common Stock and Good LDI Options. In the
event that these assumptions are not correct or become incorrect, an
appropriate revised Per Share Amount will be calculated, with any fractional
cents per share of Common Stock rounded to the nearest whole cent. The
Purchase Price will be appropriately reduced upon the termination of any Good
LDI Options, but will not be increased if additional Good LDI Options are
granted.
In the event that the Company is able to obtain additional concessions
from one or more of its recourse lenders, in addition to those contemplated by
the Merger Agreement, such that the amount of the discount involved in
discharging all of the Company's recourse indebtedness (including certain fees
and expenses) at the Effective Time is greater than contemplated by the Merger
Agreement, then the Purchase Price will be increased by 30% of the amount of
such reduction and an appropriate adjustment will be made to the Per Share
Amount.
EFFECTIVE TIME
The Merger will become effective on the date and at the time on which
a properly executed Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware (the "Effective Time"). Unless otherwise
mutually agreed by NationsCredit and the Company, the Effective Time will occur
on or before the fifth business day following the last to occur of (i) the date
of approval of the Merger by the Federal Reserve Board, (ii) the effective date
of the last order, approval or exemption of any other federal or state
regulatory agency approving or exempting the Merger if such action is required,
(iii) the expiration of all required waiting periods after the filing of all
notices to all federal or state regulatory agencies required for consummation
of the Merger, and (iv) the date of the Special Meeting at which Stockholders
approve and adopt the Merger Agreement and the Merger.
THE MERGER
The Merger Agreement provides that, subject to the approval and
adoption of the Merger Agreement and the Merger by the Stockholders, approval
by the Federal Reserve Board and compliance with certain other covenants and
conditions, Merger Sub, a direct wholly owned subsidiary of NationsCredit, will
be merged with and into the Company, at which time the separate corporate
existence of Merger Sub will cease and the Company will continue as the
Surviving Corporation. Following consummation of the Merger, the Company, as
the Surviving Corporation, will be a wholly owned subsidiary of NationsCredit.
As a result of the Merger, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub will vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub will become the debts, liabilities and duties of the Surviving Corporation.
DIRECTORS AND OFFICERS; GOVERNING DOCUMENTS. At the Effective Time,
the directors of Merger Sub immediately prior to the Effective Time will become
the directors, and the officers of the Company immediately prior to the
Effective Time will become the officers, of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified, as the
case may be. At the Effective Time, the Certificate of
16
<PAGE> 25
Incorporation and the By-Laws of Merger Sub, as in effect immediately prior to
the Effective Time, will be the Certificate of Incorporation and By-Laws of
the Surviving Corporation until duly amended.
CONVERSION OF SECURITIES. Subject to the provisions of the Merger
Agreement, at the Effective Time: (i) each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall remain
outstanding as a share of common stock of the Surviving Corporation, (ii) each
share of Common Stock of the Company held by the Company or its subsidiaries or
by NationsCredit shall be canceled and retired and no consideration shall be
issued in exchange therefor, (iii) each share of Common Stock of the Company
(other than the shares described in clause (ii) of this sentence and other than
Dissenting Shares) shall be converted into and become the right to receive the
Per Share Amount, and (iv) each Good LDI Option shall be converted into and
become the right to receive in cash an amount equal to (x) the difference
between the Per Share Amount and the exercise prices of the Good LDI Options
multiplied by (y) the respective number of shares of Common Stock represented
thereby.
EXCHANGE PROCEDURES. NationsCredit will designate an agent to act as
Disbursing Agent for the payment of the applicable merger consideration upon
surrender of certificates representing ownership of shares of Common Stock
("Certificates") or Good LDI Options. It is expected that, pursuant to an
agreement between NationsCredit and the Disbursing Agent, NationsCredit or
Merger Sub will make available to the Disbursing Agent from time to time, funds
in amounts necessary to make the payments to Stockholders and holders of Good
LDI Options pursuant to the Merger Agreement. As soon as practicable after the
Effective Time, the Disbursing Agent will mail a notice and letter of
transmittal to each Stockholder (other than holders of Dissenting Shares) and
each holder of Good LDI Options with instructions for the surrender of
Certificates or LDI Options for exchange into the applicable merger
consideration. Each holder of Certificates, upon surrender of a Certificate
for cancellation to the Disbursing Agent, together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to the instructions set forth in the letter of transmittal,
will be entitled to receive in respect thereof cash in an amount equal to the
product of (i) the number of shares of Common Stock represented by such
Certificate and (ii) the Per Share Amount, and the Certificate so surrendered
shall forthwith be canceled. No interest will be paid or accrued on the
applicable merger consideration payable.
If payment is to be made to a person other than the person in whose
name a surrendered Certificate is registered, it will be a condition to such
payment that the Certificate so surrendered be properly endorsed or otherwise
in proper form for transfer, and that the person requesting such payment will
pay any transfer or other taxes which may be required by reason of such payment
to a person other than the registered holder of the surrendered Certificate, or
will have established to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered, after the
Effective Time, each Certificate will represent only the right to receive upon
such surrender the applicable merger consideration, determined as of the
Effective Time, without interest thereon.
NationsCredit will be entitled to deduct and withhold from the
applicable consideration payable pursuant to the Merger Agreement such amounts
as NationsCredit is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent
that such amounts are so withheld by NationsCredit, such withheld amounts will
be treated for all purposes of the Merger Agreement as having been paid to the
holder of the shares of Common Stock or Good LDI Options in respect of which
such deduction and withholding was made by NationsCredit.
PAYMENTS TO HOLDERS OF GOOD LDI OPTIONS. At the Effective Time, all
rights with respect to shares of Common Stock issuable pursuant to stock
options or stock appreciation rights granted by LDI under various employee
plans of LDI or otherwise (collectively, "LDI Options") which are outstanding
immediately prior to the Effective Time will be canceled and each holder of
Good LDI Options will be paid by NationsCredit, in accordance with the
procedures set forth in the Merger Agreement (and described above), for such
Good LDI Options an amount in cash, without interest, determined by multiplying
(i) the difference between the Per Share Amount and the
17
<PAGE> 26
applicable exercise price of such Good LDI Options by (ii) the number of
shares of Common Stock covered by such Good LDI Options immediately prior to
the Effective Time.
CANCELLATION AND RETIREMENT OF COMMON STOCK. All shares of Common
Stock, when converted as provided in the Merger Agreement, will automatically
be canceled and retired and will cease to exist, and each holder of a
Certificate previously representing any such shares will cease to have any
rights with respect thereto, except the right to receive the Per Share Amount
or as otherwise provided by law. At the Effective Time, the stock transfer
books of the Company will be closed, and there will be no further registration
of transfers of shares on the records of the Company.
Any portion of the funds provided by NationsCredit or Merger Sub which
remains undistributed to holders of shares of Common Stock or holders of Good
LDI Options six months after the Effective Time will be delivered to
NationsCredit, and any holders of such shares of Common Stock or Good LDI
Options who have not complied with the terms of the Merger Agreement and the
instructions of the letter of transmittal may thereafter look only to
NationsCredit for payment of any amounts to which they are entitled in
connection with the Merger.
SALE OF CERTAIN BUSINESSES; PARTNERSHIP INTEREST
In the Merger Agreement, the Company has agreed to use commercially
reasonable efforts to sell each of the To Be Sold Businesses as an ongoing line
of business prior to the Effective Time for consideration and pursuant to
documentation satisfactory to NationsCredit. The Company has agreed that any
net cash proceeds received from such sale will be used to reduce its recourse
indebtedness.
The Company's Technology Services operation provides hardware and
software maintenance and other support services for large, medium and small
computer systems, personal computers, point-of-sale equipment, and
telecommunications equipment produced by various manufacturers. In addition,
this operation provides advanced engineering support and high-technology remote
diagnostic and repair services. Technology Services offers its maintenance
services both on-site at customer locations and at its depot maintenance
facility in Cleveland. The Company's PC Rentals operation provides short and
intermediate term rentals of personal computers, peripherals and software to
corporate customers nationwide. PC Rentals rents to its customers desktop and
notebook computers and printers sourced from leading manufacturers. Other
products rented include scanners, plotters, data projection equipment, CD ROM,
large screen monitors and external hard drives. See the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1995 (a copy of which is
attached to this Proxy Statement as Appendix D) for additional information
regarding the Technology Services and PC Rentals lines of business.
On March 25, 1996, the Company entered into a definitive agreement
with Electro Rent Corporation ("Electro Rent") pursuant to which Electro Rent
agreed to purchase substantially all of the assets, and assume certain
liabilities, of the Company's PC Rentals business. The sale to Electro Rent
was consummated on March 29, 1996.
On February 8, 1996, the Company entered into a letter of intent with
DecisionOne Corporation ("DecisionOne") pursuant to which DecisionOne agreed in
principle to purchase substantially all of the assets, and assume certain
liabilities, of the on-site maintenance portion of the Company's Technology
Services business. The Company expects to enter into a definitive agreement
with DecisionOne and to consummate such sale during April 1996.
The Company has received an offer from a third party to purchase
substantially all of the assets, and assume certain liabilities, of the depot
maintenance portion of the Company's Technology Services business. The Company
expects to enter into a definitive agreement and to consummate the sale of such
assets during April 1996.
Pursuant to the Merger Agreement, the obligation of NationsCredit to
consummate the Merger is subject to the satisfaction of certain conditions,
including the condition that the Company shall have sold its general
partnership interest in the Picker Joint Venture for a net consideration of at
least the sum of (x) $4,379,000 and (y) any increase in the book value of the
Company's interest in the Picker Joint Venture over the book value on
18
<PAGE> 27
October 31, 1995, pursuant to agreements reasonably satisfactory to
NationsCredit. In connection with the sale of the Picker Joint Venture, all
indebtedness and other obligations of the Picker Joint Venture to the Company or
any of its subsidiaries shall have been satisfied. In computing such net
consideration, a reasonable valuation of the ongoing liabilities of the Company
respecting such sale and termination and severance costs respecting any
redundant employees and write-downs of redundant assets shall be deducted from
the net consideration amount required by the Merger Agreement.
The Company is negotiating with AT&T Capital Leasing Services, Inc.
("AT&T") for the sale to AT&T of the Company's general partnership interest in
the Picker Joint Venture. In connection with the sale, certain obligations of
the Picker Joint Venture will be assumed by a new company to be formed by AT&T
and Picker International, Inc. The Company expects to enter into a definitive
agreement and to consummate the sale of such interest by April 15, 1996.
Each of the sales of the To Be Sold Businesses and the Company's
interest in the Picker Joint Venture is a sale of such business as on ongoing
line of business. Aggregate proceeds from such sales are expected to be
approximately $10 million. These proceeds, which are subject to adjustment
based on future events, are approximately equal to the book value of the assets
being sold, net of disposition costs. Such disposition costs will include
employee severance costs, facility lease termination costs and write-offs of
certain redundant assets relating to the businesses being sold.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of the
Company regarding: the due organization, good standing and authority of the
Company and its subsidiaries to conduct business and own, lease and operate
their properties; the capitalization of the Company and its subsidiaries; the
authority of the Company to enter into the Merger Agreement, subject to
Stockholder approval; necessary governmental and other consents and approvals;
the absence of conflict between transactions contemplated by the Merger
Agreement and the Company's charter documents, agreements, documents and laws
and regulations applicable to the Company or its subsidiaries; repayment of the
recourse senior indebtedness and subordinated indebtedness of the Company; the
business conducted by the Company and its subsidiaries, the ownership by the
Company and its subsidiaries of their respective properties, and liens on such
properties; the absence of certain environmental hazards and conditions on such
properties; the Company's lease portfolio, related equipment and material
contracts; compliance with applicable law; the absence of certain litigation,
claims and orders; employment matters relating to employees of the Company and
its subsidiaries; certain matters relating to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); insurance matters; the absence of
contracts or agreements that would be altered, terminated or canceled as a
result of, or otherwise affected by, the Merger and the transactions
contemplated by the Merger Agreement; the conduct of business in the ordinary
course and the absence of certain events and transactions since October 31,
1995; litigation, claims and proceedings pending or threatened by or against
the Company or its subsidiaries; the engagement of brokers and financial
advisors; corporate governing documents of the Company and its subsidiaries;
guaranties by the Company of payment or performance of obligations of any other
entity; the accuracy and truthfulness of disclosure by the Company and its
subsidiaries to NationsCredit and in this Proxy Statement and to any other
regulatory authority; conflicts of interest; bank accounts and other accounts
and safe deposit boxes maintained by the Company and its subsidiaries and
powers of attorney; intellectual property of the Company and its subsidiaries;
delivery to NationsCredit of documents filed with or sent to the SEC by the
Company and the preparation of financial statements of the Company in
accordance with generally accepted accounting principles consistently applied,
except as otherwise disclosed; the absence of state anti-takeover laws or
contractual provisions applicable to the Company or its subsidiaries which
adversely affect the consummation of the Merger; derivatives contracts; the
absence of undisclosed material liabilities; Stockholder vote required to
approve the Merger Agreement and the Merger; pending commitments of the Company
and its subsidiaries; taxes, including the filing of tax returns and the
payment of taxes; and the absence of reissuance or repricing of LDI Options
since July 31, 1995.
The Merger Agreement also includes representations and warranties of
NationsCredit regarding: the due organization, good standing and authority of
NationsCredit to conduct business and own, lease and operate its
19
<PAGE> 28
properties; the authority of NationsCredit to enter into the Merger Agreement;
necessary governmental and other consents and approvals; the absence of
litigation seeking to enjoin or prevent the consummation of the Merger; the
engagement of brokers and financial advisors; the absence of contracts or
agreements that would be altered, terminated or canceled as a result of, or
otherwise affected by, the Merger and the transactions contemplated by the
Merger Agreement; the accuracy of certain information provided to the Company by
NationsCredit for inclusion in this Proxy Statement; and financing of the
Purchase Price.
CONDUCT OF THE BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed as to itself
and its subsidiaries that until the Effective Time, except as expressly
permitted or contemplated by the Merger Agreement, the Company and its
subsidiaries will conduct their respective businesses in the ordinary course
consistent with past practice, and the Company will not, nor will it permit any
of its subsidiaries to: (i) incur any indebtedness for borrowed money other
than in the ordinary course of business consistent with past practice; (ii)
adjust, split, combine or reclassify, reissue or re-price any capital stock or
warrant; (iii) pay any dividend or make any other distribution in respect of
its capital stock; (iv) grant any additional stock options or warrants or issue
any capital stock; (v) sell, transfer or mortgage properties or assets outside
the ordinary course of business consistent with past practice (except in
connection with the To Be Sold Businesses and the Picker Joint Venture); (vi)
make any equity investment in any person; (vii) enter into certain transactions
or take certain actions involving more than specified threshold amounts; (viii)
increase employee compensation, except for the granting of periodic raises in
amounts and otherwise in accordance with past practice; (ix) settle any claim,
action or proceeding in excess of a specified threshold amount except in the
ordinary course of business, consistent with past practice; (x) amend its
Certificate of Incorporation or By-Laws; (xi) fail to maintain certain benefit
plans or timely make required contributions or accruals; (xii) issue any
additional shares of capital stock of the Company or its subsidiaries other
than shares of Common Stock issued pursuant to LDI Options; (xiii) materially
change its investment securities portfolio; or (xiv) take any action that is
likely to result in any representation or warranty of the Company in the Merger
Agreement becoming untrue or in any of the conditions to the Merger not being
satisfied.
NO SOLICITATION
Pursuant to the Merger Agreement, the Company has agreed that prior to
the date of the Special Meeting, neither it nor any of its directors, officers,
employees, agents or representatives will solicit, encourage or respond to any
inquiries or proposals by any other person (including the furnishing of
non-public information) in connection with any proposal or inquiry involving a
potential acquisition of the stock or the assets of the Company, whether by
merger, purchase of securities or assets, tender offer or otherwise, other than
any proposal or inquiry relating only to one or more of the To Be Sold
Businesses or the Picker Joint Venture and except in certain cases if the Board
of Directors of the Company is advised by counsel to the Company that the
failure to deliver information may constitute a breach of its fiduciary duties.
EMPLOYEE MATTERS; EMPLOYEE BENEFIT PLANS
Pursuant to the Merger Agreement, as of the Effective Time or
thereafter, NationsCredit will cause the Surviving Corporation's employees to
be employed on terms and conditions (including benefits) which are
substantially equivalent to those generally afforded to other employees holding
similar positions with NationsCredit. NationsCredit will provide the Surviving
Corporation's employees with credit for service with the Company or its
subsidiaries prior to the Effective Time for purposes of determining their
eligibility to participate and their vesting under the qualified plans of
NationsCredit and for purposes of determining their eligibility to participate
and their satisfaction of any waiting periods or pre-existing conditions
limitations for benefits under the medical, life, disability, vacation pay and
similar programs of NationsCredit. Notwithstanding the foregoing, such prior
service with the Company and its subsidiaries will be recognized under certain
post-retirement medical benefits plans for purposes of eligibility only, but
not for purposes of determining the amount of certain benefits under such
plans.
20
<PAGE> 29
CONDITIONS TO THE MERGER
BOTH PARTIES. Pursuant to the Merger Agreement, the respective
obligations of NationsCredit and the Company to effect the Merger are subject
to the satisfaction or waiver of certain conditions, including the following,
at or prior to the Effective Time: (i) the representations and warranties made
by the other party in the Merger Agreement being true and correct in all
material respects as though made at the Effective Time (as to the Company and
its subsidiaries, "material" is defined for this purpose to refer to matters
that, if reasonably quantifiable, would result in an aggregate pre-tax change
in financial condition of more than $2,500,000); (ii) the absence of any
pending action, suit or proceeding by any governmental authority or
administrative agency that seeks to restrain, prohibit or invalidate the
transactions contemplated by the Merger Agreement; (iii) the absence of any
court or other order that restrains or enjoins such transactions; (iv) the
receipt of all approvals, consents and determinations of governmental agencies
or other parties necessary to permit the Merger to occur in accordance with the
Merger Agreement, including, without limitation, the approval of the Federal
Reserve Board; and (v) the approval and adoption by the Stockholders of the
Merger Agreement and the Merger.
NATIONSCREDIT. Pursuant to the Merger Agreement, the obligations of
NationsCredit to effect the Merger are also subject to the satisfaction or
waiver of certain additional conditions, including the following, at or prior
to the Effective Time: (i) the absence of any court or other order that
materially limits the ability of NationsCredit to exercise full rights of
ownership over the Common Stock or a material portion of the assets and
business of the Company; (ii) not later than five days prior to the Effective
Time, the Company shall have delivered its audited year end financial
statements for the year ended January 31, 1996 to NationsCredit; (iii) the
Company shall have sold its interest in the Picker Joint Venture for not less
than the net consideration specified in the Merger Agreement; (iv) the Company
shall be able to pay or otherwise realize upon its note from MRK Computers
Systems, Ltd. in full promptly after the Effective Time with proceeds of the
collateral held by it therefor; and (v) holders of not more than 15% of the
outstanding shares of Common Stock shall have properly exercised and perfected
appraisal rights under the Delaware GCL with respect to the Merger.
TERMINATION
The Merger Agreement may be terminated, and the Merger abandoned, at
any time prior to the Effective Time, either before or, if applicable, after
its approval by the Stockholders, as follows: (i) by mutual written consent of
the Board of Directors of each of NationsCredit and the Company; (ii) by either
NationsCredit or the Company if (A) the Effective Time has not occurred on or
before July 1, 1996, (B) a court of competent jurisdiction shall have issued an
order or ruling permanently enjoining or otherwise prohibiting the Merger and
such order or other ruling shall have become final and nonappealable, (C) the
Stockholders fail to approve the Merger at the Special Meeting, or (D) the
conditions to such party's obligation to effect the Merger are not satisfied
(see "--Conditions to the Merger"); or (iii) by NationsCredit if the Federal
Reserve Board has denied approval of the Merger and such denial has become
final and nonappealable or if the Federal Reserve Board has approved the Merger
subject to conditions that in the judgment of NationsCredit would restrict it
or its affiliates in their business activities or otherwise be materially
burdensome to NationsCredit or its affiliates.
TERMINATION FEE AND EXPENSES
TERMINATION FEE. The Merger Agreement provides that if (i) it is
terminated (A) by NationsCredit or the Company because the Stockholders do not
approve and adopt the Merger Agreement and the Merger at the Special Meeting or
(B) by NationsCredit if certain other conditions to its obligations are not
satisfied on the date that the Effective Time is scheduled to occur, and (ii)
an Acquisition Event (as defined below) is either agreed to in the six-month
period following the date of termination or is consummated in the one-year
period following the date of termination, then the Company will pay to
NationsCredit on demand a termination fee of $1,000,000. "Acquisition Event"
means any of the following, other than a sale of any or all of the To Be Sold
Businesses or the Company's interest in the Picker Joint Venture: (i) any
person or group (as defined for purposes of the Exchange Act) other than
NationsCredit or its affiliates, acquires, by tender offer, exchange offer or
otherwise, beneficial ownership of 50% or more of the voting power of the
equity securities of the Company or any of its subsidiaries; or (ii) the
Company
21
<PAGE> 30
or any of its subsidiaries consummates a transaction, the effect of which is
to (A) effect a merger, consolidation, business combination or sale of
substantially all assets of the Company (on a consolidated basis) or similar
transaction involving the Company, (B) sell, lease or otherwise dispose of
assets representing 50% or more of the consolidated assets of the Company and
its subsidiaries, or (C) issue, sell or otherwise dispose of (other than by
means of a widely dispersed public offering) securities representing 50% or
more of the voting power of the equity securities of the Company.
EXPENSES. The Merger Agreement provides that each of NationsCredit
and the Company will pay its own expenses incident to the origination,
negotiation and execution of the Merger Agreement and the consummation of the
Merger, including, without limitation, all legal and accounting fees.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended only by a written
instrument executed by the parties to the Merger Agreement, and that
performance by a party thereunder may be waived, or the time for such
performance extended, only by a writing signed by the party granting such
waiver or extension.
REGULATORY MATTERS
SUPERVISION AND REGULATION
GENERAL. As a registered bank holding company, NationsBank is subject
to the supervision of, and to regular inspection by, the Federal Reserve Board.
In addition to banking laws, regulations and regulatory agencies, NationsBank
and its subsidiaries and affiliates are subject to various other laws and
regulations and supervision and examination by other regulatory agencies, all
of which directly or indirectly affect NationsBank's operations, management and
ability to make distributions. The following discussion summarizes certain
aspect of those laws and regulations that affect the Merger.
The activities of NationsBank, and those of companies which it
controls or in which it holds more than 5% of the voting stock, are limited to
banking or managing or controlling banks or furnishing services to or
performing services for its subsidiaries, or any other activity which the
Federal Reserve Board determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In making
such determinations, the Federal Reserve Board is required to consider whether
the performance of such activities by a bank holding company or its
subsidiaries can reasonably be expected to produce benefits to the public such
as greater convenience, increased competition or gains in efficiency that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. Generally, bank holding companies, such as NationsBank, are
required to obtain prior approval of the Federal Reserve Board to engage in any
new activity not previously approved by the Federal Reserve Board or to acquire
more than 5% of any class of voting stock of any company.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. In 1995, several bills were
introduced in Congress that would have the effect of broadening the securities
underwriting powers of bank holding companies and possibly permitting bank
holding companies to engage in nonfinancial activities. The likelihood and
timing of any such proposals or bills being enacted and the impact they might
have on NationsBank and its subsidiaries cannot be determined at this time.
CAPITAL AND OPERATIONAL REQUIREMENTS. The Federal Reserve Board, the
Office of the Comptroller of the Currency (the "Comptroller") and the Federal
Deposit Insurance Corporation have issued substantially similar risk-based and
leverage capital guidelines applicable to United States banking organizations.
In addition, those regulatory agencies may from time to time require that a
banking organization maintain capital above the minimum levels, whether because
of its financial condition or actual or anticipated growth.
22
<PAGE> 31
The Federal Reserve Board risk-based capital guidelines define a
two-tier capital framework. Tier 1 capital consists of common and qualifying
preferred shareholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of subordinated and other qualifying debt, and the
allowance for credit losses up to 1.25% of risk-weighted assets. The sum of
Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries
represents qualifying total capital, at least 50% of which must consist of Tier
1 capital. Risk- based capital ratios are calculated by dividing Tier 1 and
total capital by risk-weighted assets. Assets and off-balance sheet exposures
are assigned to one of four categories of risk-weights, based primarily on
relative credit risk. The minimum Tier 1 capital ratio is 4% and the minimum
total capital ratio is 8%. NationsBank's Tier 1 and total risk-based capital
ratios under these guidelines at December 31, 1995 were 7.24% and 11.58%,
respectively.
FEDERAL RESERVE BOARD; STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
The Merger is subject to prior approval by the Federal Reserve Board
under the BHCA, which approval has been received and is acceptable to
NationsBank. NationsBank will take other appropriate action with respect to
any requisite approvals or other action of any governmental authority. The
Merger Agreement provides that the obligation of each of NationsCredit and the
Company to consummate the Merger is conditioned upon the receipt of all
requisite regulatory approvals, including the approval of the Federal Reserve
Board and the absence of any injunction against the Merger. NationsBank,
NationsCredit and the Company are not aware of any governmental approvals or
actions that may be required for consummation of the Merger other than from the
Federal Reserve Board. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance, however, that any such approval or action, if needed, could be
obtained and would not be conditioned in a manner that would cause the parties
to abandon the Merger.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCES THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER
AGREEMENT. SEE "THE MERGER AGREEMENT--CONDITIONS TO THE MERGER."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Company's management and of the Board of
Directors will receive economic benefits as a result of the Merger and may have
other interests in the Merger. The Board of Directors was aware of these
interests and considered them along with the other matters described above
under "THE MERGER--Reasons for Engaging in the Merger --The Company" and
"--Background of the Merger."
STOCKHOLDERS' AGREEMENTS. The three founders of the Company (each of
whom is a director of the Company), Robert S. Kendall, Michael R. Kennedy and
Thomas A. Cutter, together control a majority of the voting power of the
outstanding shares of Common Stock and have entered into the Stockholders'
Agreements pursuant to which each has agreed to vote the shares of Common Stock
controlled by them in favor of the Merger Agreement and the Merger. Pursuant
to the Stockholders' Agreements, each of Mr. Kendall, Mr. Kennedy and Mr.
Cutter agreed that, at the Special Meeting or at any other meeting of
Stockholders held prior to the Release Date (as defined below), each will vote,
or cause to be voted, in favor of the Merger Agreement and the Merger, all of
the shares of Common Stock as to which each is the beneficial owner (the
"Covered Shares") and any additional shares of Common Stock that any of them
may acquire (the "Additional Shares"). Furthermore, each has agreed that at
any meeting of Stockholders held prior to the Release Date to consider any
other merger proposal or proposal for the sale of assets, or to take action to
nullify or prevent the Merger, all Covered Shares and any Additional Shares
will be voted against such proposal or action. For purposes of the
Stockholders' Agreements, the "Release Date" is the earliest of (i) the date on
which the Merger Agreement is terminated in accordance with its terms, (ii) the
day following the date Stockholders vote on the Merger, and (iii) June 30,
1996.
23
<PAGE> 32
PAYMENTS RELATING TO CHANGE IN CONTROL. Upon the later of the
Effective Time or repayment in full of the Company's currently existing
recourse indebtedness, amounts payable under severance agreements with the
Company's founders will become payable in full, with payments not otherwise
then due discounted to present value at the rate of 8% per annum and payments
previously due and deferred bearing interest at the rate of 8% per annum.
Assuming a payment date of April 30, 1996, the Company expects that such
payments would amount to $320,204 for Mr. Kendall, $309,753 for Mr. Kennedy
and $303,975 for Mr. Cutter.
OFFICER AND DIRECTOR STOCK OPTIONS. As of February 15, 1996,
executive officers and directors of the Company held an aggregate of 565,000
Good LDI Options. Pursuant to the Merger Agreement, all of such Good LDI
Options will be converted into the right to receive an amount equal to (x) the
difference between the Per Share Amount and the exercise prices of such Good
LDI Options multiplied by (y) the respective number of shares of Common Stock
represented thereby, on the same basis as the Good LDI Options held by other
individuals. The aggregate amount paid to executive officers and directors of
the Company on account of Good LDI Options is expected to be approximately
$425,250. See "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS."
SHARE OWNERSHIP. As of the Record Date, executive officers and
directors of the Company owned of record or beneficially an aggregate of
3,784,150 shares of Common Stock. All of such shares will be entitled to
receive the Per Share Amount on the same basis as the shares held by other
Stockholders. See "SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS."
EMPLOYMENT AGREEMENT. In connection with the execution of the Merger
Agreement, Mr. Robinson executed the Employment Agreement with NationsCredit to
serve as President and Chief Operating Officer of the Surviving Corporation in
the event the Merger is consummated. The Employment Agreement is effective as
of the Effective Time and provides for a term of four years. Mr. Robinson will
receive a salary of $300,000 per year, subject to increase at the discretion of
the Board of Directors of the Surviving Corporation, and will have the
opportunity to receive short-term bonuses equal to up to 33-1/3% of his then
current salary and long-term bonuses based on the achievement of certain
operating criteria. The maximum short-term bonus is guaranteed for 1996. In
addition, the Employment Agreement contains covenants limiting Mr. Robinson's
ability to compete with the Surviving Corporation after the termination of the
Employment Agreement in certain circumstances.
DIRECTORS' AND OFFICERS' INDEMNIFICATION. The Merger Agreement
provides that for a period of five years after the Effective Time,
NationsCredit will indemnify, defend and hold harmless the current or former
officers, directors and employees of the Company and its subsidiaries against
all losses, expenses, claims, damages or liabilities arising out of actions or
omissions occurring on or prior to the Effective Time, to the full extent then
permitted under Delaware law and by the Company's Certificate of Incorporation
and By-Laws as in effect on the date of the Merger Agreement. The right to
indemnification will not arise, however, in instances in which the party
seeking indemnification has participated in the breach of any covenant or
agreement in the Merger Agreement or has knowingly caused any representation or
warranty of the Company in the Merger Agreement to be false or inaccurate in
any respect and the claim arises principally from such breach or such falsity
or inaccuracy of such representation or warranty.
BENEFIT PLANS. Employees of the Company, including officers of the
Company, who become employees of the Surviving Corporation at the Effective
Time, will be entitled to certain benefits under the provisions of the Merger
Agreement, including the right to participate in certain benefit plans of
NationsCredit to the same extent as other employees of NationsCredit and its
subsidiaries and to have their service with the Company and its subsidiaries
prior to the Effective Time taken into account in determining their eligibility
for such benefit plans. See "THE MERGER AGREEMENT--Employee Matters; Employee
Benefit Plans."
OTHER INTERESTS. Pursuant to the Merger Agreement, at the Effective
Time, the officers of the Company will become officers of the Surviving
Corporation. See "THE MERGER AGREEMENT--The Merger."
24
<PAGE> 33
ACCOUNTING TREATMENT
Upon consummation of the Merger, the transaction will be accounted for
as a purchase, and all of the assets and liabilities of the Company will be
recorded in NationsBank's consolidated financial statements at their fair value
at the Effective Time. The amount, if any, by which the purchase price paid by
NationsCredit exceeds the fair value of the net assets acquired by
NationsCredit through the Merger will be recorded as goodwill. NationsBank's
consolidated financial statements will include the operations of the Surviving
Corporation after the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
The following is a summary of certain United States federal income tax
consequences of the Merger to the Company's stockholders and holders of Good
LDI Options.
The receipt of cash in exchange for Common Stock pursuant to the
Merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign tax
laws. A stockholder will generally recognize gain or loss for federal income
tax purposes in an amount equal to the difference between such stockholder's
adjusted tax basis in such stockholder's Common Stock and the aggregate
consideration received by such stockholder. Such gain or loss will be a
capital gain or loss if such Common Stock is held as a capital asset and will
be long-term capital gain or loss if, at the Effective Time, such Common Stock
has been held for more than one year.
The receipt of cash in respect of Good LDI Options pursuant to the
Merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state and local tax laws. The
holder of each Good LDI Option will generally recognize ordinary income for
federal income tax purposes in an amount equal to the full amount of the cash
payment received, which compensation income will be subject to applicable
withholding requirements.
The foregoing discussion may not apply to stockholders who acquired
their Common Stock pursuant to the exercise of employee stock options or other
compensation arrangements with the Company, who are not citizens or residents
of the United States or who are otherwise subject to special tax treatment. In
addition, this discussion does not attempt to address all issues that may be
relevant to a particular holder of Common Stock or Good LDI Options in light of
such holder's personal investment circumstances, nor does it address any aspect
of state, local or foreign taxation. EACH STOCKHOLDER IS URGED TO CONSULT HIS,
HER OR ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
25
<PAGE> 34
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 15, 1996, certain
information with regard to the beneficial ownership of Common Stock by each
holder of more than five percent of the outstanding Common Stock, each director
of the Company, the executive officers of the Company who were the five most
highly compensated officers of the Company (based on salary and bonus amounts)
during the fiscal year ended January 31, 1996, and all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
---------------- ---------------------- --------
<S> <C> <C>
Floyd S. Robinson 515,000 (2) 7.10%
Scott S. Cowen 25,633 (3) *
Thomas A. Cutter 876,900 (4)(5) 12.99%
Robert S. Kendall 1,127,168 (4)(6) 16.70%
Michael R. Kennedy 1,107,168 (4)(7) 16.40%
Norton W. Rose 12,500 (8) *
William R. Seelbach 10,000 (8) *
Stephen F. Smith 17,500 (9)(10) *
Mont C. Hollingsworth 41,981 (9)(10) *
John S. Rainsberger 22,950 (9) *
William G. Zenallis 22,350 (9) *
Dimensional Fund Advisors Inc. 489,376 (11) 7.25%
Olympus Private Placement Fund, L.P. 1,574,803 (12) 18.91%
The TCW Group, Inc. 483,500 (13) 7.16%
Tweedy, Browne Company L.P. and Related Parties 459,045 (14) 6.80%
All directors and executive 3,784,150 (15) 51.23%
officers as a group (12 persons)
</TABLE>
___________________________
* Less than 1%
(1) Beneficial ownership includes having or sharing voting power or
dispositive power of the securities. Includes shares of Common Stock
issuable to such persons upon the exercise of LDI Options. See THE
MERGER AGREEMENT--The Merger."
(2) Includes 500,000 shares issuable upon the exercise of LDI Options, all
of which will constitute Good LDI Options.
(3) Includes 20,500 shares issuable upon the exercise of LDI Options, of
which 10,000 will constitute Good LDI Options. Also includes 1,050
shares held by Marjorie Cowen, his spouse, as to which shares Mr.
Cowen disclaims any beneficial ownership.
(4) Messrs. Kendall, Kennedy and Cutter and certain other Stockholders of
the Company are parties to a Stockholders Agreement entered into in
May 1987 (the "1987 Stockholders Agreement") pursuant to which the
parties thereto have agreed to vote all of the shares held by them in
the same manner as a majority of the shares held by Messrs. Kendall,
Kennedy and Cutter. An aggregate of 3,413,032 shares of Common Stock,
or approximately 50.6% of the shares outstanding, are subject to the
1987 Stockholders Agreement. Messrs. Kendall, Kennedy and Cutter have
agreed with NationsCredit that they will vote all shares held by them
in favor of the Merger Agreement and the Merger. See INTERESTS OF
CERTAIN PERSONS IN THE MERGER--Stockholders' Agreements."
26
<PAGE> 35
(5) Includes 766,964 shares held by Margaret Cutter, his spouse, and
49,215 shares held by a foundation of which Mr. Cutter is trustee, as
to all of which shares he disclaims any beneficial ownership.
(6) Includes 1,050,000 shares held by CPS Capital, Ltd., of which Mr.
Kendall is the principal member. Also includes 56,471 shares held by
a foundation of which Mr. Kendall is trustee, as to which shares he
disclaims beneficial ownership.
(7) Includes 6,000 shares held by a foundation of which Mr. Kennedy is
trustee, 96,906 shares held of record by National City Bank as trustee
of an irrevocable trust established by Mr. Kennedy for the benefit of
his children and 1,000 shares held by Diane Kennedy, his spouse. Mr.
Kennedy disclaims beneficial ownership of all of such shares.
(8) Includes 10,000 shares issuable to each of Mr. Rose and Mr. Seelbach
upon the exercise of LDI Options, all of which will constitute Good
LDI Options.
(9) Includes 12,500 shares of Common Stock issuable to Mr. Smith, 10,000
shares issuable to Mr. Hollingsworth, 3,500 shares issuable to Mr.
Rainsberger and 4,000 shares issuable to Mr. Zenallis upon the
exercise of LDI Options which will constitute Good LDI Options. Also
includes 23,167 shares issuable to Mr. Hollingsworth, 19,450 shares
issuable to Mr. Rainsberger and 17,350 shares issuable to Mr.
Zenallis upon the exercise of LDI Options which will not constitute
Good LDI Options.
(10) Includes 4,000 shares of restricted stock issued to Mr. Hollingsworth
and 5,000 shares of restricted stock issued to Mr. Smith. Although
such shares will vest in equal installments in June 1996 and June
1997, they are considered outstanding for purposes of the
Merger Agreement and the Merger and will be entitled to receive the
Per Share Amount in the Merger. Also includes shares held by Mr.
Hollingsworth under the LDI Corporation Retirement Savings Plan.
(11) Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 489,376
shares, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. This information is as of
December 31, 1995 and was obtained from a Schedule 13G filed by
Dimensional with the SEC on or about February 9, 1996.
(12) Consists of shares issuable upon the exercise of outstanding warrants
to purchase Common Stock at a price of $5.00 per share. Because the
Per Share Amount is not in excess of $5.00 per share, such warrants
will not be entitled to any payment in connection with the Merger.
(13) This information was obtained from a Schedule 13G filed by The TCW
Group, Inc. with the SEC on or about February 12, 1996.
(14) This information was obtained from a Schedule 13D filed by Tweedy,
Browne Company L.P. ("TBC"), TBK Partners, L.P. and Vanderbilt
Partners, L.P. with the SEC on or about January 30, 1996. Includes
shares held by TBC in customer accounts, as to which shares all three
parties disclaim beneficial ownership.
(15) Includes shares held under the LDI Corporation Retirement Savings
Plan. Includes 565,000 shares of Common Stock issuable to all
directors and executive officers as a group upon the exercise of Good
LDI Options and 70,467 shares of Common Stock issuable to all
directors and executive officers as a group upon the exercise of LDI
Options which will not constitute Good LDI Options. Includes 9,000
shares of restricted stock issued to all executive officers as a
group, which shares will be considered outstanding for
27
<PAGE> 36
purposes of the Merger Agreement and the Merger and will be entitled
to receive the Per Share Amount in the Merger.
The address of each of the persons shown in the preceding table who
are the beneficial owners of more than five percent of the outstanding shares
of Common Stock, as of February 15, 1996, is as follows: Mr. Robinson, 4770
Hinckley Industrial Parkway, Cleveland, Ohio 44109; Mr. Kendall and CPS
Capital, Ltd., Suite 1510, 1801 East Ninth Street, Cleveland, Ohio 44114; Mr.
Kennedy, 3 Summit Park Drive, Suite 300, Independence, Ohio 44131; Mr. Cutter,
29299 Clemens Road, Suite 1K, Westlake, Ohio 44145; Dimensional Fund Advisors
Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401; Olympus
Private Placement Fund, L.P., Metro Center, One Station Place, Stamford,
Connecticut 06902; The TCW Group, Inc., 865 South Figueroa Street, Los Angeles,
California 90017; and Tweedy, Browne Company L.P., 52 Vanderbilt Avenue, New
York, New York 10017.
MARKET PRICES OF COMMON STOCK
The Common Stock is traded in the over-the-counter market on Nasdaq
under the symbol LDIC. The following schedule sets forth, for the periods
indicated, the range of the high and low sales prices on Nasdaq.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1995 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter (ended April 30) $7.25 $5.13
Second Quarter (ended July 31) 5.88 3.25
Third Quarter (ended October 31) 6.75 4.00
Fourth Quarter (ended January 31) 6.00 3.50
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1996 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter (ended April 30) $4.25 $2.50
Second Quarter (ended July 31) 4.00 2.50
Third Quarter (ended October 31) 4.25 2.13
Fourth Quarter (ended January 31) 4.00 1.75
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1997 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter (through March 29) $4.00 $2.88
</TABLE>
As of March 15, 1996, the Common Stock was held by approximately 474
Stockholders of record. During the fiscal years ended January 31, 1995 and
1996, the Company paid no cash dividends on Common Stock. The Company is
prohibited from paying cash dividends under the covenants of certain of its
financing agreements.
28
<PAGE> 37
SELECTED CONSOLIDATED FINANCIAL DATA
The following schedules set forth selected consolidated financial data
regarding the Company for the periods indicated, derived from the Company's
consolidated financial statements. More comprehensive financial information is
contained in the Company's Annual Report on Form 10-K for the year ended
January 31, 1995 and the Company's Quarterly Report on Form 10-Q for the nine
months ended October 31, 1995, both of which are attached to this Proxy
Statement as Appendices D and E, respectively. The comparability of certain
data presented in the following schedules was affected by certain actions taken
by the Company's management during the years ended January 31, 1994 and 1995.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in such Annual Report and Quarterly Report for a discussion of the
effects of these changes. Dollars below are in thousands, except for per share
data.
<TABLE>
<CAPTION>
EARNINGS STATEMENT DATA:
NINE MONTHS
YEAR ENDED JANUARY 31, ENDED OCTOBER 31,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Leasing $292,806 $262,695 $199,113 $156,606 $103,659 $ 78,233 $ 57,403
Direct sales 57,606 58,456 82,113 94,852 63,757 55,012 28,350
Technical services 17,831 18,864 18,240 16,127 15,108 11,814 9,110
Equity in earnings of
50% owned affiliate -- -- 101 733 1,010 841 748
Other 1,237 1,980 4,098 3,593 633 728 1,718
-------- -------- -------- --------- -------- -------- --------
TOTAL 369,480 341,995 303,665 271,911 184,167 146,628 97,329
-------- -------- -------- --------- -------- -------- --------
Costs and Expenses:
Leasing 209,920 174,676 130,175 121,961 83,833 48,292 32,658
Direct sales 48,494 50,441 70,637 82,135 54,385 47,280 24,016
Technical services 11,822 12,274 12,751 11,096 8,345 6,512 5,053
Interest 49,296 49,746 41,685 33,446 28,333 21,879 18,802
Debt financing fees 493 1,117 1,318 1,725 3,433 2,237 5,215
Selling, general and
administrative 33,570 37,019 36,088 40,484 30,945 20,086 16,019
Restructuring charges -- -- -- 6,641 -- -- --
-------- -------- -------- --------- -------- -------- --------
TOTAL 353,595 325,273 292,654 297,488 209,274 146,286 101,763
-------- -------- -------- --------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes 15,885 16,722 11,011 (25,577) (25,107) 342 (4,434)
Income tax expense
(benefit) 5,769 6,185 4,240 (9,532) (9,624) 130 (199)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations 10,116 10,537 6,771 (16,045) (15,483) 212 (4,235)
Discontinued
operations:
Earnings (loss) from
operations, net of tax (172) (179) 164 (1,395) (3,081) (3,081) --
Provision for loss on
disposal, net of tax -- -- -- (7,082) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) $ 9,944 $ 10,358 $ 6,935 $(24,522) $(18,564) $ (2,869) $ (4,235)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
primary share:
Continuing operations $ 1.50 $ 1.57 $ 1.01 $ (2.39) $ (2.30) $ .03 $ (.63)
Discontinued
operations (.02) (.03) .02 (1.26) (.46) (.46) --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) $ 1.48 $ 1.54 $ 1.03 $ (3.65) $ (2.76) $ (.43) $ (.63)
======== ======== ======== ======== ======== ======== ========
Cash dividends
paid per share -- -- -- $ .16 -- -- --
</TABLE>
29
<PAGE> 38
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
JANUARY 31, OCTOBER 31,
-------------------------------------------------------------- -----------
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $745,877 $754,455 $688,023 $593,027 $426,909 $334,985
Leased assets:
Capital leases 580,785 607,524 512,480 412,561 311,478 241,785
Operating leases--net of
accumulated depreciation 66,853 40,007 53,092 55,006 37,610 30,163
Notes payable 164,147 186,031 148,433 148,175 107,855 81,482
Subordinated notes -- 10,000 10,000 10,000 10,000 10,000
Nonrecourse lease financing 426,190 382,443 330,494 296,794 227,574 174,020
Shareholders' equity 77,866 88,565 95,644 70,084 51,595 47,407
Book value per share 11.68 13.19 14.22 10.42 7.67 7.03
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA:
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31,
1994 1994 1994 1994 1995 1995 1995 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 71,433 $ 49,037 $ 47,911 $ 49,680 $ 37,539 $ 34,561 $ 33,240 $ 29,528
======== ======== ======== ======== ======== ========= ======== ========
Earnings (loss) from
continuing operations $(19,782) $ (837) $ 841 $ 208 $(15,695) $ (299) $ (1,992) $ (1,944)
Discontinued opera-
tions (net of tax) (7,919) -- (3,081) -- -- -- -- --
-------- -------- -------- -------- -------- --------- -------- --------
Net earnings (loss) $(27,701) $ (837) $ (2,240) $ 208 $(15,695) $ (299) $ (1,992) $ (1,944)
======== ======== ======== ======== ======== ========= ======== ========
Earnings (loss) per
share--primary:
Continuing operations $ (2.94) $ (.12) $ .12 $ .03 $ (2.33) $ (.04) $ (.30) $ (.29)
Discontinued
operations (1.18) -- (.46) -- -- -- -- --
-------- -------- -------- -------- -------- --------- -------- --------
Net earnings (loss) $ (4.12) $ (.12) $ (.34) $ .03 $ (2.33) $ (.04) $ (.30) $ (.29)
======== ======== ======== ======== ======== ========= ======== ========
</TABLE>
INDEPENDENT AUDITORS
The consolidated financial statements of the Company as of and for the
three years in the period ended January 31, 1995 included and incorporated in
this Proxy Statement by reference to the Company's Annual Report on Form 10-K
for the year ended January 31, 1995, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to matters
which raised substantial doubt about the Company's ability to continue as a
going concern and to management's plans concerning those matters), which is
included and incorporated by reference herein. Representatives of Deloitte &
Touche LLP are expected to be present at the Special Meeting. They will be
afforded the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any proposals of stockholders intended to be presented at the 1996
Annual Meeting of Stockholders of the Company (if such meeting is required),
must be received by the Company for inclusion in the Company's proxy statement
no later than June 10, 1996.
30
<PAGE> 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the year
ended January 31, 1995, filed on May 16, 1995, and as amended on May
26, 1995 (a copy of which is attached to this Proxy Statement as
Appendix D);
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995, filed on June 14, 1995;
3. The Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1995, filed on September 14, 1995;
4. The Company's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1995, filed on December 15, 1995 (a copy of
which is attached to this Proxy Statement as Appendix E);
5. The Company's Proxy Statement on Schedule 14A, filed
on August 30, 1995; and
6. The Company's Current Reports on Form 8-K, filed on
March 22, 1995, July 26, 1995 and February 16, 1996.
All documents or reports subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document. Any statement contained herein, or
in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
The Company will provide without charge to any person to whom this
Proxy Statement is delivered, on the written or oral request of such person and
by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any or all of the foregoing documents
incorporated by reference (other than exhibits not specifically incorporated by
reference into the texts of such documents). Requests for such documents
should be directed to: Dennis J. Diemer, Assistant Secretary, LDI Corporation,
4770 Hinckley Industrial Parkway, Cleveland, Ohio 44109, (216) 661-5400.
31
<PAGE> 40
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of February
14, 1996, between LDI Corporation ("LDI"), a Delaware corporation, and
NationsCredit Commercial Corporation ("Purchaser"), a Delaware corporation.
WITNESSETH
----------
WHEREAS, LDI has been engaged primarily in various aspects of the
business of computer equipment leasing and providing ancillary services
thereto; and
WHEREAS, LDI and Purchaser wish to enter into this Agreement pursuant
to the terms and subject to the conditions of which Purchaser will acquire LDI
through the merger (the "Merger") of a wholly owned subsidiary of Purchaser
(the "Merger Sub") with and into LDI, or by such other means as provided for
herein; and
WHEREAS, LDI and Purchaser desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transaction contemplated by this Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree as follows:
ARTICLE I - THE TRANSACTION
Section 1.01. MERGER. Upon the terms and subject to the conditions
set forth herein, Merger Sub shall be merged with and into LDI.
(a) As a result of the Merger, the separate existence of Merger Sub
shall cease, and LDI continue as the surviving corporation of the
Merger (the "Surviving Corporation").
(b) The certificate of incorporation of Merger Sub as in effect
immediately prior to the Effective Time (as defined below) shall be the
certificate of incorporation of the Surviving Corporation, until duly amended.
(c) The bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation, until duly
amended.
(d) The directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation and the officers of
LDI immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected and qualified.
Section 1.02. EFFECTIVE TIME. The Merger shall become effective on the
date and at the time on which a properly executed certificate or agreement of
merger is duly filed with the Secretary of State of the State of Delaware (the
"Effective Time"). Unless otherwise mutually agreed upon by Purchaser and LDI,
the Effective Time shall occur on or before the fifth business day (as
designated by Purchaser) following the last to occur of (i) the date of
approval by the Federal Reserve System of the Merger, (ii) the effective date
of the last order, approval, or exemption of any other federal or state
regulatory agency approving or exempting the Merger if such action is required,
(iii) the expiration of all required waiting periods after the filing of all
notices to all federal or state regulatory agencies required for consummation
of the Merger, and (iv) the date on which the stockholders of LDI take all
requisite action to authorize the Merger, in each case as contemplated hereby.
<PAGE> 41
Section 1.03. RESERVATION OF RIGHT TO REVISE TRANSACTIONS; FURTHER
ACTIONS.
(a) Purchaser may at any time change the method of effecting the
acquisition of LDI by Purchaser if and to the extent that it deems such a
change to be desirable; provided, however, that no such change shall (i) alter
or change the amount or the kind of the consideration to be received by the
holders of LDI's stock as provided for in this Agreement, (ii) increase the
liabilities or expenses of LDI hereunder unless LDI is satisfactorily
indemnified against such increase or (iii) impose any additional conditions to
the Merger which are not ministerial.
(b) To facilitate the Merger and the other transactions contemplated
hereby, each of the parties will execute such additional agreements and
documents and take such other actions as are reasonably necessary or
appropriate, including, if Purchaser so elects, entering into agreements to
facilitate the Merger with an existing or a newly formed subsidiary of
Purchaser.
Section 1.04. PURCHASE PRICE. The purchase price for all of the issued
and outstanding shares of common stock of LDI (the "Shares") shall be $4.10 per
Share (the "Per Share Amount") and the consideration for the cancellation of
the LDI Options (as defined below) shall be an amount equal to (x) the
difference between the Per Share Amount and the exercise prices of the Good LDI
Options (as defined below) multiplied by (y) the respective number of Shares
represented thereby, resulting in aggregate consideration payable by Purchaser
under this Agreement for the Shares and such cancellation of $28,126,023.70
(the "Purchase Price"), subject to increase or decrease as described below in
this Section. As used herein, "Good LDI Options" shall mean solely those LDI
Options with respect to which the exercise price is less than the Per Share
Amount immediately prior to the Effective Time.
The Per Share Amount has been calculated based on the assumptions that
there are 6,751,457 outstanding Shares and that the only Good LDI Options are
options for 10,000 Shares at an exercise price of $2.375, options for 303,000
Shares at an exercise price of $3.00 and options for 270,000 Shares at an
exercise price of $3.75. In the event that these assumptions are not correct or
become incorrect an appropriate revised Per Share Amount will be calculated,
with any fractional cents per Share rounded to the nearest whole cent. In no
event, other than pursuant to the following paragraph, will the Purchase Price
exceed $28,126,023.70 plus any amount received by LDI upon the exercise of any
LDI Option. The Purchase Price will be appropriately reduced upon the
termination of any Good LDI Options but will not be increased if,
notwithstanding this Agreement, additional Good LDI Options are granted.
In the event that LDI is able to obtain further concessions from one or
more of its recourse lenders, in addition to those envisioned in SECTION 4.06,
such that the amount of the discount involved in discharging all of LDI's
recourse indebtedness (including all development fees and other fees and
expenses) on the Effective Time is, as a result of such further concessions,
greater than the amounts envisioned in SECTION 4.06, then the Purchase Price
shall be increased by 30% of the amount of such reduction and an appropriate
adjustment will be made to the Per Share Amount.
ARTICLE II
THE EFFECTIVE TIME
Section 2.01. TIME AND PLACE. The Closing of the Merger (the "Closing")
shall take place at the offices of Benesch, Friedlander, Coplan & Aronoff in
Cleveland, Ohio on the date that the Effective Time occurs.
A-2
<PAGE> 42
Section 2.02. CONVERSION.
(a) Subject to the provisions of the terms hereof, at the Effective
Time, by virtue of the Merger and without any action on the part of the holders
thereof, the shares of the constituent corporations shall be converted as
follows:
(i) Each of the shares of capital stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall
remain outstanding as one share of common stock of the
Surviving Corporation;
(ii) Each of the Shares other than Dissenting Shares (as defined
below) shall be converted into and become the right to
receive, in accordance with SECTION 2.03, the Per Share
Amount; and
(iii) Each LDI Option outstanding as of the Effective Time shall be
treated in accordance with the provisions of SECTION 2.04.
(b) Each of the Shares held by Purchaser or LDI or any Subsidiary (as
hereinafter defined) other than Shares held as collateral or as a result of
debts previously contracted, shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
(c) At the Effective Time, the stock transfer books of LDI shall be
closed as to holders of Shares immediately prior to the Effective Time and no
transfer of Shares by any such holder shall thereafter be made or recognized.
If, after the Effective Time, certificates are properly presented in accordance
with Section 2.03 to the disbursing agent, which shall be Purchaser or an
affiliate or agent selected by Purchaser (the "Disbursing Agent"), such
certificates shall be canceled and exchanged for the applicable merger
consideration in accordance with Section 2.03. Any other provision of this
Agreement notwithstanding, neither Purchaser, the Surviving Corporation nor the
Disbursing Agent shall be liable to a holder of Shares or LDI Options for any
amount paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
Purchaser shall bear the fees and expenses of the Disbursing Agent.
Section 2.03. EXCHANGE OF SHARES AND GOOD LDI OPTIONS.
(a) Pursuant to an agreement to be entered into on or before the
Effective Time between Purchaser and the Disbursing Agent, Purchaser or the
Surviving Corporation shall make available to the Disbursing Agent on an as-
needed basis the cash to which holders of Shares and Good LDI Options shall be
entitled pursuant to Section 2.02.
(b) As soon as practicable after the Effective Time, the Disbursing
Agent shall send a notice and a letter of transmittal to each holder of
certificates formerly evidencing Shares and each holder of Good LDI Options
advising such holder of the effectiveness of the Merger and the procedure for
surrendering to the Disbursing Agent such certificates or LDI Options for
exchange into the applicable consideration. Each holder of certificates
theretofore evidencing such Shares, upon proper surrender thereof to the
Disbursing Agent, together with and in accordance with the applicable letter of
transmittal and each holder of Good LDI Options, shall be entitled to receive
in exchange therefor the applicable consideration. Upon such proper surrender,
the Disbursing Agent shall promptly deliver the applicable consideration in
accordance with the instructions set forth in the related letter of
transmittal. Until properly surrendered, certificates formerly evidencing such
Shares and rights formerly evidencing such Good LDI Options shall be deemed for
all purposes to evidence only the right to receive the applicable
consideration. No interest shall accrue or be paid on any cash payable upon the
surrender of certificates which immediately prior to the Effective Time
represented outstanding Shares or in connection with the Good LDI Options.
(c) If the applicable consideration is to be delivered to a person
other than the person in whose name the certificates surrendered in exchange
therefor are registered, it shall be a condition to the payment of such
applicable consideration that the certificates so surrendered shall be properly
endorsed or accompanied by appropriate
A-3
<PAGE> 43
stock powers and otherwise in proper form for transfer, that such transfer
otherwise be proper and that the person requesting such transfer pay to the
Disbursing Agent any transfer or other taxes payable by reason of the foregoing
or establish to the satisfaction of the Disbursing Agent that such taxes have
been paid or are not required to be paid.
(d) Any portion of the applicable consideration which remains
undistributed to holders of Shares or Good LDI Options six months after the
Effective Time shall be delivered to the party who provided such funds to the
Disbursing Agent and any holders of such Shares or Good LDI Options who have
not theretofore complied with the provisions of this Article II shall
thereafter look only to Purchaser for payment of any Merger consideration to
which they are entitled.
(e) Purchaser or the Disbursing Agent shall be entitled to deduct and
withhold from the applicable consideration payable pursuant to this Agreement
to any holder of Shares or Good LDI Options such amount as Purchaser or the
Disbursing Agent, as the case may be, is required to deduct and withhold with
respect to making such payment under the Internal Revenue Code of 1986, as
amended (the "Code"), or any provision of state, local or foreign tax law. To
the extent that amounts are so deducted and withheld and paid over to the
appropriate taxing authority by Purchaser or the Disbursing Agent, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares or Good LDI Options in respect of which such deduction and
withholding was made by Purchaser or the Disbursing Agent.
Section 2.04. LDI OPTIONS.
(a) At the Effective Time, all rights with respect to shares of stock
of LDI issuable pursuant to stock options or stock appreciation rights
(collectively "LDI Options") granted by LDI under the Employee Plans (as
defined below), or otherwise, which are outstanding immediately prior to the
Effective Time, regardless of whether then exercisable, or whether such LDI
Options are "in the money" or "out of the money" shall be canceled, and each
holder of any Good LDI Options shall be paid in accordance with the procedures
set forth herein by the Purchaser or the Disbursing Agent for such Good LDI
Options an amount in cash without interest determined by multiplying (i) the
difference between the Per Share Amount and the applicable exercise price of
such Good LDI Options by (ii) the number of Shares covered by such Good LDI
Options immediately prior to the Effective Time.
(b) The provisions of any plan, program or arrangement pursuant to
which LDI may, or may be required to, issue stock or stock-based compensation,
shall be terminated by the Effective Time. LDI shall ensure that following the
Effective Time no holder of LDI Options including those that are not Good LDI
Options or any participant in any LDI Employee Plan shall have any right
thereunder to acquire any equity securities of LDI or any of the Subsidiaries.
Section 2.05. INTEGRAL EFFECTIVE TIME. The delivery of all documents,
instruments and certificates at the Effective Time shall be deemed to be made
simultaneously, and no delivery shall be deemed to be made unless all
deliveries are made.
Section 2.06. DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, Shares which, immediately prior to the Effective
Time, are held by stockholders who have properly exercised and perfected
appraisal rights (the "Dissenting Shares") under Section 262 of the Delaware
General Corporation Law (the "DGCL") shall not be converted into the right to
receive the merger consideration, but shall receive such consideration as shall
be determined pursuant to Section 262; provided that if any such holder shall
have failed to perfect or shall withdraw or lose rights to appraisal and
payment under the DGCL, such holder's shares shall thereupon be deemed to have
been converted as of the Effective Time into the right to receive the merger
consideration, without any interest thereon, and such shares shall no longer be
Dissenting Shares. LDI shall give Purchaser (i) prompt notice of any written
demands for appraisal of any Dissenting Shares, attempted withdrawals of such
demands and anv other instruments served pursuant to applicable law received by
LDI relating to stockholders' rights of appraisal and (ii) the opportunity to
direct all negotiations and proceedings with respect to demand for appraisal
under the DGCL.
A-4
<PAGE> 44
ARTICLE III
DISPOSITION OF LINES OF BUSINESS
Set forth in Section 3.01 of the document containing the written,
detailed information prepared by LDI and delivered by LDI to Purchaser which
appropriately cross-references each section of this Agreement to which that
section of the document applies (the "LDI Disclosure Schedule") is a
description of each of the PC Rentals and Technical Services lines of business
and all the assets and liabilities of LDI and the Subsidiaries related to each
line of business, (each a "To Be Sold Business"). LDI shall use commercially
reasonable efforts to sell each To Be Sold Business as an ongoing line of
business, including employees, prior to the Effective Time for consideration
and pursuant to documentation satisfactory to Purchaser in its sole discretion.
LDI agrees that any net cash proceeds received from such sale will be used to
pay down LDI's recourse indebtedness.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LDI
LDI represents and warrants to Purchaser that:
Section 4.01. ORGANIZATION AND EXISTENCE.
(a) LDI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease or otherwise hold its assets and
carry on its business as it is now being conducted. LDI is duly qualified and
in good standing as a foreign corporation and is licensed to carry on its
business as it is now being conducted in each jurisdiction in which it does
business, except any jurisdiction in which the failure to be so qualified or
licensed or to be in good standing would not have a material adverse effect on
the business, assets, results of operations or financial condition (the
"Condition") of LDI on a consolidated basis or the ability of LDI and the
Subsidiaries (as defined below) to consummate the transactions contemplated
hereby (any of such effects, a "Material Adverse Effect"; without limiting what
may constitute a Material Adverse Effect, it is agreed that, in the case of
effects which are reasonably quantifiable, an aggregate decrease in assets or
increase in liabilities, or both, resulting in a pre-tax change of more than
$2.5 million in financial condition constitutes a Material Adverse Effect). LDI
has in effect all material federal, state, local and foreign governmental,
regulatory and other authorizations, permits and licenses necessary for it to
own or lease properties and assets and to carry on its business as now
conducted. Set forth at SECTION 4.01(a) of the LDI Disclosure Schedule is a
list of each jurisdiction in which LDI is qualified to do business as a foreign
corporation. LDI has delivered to Purchaser complete and correct copies of its
Certificate of Incorporation and By-Laws as amended to the date hereof.
(b) SECTION 4.01(b) of the LDI Disclosure Schedule contains a true,
complete and accurate list of all entities of which LDI owns 100% of the equity
interests (each, and the Picker Joint Venture, a "Subsidiary" and collectively
with the Picker Joint Venture, the "Subsidiaries"). Each of the Subsidiaries is
a corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has all
requisite corporate or other power and authority to own, lease or otherwise
hold its assets and carry on its business as it is now being conducted. Each
Subsidiary is duly qualified and in good standing as a foreign corporation or
other entity and is licensed to carry on its business as it is now being
conducted in each jurisdiction in which it does business, except any
jurisdiction in which the failure to be so qualified or licensed or to be in
good standing would not have a material adverse effect on its abilitv to
consummate the transactions contemplated hereby or to carry on its business as
it is now being conducted. Each Subsidiary has in effect all material federal,
state, local and foreign governmental, regulatory and other authorizations,
permits and licenses necessary for it to own or lease properties and assets and
to carry on its business as now conducted. Set forth in SECTION 4.01(b) of the
LDI Disclosure Schedule is a list of each jurisdiction in which each of the
Subsidiaries are qualified to do business as a foreign corporation or entity,
the type of entity, each jurisdiction in which each of the Subsidiaries are
incorporated
A-5
<PAGE> 45
or otherwise organized and the primary business purpose for each Subsidiary.
LDI has delivered to Purchaser complete and correct copies of the articles of
organization and bylaws (or other organization or governing documents) of each
Subsidiary as amended to the date hereof.
Section 4.02. CAPITALIZATION. The authorized capital stock of LDI
consists of 20,000,000 shares of common stock and 2,000,000 shares of preferred
stock. At January 31, 1996, there were outstanding 6,751,457 shares of common
stock of LDI, all of which have been duly authorized and validly issued and are
fully paid and nonassessable. None of the issued and outstanding shares of
common stock of LDI have been issued in violation of any preemptive rights or
any provision of LDI's Certificate of Incorporation. None of the authorized
shares of preferred stock of LDI are issued or outstanding. Other than as set
forth in SECTION 4.02 of the LDI Disclosure Schedule, there are no outstanding
options, warrants, rights, agreements, calls, commitments, securities or
demands of any character issued or granted by LDI for the issuance, sale or
delivery of, or convertible into or exchangeable for, any shares of the capital
stock of LDI. As of January 31, 1996, LDI had reserved 1,650,000 shares of
common stock of LDI for issuance under the LDI Options, 55,000 shares of common
stock of LDI for issuance under the restricted stock plan, and 1,574,803 shares
of common stock of LDI for issuance under the warrants now held by Olympus
Private Placement Fund, L.P. (the "Olympus Warrants"), and no other shares of
capital stock have been reserved for any purpose. Except as set forth in
Section 4.02 of the LDI Disclosure Schedule: (x) LDI is not a party to any
agreement respecting the voting or disposition of any shares of capital stock
of LDI, (y) there are no securities required to be issued by LDI under any LDI
stock plan, dividend reinvestment or similar plan and (z) LDI owns no capital
stock or other equity interest in any corporation, partnership or other
business entity other than the Subsidiaries. Following the Effective Time, the
Olympus Warrants will represent only the right to receive the Per Share Amount
for each share of the common stock of LDI issuable upon the exercise of the
Olympus Warrants immediately prior to the Effective Time, had the Merger not
occurred, and such right shall be conditional on the prior payment to LDI by
any exercising holder thereof of the five dollar exercise price for each such
share, and neither LDI nor Purchaser shall have any other liabilities or
obligations under the Olympus Warrants.
Section 4.03. AUTHORIZATION; EXECUTION AND DELIVERY. LDI has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all requisite corporate action of
LDI including approval of the Merger by its Board of Directors, subject to
approval of the stockholders of LDI necessary to consummate the Merger. This
Agreement has been duly executed and delivered by LDI and, assuming due
execution and delivery by Purchaser and subject to any requisite stockholder
approval hereof with respect to the Merger, constitutes the legal, valid and
binding obligation of LDI, enforceable against LDI in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and similar laws affecting creditors' rights and
remedies generally and to general principles of equity, including principles of
commercial reasonableness, good faith, and fair dealing, regardless of whether
enforcement is sought in a proceeding in equity or at law (the foregoing
"subject to" clauses are hereinafter referred to as the "Remedies Exception").
Section 4.04. GOVERNMENTAL APPROVALS; OTHER CONSENTS. Except as set
forth in SECTION 4.04 of the LDI Disclosure Schedule, (a) no approval,
authorization, consent or order of, or filing or registration with, any
governmental or regulatory authority is required to be obtained or made by LDI
or any of the Subsidiaries in order to permit LDI to enter into and perform its
obligations under this Agreement or to consummate the Merger, and (b) no
approval, authorization or consent of or by any third party is required to
permit LDI to enter into and perform its obligations under this Agreement or to
consummate the Merger.
Section 4.05. NO CONFLICT WITH OTHER INSTRUMENTS. Neither the
execution, delivery and performance of this Agreement nor the consummation of
the transactions contemplated hereby nor compliance by LDI with any of the
provisions hereof does or will (a) conflict with the Certificate of
Incorporation or By-Laws of LDI, (b) result in a breach of the terms,
conditions or provisions of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or terminate or
give rise to a right to terminate or bring into operation any penalty or price
escalation provision of, any indenture, mortgage, lease, contract, servicing
agreement or other agreement or instrument to which LDI or any Subsidiary is a
party or by which LDI or any Subsidiary, or any of its or their properties,
may be bound or any license held by LDI or any Subsidiary, (c) result in the
creation of any
A-6
<PAGE> 46
lien, security interest, restriction, encumbrance or claim on any of the assets
of LDI or any Subsidiary, or to LDI's knowledge, without independent
investigation, any of the Shares, other than, in each instance, a Permitted
Lien, or (d) subject to receipt of approvals referred to in Section 4.04 of
the LDI Disclosure Schedule, violate any law, regulation, order or decree of
any government body or authority to which LDI or any Subsidiary is subject or
by which LDI or any Subsidiary, or any of its properties or assets, may be
bound.
Section 4.06. DEBT DISCOUNTS AND SUBORDINATED DEBT.
(a) If, on or before April 30, 1996, either (i) LDI repays all of its
recourse senior indebtedness or (ii) Purchaser offers to acquire, pursuant to
Section 10.11.1 of LDI's Third Amended and Restated Credit Agreement, all of
LDI's recourse senior indebtedness now held by the entities set forth in
Section 4.06(a) of the LDI Disclosure Schedule and, if such offer is accepted,
uses commercially reasonable best efforts so to acquire such indebtedness on or
before such date, then LDI or the Purchaser, as the case may be, will realize
the economic benefits set forth in Section 4.06(a) of the LDI Disclosure
Schedule.
(b) LDI's subordinated indebtedness can be repaid in full on or after
the Effective Time upon compliance with applicable notice provisions upon
payment of a prepayment premium of 9.375% of the outstanding amount thereof,
and no other fees will be payable to any holder of the subordinated
indebtedness in connection therewith.
(c) Notwithstanding anything to the contrary in this Agreement or
elsewhere, if the representations and warranties in this SECTION 4.06 are not
entirely accurate, such that there is any diminution, regardless of amount and
regardless of whether off-set elsewhere, in the economic benefits described in
Section 4.06(a) and the related sections of the LDI Disclosure Schedule, or any
additional amounts, regardless of how small, are required so to repay LDI's
subordinated indebtedness (or if it cannot be repaid on the Effective Time), a
Material Adverse Effect will be deemed to have occurred and exist for all
purposes of this Agreement, including SECTION 7.01.
Section 4.07. BUSINESS CONDUCTED: TITLE; REAL ESTATE; HAZARDOUS
MATERIALS.
(a) Since January 31, 1995, neither LDI nor any of the Subsidiaries
have engaged in any material respect in any business or activity other than the
business described in the Annual Report on Form 10-K of LDI for the year
ended January 31, 1995.
(b) All assets purported to be owned by LDI or any of the Subsidiaries
are owned, free and clear of all liens, statutory liens, encumbrances,
claims, mortgages, deeds of trust, restrictions, charges and defects in title
(collectively, "Liens"), except for Permitted Liens (as defined below).
"Permitted Liens" shall mean (a) any Liens, including liens securing debt
reflected on the LDI Financial Statements (as defined below), as set forth in
Section 4.07(b) of the LDI Disclosure Schedule and similar debt incurred in the
ordinary course of business, (b) statutory liens for current taxes or
assessments not yet due or delinquent or being contested in good faith with
adequate reserves being provided, (c) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the ordinary course
of business other than by reason of nonpayment of a debt for which payment is
past due and payable, and (d) Lease Agreements (as defined in Section 4.08).
(c) Set forth on SECTION 4.07(c) of the LDI Disclosure Schedule is a
complete and accurate list of each parcel of real property owned by LDI or any
of the Subsidiaries (the "Owned Parcels") or leased to LDI or any of the
Subsidiaries (each a "Leased Parcel") under a lease agreement (a "Real Estate
Lease") and each option to acquire real property held by LDI of any of the
Subsidiaries ("Purchase Options"). As indicated on SECTION 4.07(c) of the LDI
Disclosure Schedule, either LDI or a Subsidiary is the owner of the Owned
Parcels, title to which shall at the Effective Time be held subject to no
encumbrances, restrictions, liens, easements or other claims except as set
forth in SECTION 4.07(c) of the LDI Disclosure Schedule and, except for zoning,
entitlement and other land use and environmental regulations by governmental
authorities. LDI has delivered to Purchaser true, correct and complete copies
of each of the Real Estate Leases, and each of the Real Estate Leases is in
full force and effect; no material default (and no condition which, with the
giving of notice or the passage of time, would constitute a material default)
A-7
<PAGE> 47
on the part of tenant exists under any material Real Estate Lease; to LDI's
knowledge, no landlord under any Real Estate Lease has commenced or is subject
to proceedings under bankruptcy or similar laws and to the knowledge of LDI no
landlord is in default (and no condition exists which, with the giving of
notice or the passage of time would constitute a default) under any Real Estate
Lease. As indicated in SECTION 4.07(c) of the LDI Disclosure Schedule, LDI (or
one of the Subsidiaries) is the holder of the tenant's interest under each of
the Real Estate Leases. No person or entity has any rights in, or rights to
acquire any interest in, the Owned Parcels or tenant's interest in any Leased
Parcel. Neither LDI nor any of the Subsidiaries has received any notice of or
has knowledge of any pending or threatened condemnation or transfer in lieu
thereof affecting the Owned Parcels or any Leased Parcel, or any proposed or
pending special assessments against the Owned Parcels or any Leased Parcel or
any proposed or pending public improvements which may give rise to special
assessments against the Owned Parcels or any Leased Parcel. There are no
notices, suits or other proceedings or judgments relating to the material
violation of any laws, ordinances, regulations, codes, orders or other
requirements affecting the Owned Parcels or any Leased Parcel, and neither LDI
nor any of the Subsidiaries has knowledge of any violation or conditions that
are reasonably likely to give rise to any of the foregoing. To LDI's knowledge,
without independent investigation, all improvements on the Owned Parcels or any
Leased Parcel and all parts thereof, including all mechanical, electrical and
plumbing systems, roof and structure, are in reasonably good condition without
material defect or deficiency. Neither LDI nor any of the Subsidiaries has
received notice from any insurance company of any defects or inadequacies in the
Owned Parcels or the Leased Parcels or any improvements thereon or any part
thereof which would materially adversely affect the insurability of such
improvements or the premiums for the insurance thereof, nor does LDI (or any of
the Subsidiaries) otherwise have knowledge of any claim of such a defect or
inadequacy by any such insurance company. To the knowledge of LDI, without
independent investigation, each of the Owned Parcels and each Leased Parcel is
zoned to permit its current use, without special permit, condition or other
conditional approvals or arrangements of any kind.
(d)(i) Except as set forth on SECTION 4.07(d) of the LDI Disclosure
Schedule, neither LDI nor any of the Subsidiaries nor to the
knowledge of LDI, without independent investigation, any previous owner,
tenant, occupant or user of the Owned Parcels or any Leased Parcel or any
other person, has engaged in or permitted any operations or activities upon
or any use or occupancy of the Owned Parcels or any Leased Parcel for the
purposes of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal
of any Hazardous Materials (whether legal or illegal, accidental or
intentional) on, under, in or around the Owned Parcels or any Leased
Parcel, or transported or arranged for the transportation of any Hazardous
Materials to, from or across the Owned Parcels or any Leased Parcel, nor
to the knowledge of LDI, without independent investigation, are any
Hazardous Materials now constructed, deposited, stored or otherwise located
on, under, in or about the Owned Parcels or any Leased Parcel, nor to the
knowledge of LDI, without independent investigation, has any Hazardous
Materials migrated from the Owned Parcels or any Leased Parcel upon or
beneath other properties, nor to the knowledge of LDI, without independent
investigation, have any Hazardous Materials migrated or threatened to
migrate from other properties upon, about or beneath the Owned
Parcels or any Leased Parcel.
(ii) To the knowledge of LDI, without independent investigation, there
is not constructed, placed, deposited, stored, disposed of nor located on
the Owned Parcels or any Leased Parcel any asbestos in any form, except as
disclosed on SECTION 4.07(d) of the LDI Disclosure Schedule.
(iii) Except as specified in SECTION 4.07(d) of the LDI Disclosure
Schedule, to the knowledge of LDI, without independent investigation, no
underground improvements, including treatment or storage tanks, sumps, or
water, gas or oil wells, but not including basements, cellars or similar
facilities, are or have ever been located on the Owned Parcels or any
Leased Parcel.
"Hazardous Materials" means any substance: (i) the presence of which
requires investigation or remediation by any applicable federal, state or local
statute, regulation, rule, ordinance, order, action, policy or common law; or
(ii) which as of the date hereof is defined as a "hazardous waste," "hazardous
substance," pollutant or contaminant
A-8
<PAGE> 48
under any federal, state or local statute, regulation, rule or ordinance,
including the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601, ET SEQ. and the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, ET SEQ., each as amended through the date hereof.
Section 4.08. LEASE TRANSACTIONS. "Lease Agreements" shall mean
collectively, as amended, leases, lease agreements, servicing agreements and
other contracts and agreements, including any guaranty or other document
securing obligations under a lease and all rights and interests therein,
related to the business of LDI and the Subsidiaries (other than those related
to the To Be Sold Businesses or as to which LDI or any of the Subsidiaries is
the lessee). "Lease Equipment" shall mean the computer equipment, machinery or
other equipment or any other tangible personal property subject to the Lease
Agreements. LDI has made available to Purchaser the standard form Lease
Agreements used in the business of LDI. The transactions evidenced by Lease
Agreements are herein collectively referred to as the "Lease Transactions,"
regardless of whether they are "true leases" for tax purposes. Except as set
forth in SECTION 4.08 of the LDI Disclosure Schedule:
(a) subject to the Remedies Exception, to the knowledge of LDI, each
of the Lease Agreements is valid and binding and in full force and effect.
(b) Each of LDI and the Subsidiaries has performed all material
obligations required to have been performed by it under the Lease Agreements.
LDI has delivered to Purchaser an accurate and complete aging schedule as of
January 31, 1996, with respect to the Lease Agreements. Except as set forth on
SECTION 4.08(b) of the LDI Disclosure Schedule or as reflected in the aging
schedule, as of the date hereof, neither LDI nor any of the Subsidiaries has
received notice of, or has knowledge of, any material default of a lessee under
any of the Lease Agreements. Neither LDI nor any of the Subsidiaries has
received notice that, or have any knowledge that, any lessee is asserting, or
has a basis to assert, any defense to payment under any Lease Agreement.
(c) All of the Lease Agreements are (i) in writing and are either on
forms previously furnished to Purchaser or are on forms which are adequate for
the practical realization of the benefits intended to be conferred thereby, and
(ii) are contained in the files of LDI. There are no oral agreements with
respect to options to purchase, early termination privileges, rental payments,
residual sharing or other matters that would materially adversely affect any
Lease Transaction.
(d) Except as properly reflected in the LDI Financial Statements, no
person other than a lessee or LDI (or any of the Subsidiaries) has any
contractual right to share in the residual value of any item of Lease Equipment
or an option to purchase any item of Lease Equipment.
(e) LDI and each of the Subsidiaries' characterization, as reflected
in the LDI Financial Statements and tax returns, of Lease Transactions as to
whether such transactions are true leases for federal income tax purposes is
correct.
(f) Except as provided in SECTION 4.08(f) of the LDI Disclosure
Schedule or as properly reflected in the LDI Financial Statements, there are no
participants or other persons that have a co-ownership interest or income,
residual or revenue sharing arrangement with LDI (or any of the Subsidiaries)
in any Lease Agreement or any Lease Equipment.
(g) LDI has previously delivered a true, accurate and complete list of
the Lease Transactions as of January 31, 1996, which list has been certified as
true, accurate and complete by an officer of LDI.
Section 4.09. EMPLOYMENT MATTERS.
(a) Each of LDI and the Subsidiaries is in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours. As of the
Effective Time, neither LDI nor any of the Subsidiaries will be party to any
collective bargaining agreement. There is no labor strike or material dispute,
slowdown or stoppage pending or, to the knowledge of LDI, threatened
A-9
<PAGE> 49
against or affecting LDI or any of the Subsidiaries. No representation
petition respecting the employees of LDI or any of the Subsidiaries has been
filed with the National Labor Relations Board (the "NLRB"). No unfair labor
practice or similar complaint against LDI or any of the Subsidiaries is
pending with the NLRB or any other federal or state agency, board or authority.
Neither LDI nor any of the Subsidiaries has experienced any primary work
stoppage involving any of its employees.
(b) Except as set forth in SECTION 4.09(b) of the LDI Disclosure
Schedule, as of the Effective Time, (i) the officers, employees and agents of
LDI will have been paid in full all wages, salaries, commissions, bonuses and
other compensation for services performed by them other than amounts that have
not yet become payable in accordance with customary practices, (ii) neither LDI
(or any of the Subsidiaries) nor Purchaser will have, or shall have, any
contractual liability or obligation to any officer, employee or agent of LDI
(or any of the Subsidiaries) for any severance pay, deferred compensation or
other similar payment as a result of the execution, delivery and performance of
this Agreement or the consummation of the Merger, or any subsequent termination
of the employment of any such person and (iii) there are no written or oral
employment agreements or employment contracts (those set forth in Section
4.09(b) of the LDI Disclosure Schedule being hereinafter referred to as the
"Employment Agreements") between LDI or any Subsidiary and any employees of LDI
or any Subsidiary.
(c) No event will have occurred that would make LDI (or any of the
Subsidiaries) subject to liability at or prior to the Effective Time under the
Worker Adjustment and Retraining Notification Act or any comparable state,
provincial or local law, and no notice of such event will have been issued by
LDI (or any of the Subsidiaries) to any individual, union or governmental
agency. In making the representation in this subsection (c), LDI need not take
into account any event called for by any agreement entered into in accordance
with this Agreement respecting any To Be Sold Business or the Picker Joint
Venture or any termination or proposed termination of employees in connection
therewith.
Section 4.10. EMPLOYEE BENEFIT PLANS.
(a) Set forth on SECTION 4.10 of the LDI Disclosure Schedule are all
Employee Plans pursuant to which LDI and the Subsidiaries provide benefits to
their employees, except for Employee Plans and Employment Agreements set forth
on SECTION 4.09(b) of the LDI Disclosure Schedule. "Employee Plans" shall mean
each bonus, incentive compensation, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option, life, health,
accident, disability, workers compensation, or other insurance, severance or
separation plan, or other employee benefit plan or material practice, policy or
arrangement of any kind, whether written or oral, including any employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), established or maintained by
LDI for the benefit of any employees. "Qualified Plan" shall mean each Employee
Plan which is intended to qualify under Section 401(a) of the Code.
(b) LDI and the Subsidiaries have no liability under Title IV of ERISA
with respect to any Employee Plan that is subject to Title IV of ERISA.
(c) Neither LDI (or any of the Subsidiaries) nor any predecessor of
LDI (or any of the Subsidiaries) contributes to or participates in, or has at
any time during the five years preceding the Effective Time contributed to or
has participated in, a "multiemployer plan" as that term is defined in Section
4001 of ERISA (a "Multiemployer Plan").
(d) Each of LDI and the Subsidiaries is in compliance in all material
respects with the provisions of each Employee Plan and the provisions of
applicable federal, state, provincial, and local laws and the provisions of
rules or regulations of federal, state, provincial, or local government
authorities. Neither LDI nor any of the Subsidiaries has engaged in a
violation of the requirements of Section 4980B of the Code or of Sections 601,
ET SEQ. of ERISA that has resulted in or could result in liabilities or the
imposition of penalties or sanctions under said Sections. Each Qualified Plan
is intended to be, and has been operated as, a qualified plan, and has been
determined by the Internal Revenue Service to be so qualified, under
Section 401(a) of the Code.
A-10
<PAGE> 50
(e) There are no outstanding liabilities of LDI (or any of the
Subsidiaries) to any of the Employee Plans other than for plan administrative
expenses and current benefit payments incurred in the normal course of
operation of the Employee Plans.
(f) Neither LDI nor any of the Subsidiaries has any liabilities or
obligations with respect to any event in connection with any Employee Plan
which could subject Purchaser or LDI (or any of the Subsidiaries) to any
liability under Section 409 of ERISA, Section 502(i) of ERISA, Section 502(l)
of ERISA, Title IV of ERISA, or Section 4975 of the Code.
(g) Except pursuant to the terms of any Employment Agreements or
Employee Plans set forth on SECTIONS 4.09(b) OR 4.10 of the LDI Disclosure
Schedule, there are no scheduled or agreed upon material future increases of
benefit levels (or creations of material new benefits) under any Employee Plan
or Employment Agreement or any stay bonus or severance arrangements which will
take effect after the Effective Time and no such increases (or creation of such
benefits or stay bonuses or severance) have been proposed, made the subject of
representations to employees of LDI or any of the Subsidiaries, or requested or
demanded by such persons under circumstances that made it reasonable to expect
that such increases will be granted.
(h) LDI has furnished to Purchaser, as of January 31, 1996, and will
furnish to Purchaser as may be requested from time to time, a list of all
employees of LDI (and the Subsidiaries), their respective dates of hire, base
compensation rate and their incentive compensation arrangements, which list has
been or will be certified as true, complete and correct by an officer of LDI.
Section 4.11 INSURANCE POLICIES. LDI has furnished to Purchaser, as of
January 31, 1996, and will furnish to Purchaser as may be requested from time
to time, a list of insurance policies carried by LDI and is Subsidiaries (the
"Insurance Policies"), specifying the insurer, amount of coverage and type of
insurance under each. Each of LDI and the Subsidiaries maintain insurance with
reputable insurers or appropriate self insurance for the business and assets of
LDI and the Subsidiaries against all risks, and in amounts which, in the
opinion of management, are prudent. All insurance policies and bonds with
respect to the business and assets of LDI and the Subsidiaries are in full
force and effect and will be maintained in full force and effect as they apply
to any matter, action or event relating to LDI and the Subsidiaries occurring
prior to the Effective Time.
Section 4.12. OTHER CONTRACTS. Except for the Lease Agreements and as
set forth in SECTION 4.12 of the LDI Disclosure Schedule, which disclosure
shall include the current debt and financing arrangements for LDI and the
Subsidiaries, neither LDI nor any of the Subsidiaries is a party to or bound
by, or has agreed to enter into, any written or oral, express or implied (a)
contract, agreement, arrangement or understanding (i) involving payments or
other obligations or liabilities remaining from LDI or any of the Subsidiaries
in excess of $50,000 per annum or expiring later than six months from the date
hereof, or (ii) involving payments or other obligations or liabilities to LDI
or any of the Subsidiaries in excess of $50,000 per annum and not in the
ordinary course of business of LDI or any of the Subsidiaries; (b) debt or loan
agreement, sale-leaseback agreement, revolving credit agreement, financing
agreement, mortgage, pledge, indenture, recourse agreement in connection with a
securitization or security agreement or similar arrangement involving a debt
for money borrowed in an amount or securing an amount in excess of $50,000 or a
lien, encumbrance, security interest or charge (other than a Permitted Lien)
upon the assets or properties of LDI or any of the Subsidiaries securing an
amount in excess of $50,000; (c) distribution, franchise or license agreement
involving payments or other obligations or liabilities to or of LDI or any of
the Subsidiaries in excess of $50,000 per annum; (d) guarantee or suretyship,
indemnification or contribution agreement or recourse agreement in connection
with a securitization involving payments or other obligations or liabilities to
LDI or any of the Subsidiaries in excess of $50,000 per annum; (e) contract
containing covenants which limit the ability of LDI or any of the Subsidiaries
or affiliates to compete in any line of business or with any person or which
involve any restriction of the geographical area in which, or method by which,
LDI or any of the Subsidiaries may carry on its business; (f) any employment
contract or understanding (including with respect to severance or termination
pay liabilities or fringe benefits) with any employees, including in any such
person's capacity as a consultant (other than those which either (i) are
terminable at will by LDI or any of the Subsidiaries without liability, payment
or penalty or (ii) do not involve payments with a present value of more than
$50,000 by LDI or any of the Subsidiaries during
A-11
<PAGE> 51
the remaining terms thereof or (iii) are the Employment Agreements); (g) any
agreement with respect to the acquisition of the assets or stock of another
entity or the sale of the assets or stock of LDI or any of the Subsidiaries or
any equity interest in any thereof; or (h) any other contract or agreement
(other than one disclosed on Section 4.26 of the LDI Disclosure Schedule)
which (x) is outside the ordinary cause of business of LDI, or (y) a "material
contract" within the meaning of Item 601(b)(10) of Regulation S-K (under the
Securities Act of 1933 and which would be described in clauses (a) through (g)
above if such clauses were not limited to contracts involving payments,
obligations, liabilities, debts, security interests, liens or charges in
excess of $50,000. The foregoing are herein collectively referred to as the
"Contracts."
LDI has furnished to Purchaser true and correct copies or written
descriptions (where oral) of each Contract and all amendments or modifications
thereto. LDI or the Subsidiaries has in all material respects performed all
obligations required to be performed by it and is not in material default under
any of the Contracts. To the knowledge of LDI, without independent
investigation: (x) all other parties to the Contracts are in compliance in all
material respects therewith and none are in default in any material respect,
(y) there is not under any Contract any event which, with notice or lapse of
time or both, would constitute an event of default in any material respect
thereunder, and (z) the Contracts are in effect and enforceable according to
their respective terms, subject to the Remedies Exception.
Section 4.13. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in SECTION 4.13 of the LDI Disclosure Schedule, since October 31, 1995, in
respect of LDI and the Subsidiaries, there has not been any:
(a) transaction consummated or agreement, contract or commitment
entered into other than in the ordinary course of business and not otherwise
permitted by this Agreement;
(b) capital expenditure or commitment made therefor, other than in the
ordinary course of business;
(c) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on, or destruction of,
damage to or loss of any asset (whether or not covered by insurance) that
materially and adversely affects its business, operations, or financial
condition;
(d) declaration, setting aside or payment of a dividend or any other
distribution in respect of its capital stock or direct or indirect redemption,
purchase or other acquisition of its capital stock;
(e) revaluation of any of its assets or write down of the value of any
inventory other than in the ordinary course of business consistent with past
practice;
(f) sale, assignment or transfer of any tangible or intangible asset,
except in the ordinary course of business consistent with past practice;
(g) mortgage, pledge or other encumbrance of any tangible or
intangible asset, except in the ordinary course of business consistent with
past practice;
(h) material increase in the rate or terms of compensation or benefits
payable or to become payable to any of its officers, directors, employees or
agents (except pursuant to the terms of any Employment Agreements or Employee
Plans and except for normal or scheduled increases) or commitments there for;
(i) material increase in the rate or terms of any material additional
salary, bonus, insurance, pension or other employee benefit plan, payment or
arrangement (except pursuant to the terms of any Employment Agreements or
Employee Plans and except for normal or scheduled increases) or commitments
therefor or to establish such a plan, payment or arrangement;
(j) waiver or release of any right or claim, except for fair value or
in the ordinary course of business consistent with past practice;
A-12
<PAGE> 52
(k) issuance, sale or authorization for issuance or sale of any shares
of its capital stock or of any other equity security or of any security
convertible into or exchangeable for its capital stock other than in connection
with the exercise of any LDI Options outstanding on the date hereof;
(l) authorization or incurrence of any additional debt, other than in
the ordinary course of business consistent with past practice;
(m) amendment to its Certificate of Incorporation or By-Laws;
(n) material amendment of any Contract other than in the ordinary
course of business consistent with past practice; or
(o) agreement or understanding to take any of the actions described in
this Section 4.13.
Section 4.14. COMPLIANCE WITH LAWS: PERMITS AND LICENSES. Each of LDI
and the Subsidiaries is in compliance in all material respects with all
Federal, state, local or foreign laws, ordinances and regulations, rules,
policies, guidelines, reporting and licensing requirements and all judgments,
awards, orders, writs, injunctions and decrees, with which it is or was
required to comply and, has received no notice of any material failure to
comply which remains uncorrected except that no representation is made as to
any failure of LDI or any of the Subsidiaries to be in such compliance due to
the act or omission of a lessee with respect to which LDI has no knowledge or
any act or omission which is required to be indemnified against by such lessee.
Set forth in SECTION 4.14 of the LDI Disclosure Schedule is a list of all
governmental permits, licenses, approvals, authorizations, permissions and
similar filings including those relating to environmental laws, occupational
safety and health and equal employment practices (the "Permits"), required to
have been obtained by LDI and the Subsidiaries. To the knowledge of LDI, without
independent investigation, no notice, citation, summons or order has been
issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or threatened by any governmental or other
entity with respect to the Permits and the Permits are in full force and
effect.
Section 4.15. CLAIMS AND PROCEEDINGS. Except as set forth in SECTION
4.15 of the LDI Disclosure Schedule, there is no litigation (including
bankruptcy, insolvency, or similar actions), proceeding, action, arbitration,
claim or investigation pending or, to the knowledge of LDI, threatened by or
against LDI or any of the Subsidiaries or against any of its Employee Plans,
properties or assets seeking injunction or declaratory or similar relief or a
judgment in excess of $50,000 or that might reasonably be expected to threaten
or impede the consummation of the transactions contemplated by this Agreement.
Except as set forth in SECTION 4.15 of the LDI Disclosure Schedule, neither LDI
nor any of the Subsidiaries is subject to any judicial injunction or mandate,
or any governmental order, specifically directed to or against it restricting
the conduct of its business in the manner in which it is or has been conducted
and, to the knowledge of LDI, no governmental agency or other authority has
initiated an investigation of, or threatened a proceeding against, LDI or any
of the Subsidiaries challenging the legal right of LDI or any of the
Subsidiaries to conduct its business in the manner in which it is or has been
conducted.
Section 4.16. FEDERAL RESERVE SYSTEM APPLICATION. The draft dated
February 9, 1996 of the Application to the Board of Governors of the Federal
Reserve System by NationsBank Corporation respecting LDI is true, complete and
correct in all material respects insofar as it describes the current activities
of LDI and the Subsidiaries.
Section 4.17. BROKERS AND ADVISERS. Except for Bear, Stearns & Co.,
Incorporated, no broker, finder or financial adviser has acted directly or
indirectly as such for, or is entitled to any compensation from LDI or any of
the Subsidiaries in connection with the origination, negotiation,
execution or performance of this Agreement or the transactions contemplated
herein.
Section 4.18. CORPORATE DOCUMENTS. Copies of the certificates or
articles of incorporation and by-laws of LDI and each of the Subsidiaries and
all amendments thereto, and all minutes of meetings, or written consents in
lieu of meetings, of the stockholders and the directors of LDI and each of the
Subsidiaries are contained in its minute books. There have been no meetings,
and no written consents in lieu of meetings, of the stockholders or the
A-13
<PAGE> 53
directors of the LDI or any of the Subsidiaries which are not fully, accurately
and completely reflected in such minute books.
Section 4.19. GUARANTIES. Set forth in SECTION 4.19 of the LDI
Disclosure Schedule is a list of contracts and agreements pursuant to which LDI
has guaranteed payment or performance of the obligations of any other entity,
including any recourse agreements in connection with a securitization (the
"Guaranties").
Section 4.20. DISCLOSURE. Neither LDI nor any of the Subsidiaries has
knowingly withheld from Purchaser any material facts relating to the assets,
business, operations, or financial condition of LDI or any of the Subsidiaries.
No representation or warranty in this Agreement or in any certificate or
schedule furnished or to be furnished to Purchaser pursuant hereto or at the
Effective Time contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated herein
or therein or necessary to make the statements herein or therein not misleading
in light of the circumstances in which they were or will be made. None of the
information other than information provided by the Purchaser in writing to LDI
to be included in the Proxy Statement (as to which information LDI makes no
representation or warranty) to be filed with the Securities and Exchange
Commission (the "SEC") by LDI to be used to solicit any required approval of
its stockholders as contemplated by this Agreement (the "Proxy Materials")
will, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which such statements are made, not misleading and,
at the time of the meetings of the stockholders of LDI to be held, including
any adjournments thereof (the "Stockholders' Meeting"), be false or misleading
with respect to any communication regarding the solicitation of any proxy for
the Stockholders' Meeting. All documents that LDI (and any of the Subsidiaries)
is responsible for filing with any agency or department of any federal, state
or local government, including the SEC and the National Association of
Securities Dealers, Inc. ("NASD") and the staffs thereof (collectively, the
"Regulatory Authorities") in connection with the transactions contemplated
hereby (the "Applications") will comply as to form in all material respects with
the provisions of applicable law, including applicable provisions of the federal
securities laws. LDI shall permit Purchaser to review and comment on all of the
Applications and the Proxy Materials prior to the filing thereof.
Section 4.21. CONFLICTS OF INTEREST. Except (x) as set forth in SECTION
4.21 of the LDI Disclosure Schedule, and (y) interests which are terminable at
will by LDI or any of the Subsidiaries without penalty, to the knowledge of
LDI, no officer or director of LDI or officer or director of any of the
Subsidiaries, or any affiliated or related entity or person, has any direct or
indirect interest (a) in any entity which does business with LDI or any of the
Subsidiaries, or (b) in any property, asset or right which is used by LDI or
any of the Subsidiaries in the conduct of its business, or (c) in any
contractual relationship with LDI or any of the Subsidiaries other than as an
employee. For the purpose of this Section 4.21, there shall be disregarded any
interest which arises solely from an interest in a corporation whose stock is
regularly traded on any national securities exchange or in the over-the-counter
market and any interest that does not in itself give the holder thereof any
ability to influence the management, policy or actions of any entity.
Section 4.22. ACCOUNTS AND SAFE DEPOSIT ARRANGEMENTS; POWERS OF
ATTORNEY. LDI has furnished to Purchaser as of January 31, 1996 a list of all
bank accounts, accounts with other financial institutions and safe deposit
boxes maintained by LDI and the Subsidiaries and the names of all persons
authorized to draw thereon or have access thereto. LDI has an unrestricted
right to the safe deposit boxes it and the Subsidiaries maintains and to all
amounts in the accounts it or its Subsidiaries maintains. Except as set forth
in SECTION 4.22 of the LDI Disclosure Schedule, no persons hold powers of
attorney from LDI or any of the Subsidiaries.
Section 4.23. INTELLECTUAL PROPERTY. Set forth in SECTION 4.23 of the
LDI Disclosure Schedule is a list, as of the date hereof, of all material
patents (including applications therefor), royalty and license agreements,
trademarks, trade names, service marks and copyrights relating to the conduct
of business of LDI and each of the Subsidiaries as such business is now
conducted. LDI (a) to its knowledge, owns or has the exclusive right to use,
free and clear of all liens, restrictions and claims, all such patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted,
(b) is not obligated or under any liability whatsoever to make any payments of
a material nature by way of royalties,
A-14
<PAGE> 54
fees or otherwise to any owner of, licensor of, or other claimant to, any
patent, trademark, trade name, copyright or other intangible assets, with
respect to the use thereof or in connection with the conduct of its business or
otherwise, (c) to its knowledge, owns or has the right to use, free of material
restrictions, all trade secrets, including know-how, inventions, designs,
processes, computer programs and technical data necessary to the development,
operation and sale of all products and services sold by it, free and clear of
any rights, liens or, to the knowledge of LDI, claims of others, and (d) to its
knowledge, is not using any proprietary confidential information or trade
secrets of others. Neither LDI nor any of the Subsidiaries is or has received
notice with respect to infringing upon or otherwise acting adversely to any
known right or claimed right of any person under or with respect to any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing.
Section 4.24. SECURITIES REPORTING DOCUMENTS AND FINANCIAL STATEMENTS.
LDI (i) has delivered to Purchaser copies of the consolidated statements of
financial conditions, balance sheets, cash flows and changes in stockholders'
equity (including related notes and schedules) of LDI and the Subsidiaries as
of and for the periods ended October 31, 1995 and January 31, 1995 included in
a quarterly report on Form 10-Q or an annual report on Form 10-K, as the
case may be, filed by LDI or any of the Subsidiaries under the federal
securities laws and (ii) furnished Purchaser with a true and complete copy of
each material report, schedule, registration statement and definitive proxy
statement filed by LDI or any of the Subsidiaries with the SEC from and after
January 31, 1993 (each a "Securities Reporting Document"), which are all the
material documents (other than preliminary material) that LDI or any of the
Subsidiaries was required to file with the SEC since such date and all of which
complied when filed in all material respects with all applicable laws and
regulations (the financial statements and related notes and schedules referred
to in clause (i) above included in the Securities Reporting Documents,
collectively, the "LDI Financial Statements"). The LDI Financial Statements (as
of the dates thereof and for the period covered thereby) (A) are or will be in
accordance with the books and records of LDI and the Subsidiaries, which are or
will be complete and accurate in all material respects and which have been or
will have been maintained in accordance with good business practices, and (B)
present or will present fairly the consolidated financial position and the
consolidated results of operations, changes in stockholders' equity and cash
flows of LDI and its Subsidiaries as of the dates and for the period indicated,
in accordance with GAAP consistently applied except as disclosed, subject in
the case of interim financial statements to normal recurring year end
adjustments and except for the absence of certain footnote information in the
unaudited statement. LDI has delivered to Purchaser copies of all management
letters, reportable conditions letters and material weaknesses letters prepared
by Deloitte & Touche, L.L.P. (and any predecessor thereto) delivered to LDI
since January 31, 1993. It is understood and agreed that the Picker Joint
Venture is not consolidated with LDI and the other Subsidiaries for purposes of
the LDI Financial Statements, although its financial results and position
are properly reflected therein.
Section 4.25. STATE TAKEOVER LAWS. There are no applicable state
takeover laws or any applicable provisions in the certificate or articles of
incorporation of LDI or any Subsidiary or in any contract or agreement binding
on LDI or any Subsidiary or any property of any of them containing change of
control or anti-takeover provisions which adversely affect the consummation of
the transactions contemplated hereby, except that no representation or warranty
is made with respect to the applicability of any laws applicable to the Merger
solely as a result of the state of incorporation or domicile of Merger Sub.
Section 4.26. DERIVATIVES CONTRACTS. Neither LDI nor any of the
Subsidiaries is a party to nor has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract, or any other contract which is a financial derivative contract
(including various combinations thereof) (each a "Derivatives Contract") except
for those Derivatives Contracts disclosed in SECTION 4.26 of the LDI Disclosure
Schedule, which includes a complete list, as applicable, of assets of LDI
and/or the Subsidiaries, pledged as security for each Derivatives Contract.
Section 4.27. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in SECTION 4.27 of the LDI Disclosure Schedule, neither LDI nor any of the
Subsidiaries has any obligations or liabilities (contingent or otherwise)
except obligations and liabilities (i) which are fully accrued or reserved
against in all material respects in the consolidated statement of financial
condition of LDI and the Subsidiaries as of October 31, 1995 included in the
LDI Financial Statements or reflected in the notes thereto, (ii) which were
incurred after October 31, 1995 in the ordinary course
A-15
<PAGE> 55
of business consistent with past practice, or (iii) which either individually
or in the aggregate would not have a material adverse effect.
Section 4.28. STOCKHOLDER APPROVAL. Approval of the Merger and related
transactions requires the affirmative vote of only a majority of the Shares.
Section 4.29. PENDING COMMITMENTS. SECTION 4.29 of the LDI Disclosure
Schedule contains a list, as of the date hereof, of all outstanding commitments
to enter into any leasing, securitization or financing transaction (or any
other commitment to advance funds) to which LDI (or any of the Subsidiaries) is
a party or is otherwise bound in any way.
Section 4.30. TAXES.
Except as set forth in SECTION 4.30 of the LDI Disclosure Schedule:
(a) All Tax Returns required to be filed on behalf of LDI or any of
the Subsidiaries have been timely filed, or requests for extensions have been
timely filed, granted and have not expired, for periods ending on or before
December 31, 1995, and all such returns filed are complete and accurate in all
material respects. "Tax Returns" shall mean any report, return, information
return or other information required to be supplied to a taxing authority in
connection with Taxes, induding any return of any affiliated or combined or
unitary group that includes LDI or the Subsidiaries.
(b) There is no audit examination deficiency or refund litigation or
matter that has been raised by a taxing authority with respect to any
previously filed Tax Returns or any prior Tax payments or periods that could
reasonably be expected to result in a materially adverse determination. All
Taxes due with respect to completed and settled examinations or concluded
litigation have been adequately reserved for or paid. "Tax" or "Taxes" shall
mean all federal, state, local and foreign taxes, charges, fees, levies,
imposts, duties or other assessments, including income, gross receipts, excise,
employment, sales, use, transfer, license, payroll, franchise, severance,
stamp, occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid up capital, profits,
withholding, Social Security, single business and unemployment, disability,
real property, personal property, registration, ad valorem, value added,
alternative or add-on-minimum, estimated, or other tax or governmental fee
of any kind whatsoever, imposed or required to be withheld by the United States
or any state, local, foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto.
(c) Neither LDI nor any of the Subsidiaries have executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due that is currently in effect.
(d) The (i) provisions for Taxes due or to become due for LDI or any
of the Subsidiaries for any period or periods through and including October 31,
1995 and (ii) Deferred Taxes of LDI and the Subsidiaries, all as reflected in
the LDI Financial Statements have been prepared in accordance with GAAP,
applied on a consistent basis, subject in the case of interim financial
statements to normal recurring year-end adjustments.
(e) Except as adjusted from time to time by the Internal Revenue
Service, LDI and the Subsidiaries have collected and withheld all Taxes which
they have been required to collect or withhold and have timely submitted all
such collected and withheld amounts to the appropriate authorities. LDI and the
Subsidiaries are in reasonable compliance with the back-up withholding and
information reporting requirements under (1) the Code, and (2) any state, local
or foreign laws, and the rules and regulations, thereunder.
(f) Neither LDI nor any of the Subsidiaries have made any payment, or
are obligated to make any payments, or are a party to any contract, agreement
or other arrangement that could obligate any of them to make any payments that
would be disallowed as a deduction under Section 280G of the Code.
A-16
<PAGE> 56
(g) To LDI's knowledge, there has not been an ownership change, as
defined in Code Section 382(g), of LDI or any of the Subsidiaries that occurred
during or after any taxable period in which LDI or any of the Subsidiaries
incurred a net operating loss that carries over to any taxable period ending
after January 31, 1996, other than as a result of the transactions contemplated
by this Agreement.
(h) Neither LDI nor any of the Subsidiaries have filed any consent
under Section 341(f) of the Code concerning collapsible corporations.
(i) All material elections with respect to Taxes affecting LDI or any
of the Subsidiaries as of the date hereof have been timely made. After the date
hereof, no material election with respect to Taxes or change in any previously
made material election will be made without the prior written consent of
Purchaser, which consent will not be unreasonably withheld.
(j) Neither LDI nor any of the Subsidiaries have or have had a
permanent establishment in any foreign country, as defined in any applicable
tax treaty or convention between the United States and such foreign country.
(k) Neither LDI nor any of the Subsidiaries have agreed to make or are
required to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
Section 4.31. LDI OPTIONS. Other than as set forth in this Agreement
with respect to the cancellation of certain LDI ()ptions, LDI has not taken or
agreed to take any action to reissue or reprice or in any way effect the terms
of any LDI Options since July 31, 1995.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to LDI that:
Section 5.01. ORGANIZATION AND EXISTENCE. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and has all requisite corporate power and authority to own, lease or
otherwise hold its assets and carry on its business as it is now being
conducted.
Section 5.02. AUTHORIZATION EXECUTION AND DELIVERY. Purchaser has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all requisite corporate action of
Purchaser. This Agreement has been duly executed and delivered by Purchaser
and, assuming due execution and delivery by LDI, constitutes the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to the Remedies Exception.
Section 5.03. GOVERNMENTAL APPROVALS; OTHER CONSENTS. Except for the
approval of the Federal Reserve System, (a) no approval, authorization, consent
or order of, or filing or registration with, any governmental or regulatory
authority is required to be obtained or made by Purchaser in order to permit
Purchaser to enter into and to perform its obligations under this Agreement,
and (b) no approval, authorization or consent of or by any third party is
required to permit Purchaser to merge with LDI on the terms set forth herein.
Section 5.04. CLAIMS AND PROCEEDINGS. There is no litigation,
proceeding, injunction, mandate, order or restriction, pending or, to the best
knowledge of Purchaser, threatened, against Purchaser which seeks to enjoin or
prevent the consummation of the transactions contemplated herein.
A-17
<PAGE> 57
Section 5.05. BROKERS AND ADVISERS. No broker, finder or financial
adviser has acted directly or indirectly as such for, or is entitled to any
compensation from, Purchaser in connection with the origination, negotiation,
execution or performance of this Agreement or the transactions contemplated
herein.
Section 5.06. NO CONFLICT WITH OTHER INSTRUMENTS. Neither the
execution, delivery and performance of this Agreement nor the consummation of
the transactions contemplated hereby nor compliance by Purchaser with anv of
the provisions hereof does or will (a) conflict with the Certificate of
Incorporation or By-Laws of Purchaser, (b) result in a breach of the terms,
conditions or provisions of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or terminate or
give rise to a right to terminate or bring into operation any penalty or price
escalation provision of, any indenture, mortgage, lease, material contract,
agreement or instrument to which Purchaser is a party or by which Purchaser, or
any of its properties, may be bound or any license held by Purchaser, or (c)
subject to receipt of approval by the Federal Reserve System, violate any law,
regulation, order or decree of any government body or authority to which
Purchaser is subject or by which Purchaser, or any of its properties or assets,
may be bound.
Section 5.07. INFORMATION AND PROXV STATEMENT. None of the information
with respect to Purchaser or its officers, directors, affiliates and associates
or the plans of such persons for the Surviving Corporation after the Effective
Time supplied by Purchaser in writing to LDI expressly for inclusion or
incorporation in the Proxy Materials to be sent to the stockholders of LDI
will, at the date mailed to stockholders of LDI and at the time of the
Stockholders' Meeting, contain any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary in order to
make statements therein, in light of circumstances under which they are made,
not misleading.
Section 5.08. FINANCING. At or prior to the Effective Time, Purchaser
shall fund the Disbursing Agent on an as-needed basis with funds sufficient to
pay the Purchase Price.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. ACCESS TO PROPERTIES AND RECORDS. From the date hereof
through the Effective Time, LDI and the Subsidiaries shall permit Purchaser
and its authorized representatives reasonable access during regular business
hours to the properties of LDI and the Subsidiaries and shall make its
management and other employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer with
Purchaser and its authorized representatives regarding LDI and the
Subsidiaries, and LDI and the Subsidiaries shall, disclose and make available
to Purchaser, and shall use their best efforts to cause their agents and
authorized representatives to disclose and make available to Purchaser, all
books, papers and records relating to the assets, properties, operations,
obligations and liabilities of LDI and the Subsidiaries, including all books of
account (including the general ledger), consolidated and consolidating
financial statements, tax records, tax returns, minute books of meetings of
directors, committees and stockholders, organizational documents, by-laws,
contracts and agreements, loan files, filings with any regulatory authority,
accountants work papers, litigation files, employment agreements or employee
plans affecting employees and any other business activities or prospects of LDI
and the Subsidiaries, as Purchaser may from time to time reasonably request.
Upon gaining access, Purchaser shall conduct itself in such a manner so as not
to be disruptive and shall take reasonable and normal precautions to preserve
the confidentiality of the information so obtained; provided, however,
that this obligation on the part of Purchaser shall not apply to (a) any
information which (i) was then generally known to Purchaser or the public, (ii)
became known to the public through no fault of Purchaser or any of its agents
or representatives or (iii) was disclosed to Purchaser by a third party
unaffiliated with Purchaser who was not bound by an obligation of
confidentiality to LDI or any of the Subsidiaries, or (b) disclosures required
to be made in accordance with any law, regulation or order of a court or
regulatory agency of competent jurisdiction, and (to the extent possible under
the circumstances) Purchaser shall give LDI prior notice that such disclosures
are required to be made by Purchaser. In the event that this Agreement is
terminated, Purchaser shall, upon written request of LDI, return to LDI all
documents and other materials
A-18
<PAGE> 58
containing, reflecting or referring to information obtained by Purchaser from
LDI and the Subsidiaries pursuant to this Section 6.01 other than information
described in the proviso of the preceding sentence. No investigation by
Purchaser, whether prior to or following the date of this Agreement, shall in
any way release LDI and the Subsidiaries from its representations and
warranties hereunder.
Section 6.02. NORMAL COURSE OF BUSINESS; OTHER PRE-EFFECTIVE TIME
MATTERS. From the date hereof through the Effective Time LDI shall, and shall
cause each of the Subsidiaries to:
(a) Conduct its business in the usual, regular and ordinary course
consistent with past practice (other than transactions made pursuant to
contracts in existence on the date hereof and other than as provided in Article
III hereto), including,
(i) maintain its corporate existence in good standing;
(ii) maintain the general character of its business and conduct and
operate itS business and affairs in the ordinary and usual
manner;
(iii) maintain proper business and accounting records in accordance
with past practices;
(iv) maintain its properties and other tangible assets in its
possession in reasonably good repair and condition in
accordance with its past policies;
(v) use its best efforts to preserve its business organization
intact, to keep the goodwill of its present employees, to
continue to employ all of its key management, and to preserve its
goodwill and the goodwill of its suppliers, vendors, customers and
others having business relationships with it, each in accordance with
past practices; and
(b) LDI shall not, and shall not permit any of the Subsidiaries to,
without the prior consent of Purchaser;
(i) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible
for the obligations of any individual, corporation or other entity, or
make any loan or advance other than in the ordinary course of
business consistent with past practice;
(ii) adjust, split, combine or reclassify , reissue or reprice any
capital stock or warrant, increase or pay any dividend or make any other
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of capital stock or securities or obligations
convertible into or exchangeable for any such shares, or grant any stock
appreciation rights, options, warrants or any right to acquire shares of
capital stock, issue any additional shares of capital stock or
securities convertible into or exchangeable for any shares of capital
stock, except pursuant to the exercise of LDI Options, or the
cancellation of LDI Options as contemplated by Agreement, and except
for dividends or distributions from any Subsidiary to LDI;
(iii) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other
entity, or cancel, release or assign any indebtedness to any such person
or any claims held by any such person, except in the ordinary course of
business consistent with past practice or pursuant to contracts or
agreements in force at the date of this Agreement and except in
connection with the sale of the To Be Sold Businesses and the Picker
Joint Venture;
A-19
<PAGE> 59
(iv) make any investment either by purchase of stock or equity
securities, contributions to capital or property transfers of any other
individual, corporation or other entity other than in or to the
Subsidiaries and other than as provided for the applicable sale
agreements in connection with the sale of the To Be Sold
Businesses;
(v) enter into or terminate any contract or agreement (other than any
contract or agreement specifically permitted under any other Section of
this Agreement) involving annual payments in excess of $50,000 and which
cannot be terminated without penalty upon thirty (30) days' notice,
except in the ordinary course of business;
(vi) except as required by law, increase or modify in any manner the
compensation, other than periodic raises consistent with the ordinary
course and past practice in amount and other aspects, or fringe benefits
of any of its employees or pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees, or
become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee or, except as
otherwise specified in SECTION 2.02, accelerate the vesting of any stock
options or other stock-based compensation to pay any year end or
special bonuses;
(vii) settle any claim, action or proceeding involving the payment
of money damages in excess of $50,000, except in the ordinary
course of business consistent with past practice;
(viii) amend its Certificate of Incorporation or its By-Laws;
(ix) fail to maintain its material licenses and permits or to file
in a timely fashion all federal, state, local and foreign tax returns;
(x) make any capital expenditures of more than $50,000 individually
or $100,000 in the aggregate or except as reasonably necessary to
maintain existing assets in good repair and condition;
(xi) fail to maintain each LDI Benefit Plan or timely make all
contributions or accruals required thereunder in accordance with GAAP
applied on a consistent basis;
(xii) issue any additional shares of capital stock of LDI or any
capital stock of any Subsidiary other than any shares of common stock
of LDI issued pursuant to LDI Options;
(xiii) other than in prior consultation with Purchaser, materially
restructure or change its investment securities portfolio, through
purchases, sales or otherwise, or the manner in which the portfolio is
classified or reported;
(xiv) take any action that is intended or may reasonably be expected
to result in its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger
set forth in this Agreement not being satisfied or in a violation of any
provision of this Agreement in any material respects, except, in every
case, as may be required by applicable law; or
(xv) agree to, or make any commitment to, take any of the actions
prohibited by this Section 6.02
A-20
<PAGE> 60
Section 6.03. NO-SHOP. Prior to the date LDI stockholders vote on the
proposed Merger, LDI will not, and will not permit its directors, officers,
employees, agents or representatives, directly or indirectly, to solicit,
encourage or respond to any inquiries or proposals by any other person
(including the furnishing of any non-public information concerning LDI's
business, properties or assets to any such person) in connection with any
proposal or inquiry involving a potential acquisition of the stock or the assets
of LDI, whether by merger, purchase of securities or assets, tender offer or
otherwise, other than any proposal or inquiry relating only to one or more of
the To Be Sold Businesses or the Picker Joint Venture (any such proposal or
inquiry not relating solely thereto being hereinafter referred to as an
"Acquisition Proposal"), provided, however, that LDI may furnish information
concerning its business, properties or assets in response to an unsolicited
Acquisition Proposal by another person if counsel to LDI advises the Board of
Directors in writing that there would be a breach of fiduciary duty on the part
of the members of the Board of Directors as a result of its failure to furnish
such information to such other persons. If an Acquisition Proposal is received
by LDI or any such information is furnished in response thereto, LDI shall
promptly notify Purchaser, including the material terms thereof.
Section 6.04. RELEASE OF INFORMATION. Neither Purchaser nor LDI shall
release information to the public concerning this Agreement or the transactions
contemplated herein without the prior written consent of the other party;
provided, however, that nothing contained herein shall prevent either party
from disclosing any information required to be disclosed in accordance with any
law, including federal securities laws, regulation or order of a court or
regulatory agency of competent jurisdiction, or any rule of the Nasdaq National
Market.
Section 6.05. EMPLOYEES MATTERS.
(a) Without limiting the at will employment status of LDI's employees
(other than those covered by Employment Agreements) and LDI's rights to
terminate employees at will, as of the Effective Time or thereafter, Purchaser
shall cause Surviving Corporation's employees to be employed (at then existing
salary levels) upon terms and conditions (including benefits) which are
substantially equivalent to those generally afforded to other employees holding
similar positions with Purchaser. Purchaser shall provide Surviving
Corporation's employees with credit for service with LDI (and any of the
Subsidiaries) prior to the Effective Time for purposes of determining their
eligibility to participate and their vesting under Purchaser's employee plans
that are intended to qualify under Section 401(a) of the Code; provided,
however, that employees of or respecting the To Be Sold Businesses shall not
become eligible to partidpate in Purchaser's pension plan or any other post-
retirement benefit plans or programs. In addition, Purchaser shall provide such
employees with credit for service with LDI (and any of the Subsidiaries)
prior to the Effective Time for purposes of determining their eligibility to
participate and their satisfaction of any waiting periods or pre-existing
condition limitations for benefits under Purchaser's welfare benefit plans
(including Purchaser's medical, life, disability, vacation pay and sick pay
plans, policies and programs); PROVIDED, HOWEVER, such service shall be
recognized under Purchaser's post-retirement medical benefits plans or programs
for purposes of eligibility only and not for purposes of computing the amount
of the employer-provided benefits under such plans and programs. Surviving
Corporation's employees shall not be required to satisfy the deductible and
employee payments required by Purchaser's medical plan for calendar year 1996
to the extent of amounts previously credited under comparable plans maintained
by LDI.
(b) This Section 6.05 shall be binding solely on the parties to this
Agreement, and shall be only for the benefit of the parties to this Agreement,
and no other person shall have any third party beneficiary or other right
hereunder.
Section 6.06. GOVERNMENTAL APPROVALS. Each of LDI and Purchaser shall
use their commercially reasonable best efforts to cooperate in obtaining any
consent, approval, authorization or order of, or in making any registration or
filing with, any governmental agency or body or other third party required in
connection with execution, delivery or performance of this Agreement and
furnish to one another such necessary information and reasonable assistance as
may be requested in connection with the preparation of such filings. Each of
LDI and Purchaser shall supply to one another copies of all correspondence,
filings or communications (or memoranda setting forth the substance thereof)
between LDI or Purchaser or their respective representatives, on the one hand,
and any
A-21
<PAGE> 61
other governmental agency or authority or their respective staffs, on the
other hand, with respect to this Agreement or the transactions contemplated
hereby, other than confidential or proprietary information therein.
Section 6.07. REAL ESTATE. LDI shall permit Purchaser to conduct, at
Purchaser's cost, such Phase I environmental studies (and any further
environmental studies Purchaser reasonably deems appropriate) relating to such
real estate owned or leased by LDI or any Subsidiary as Purchaser may select.
Section 6.08. ADDITIONAL FINANCIAL STATEMENTS. As soon as they become
available to LDI, LDI shall furnish to Purchaser the financial statements of
LDI for all monthly and quarterly periods subsequent to the date of the LDI
Financial Statements and prior to the Effective Time.
Section 6.09. CERTAIN ACTIONS BEFORE EFFECTIVE TIME. LDI shall perform
and comply with all covenants and agreements to be performed and complied with
by it prior to the Effective Time, and shall reasonably cooperate with
Purchaser in connection with the actions required to be taken by Purchaser to
satisfy the conditions set forth in Article VIII. Purchaser shall perform and
comply with all covenants and agreements to be performed and complied with by
it prior to the Effective Time, and shall reasonably cooperate with LDI in
connection with the actions required to be taken by LDI to satisfy the
conditions set forth in Article VII.
Section 6.10. LIENS ON SHARES: If, to the knowledge of LDI, without
independent investigation, any Shares are subject to any liens, security
interests, restrictions, encumbrances or claims other than restrictions on
transferability generally imposed by federal or state securities laws, LDI will
so advise Purchase in writing at least five days prior to the Effective Time.
Section 6.11. STOCKHOLDERS' APPROVAL AND SEC FILING. LDI shall call a
meeting of its stockholders to be held as soon as practicable for the purpose
of voting upon the Merger and related matters. LDI shall submit for approval of
its stockholders such matters to be voted upon at such Meeting. LDI shall
transmit its preliminary Proxy Material to the SEC via EDGAR no later than
February 21, 1996; provided that Purchaser has provided, in writing to LDI on
or before February 15, 1996, all required information with respect to Purchaser
for inclusion in such Proxy Materials.
Section 6.12. NOTICE OF CERTAIN EVENTS. LDI shall promptly give
Purchaser notice of any representation or warranty contained herein that
becomes untrue or incorrect in any material respect and of the occurrence or
existence of any Material Adverse Effect.
Section 6.13. TERMINATION FEE. If this Agreement is terminated by LDI
or Purchaser pursuant to SECTION 9.01(e) or (f) (except that any termination
resulting from a failure of the conditions precedent set forth in SECTIONS 7.02
or 7.08 or the failure to obtain the approval cited in SECTION 5.03 shall not
give rise to the payment of the Termination Fee described below) and an
Acquisition Event (as defined below) (i) shall have been agreed to after the
date hereof and prior to the date that is six months after the date of such
termination, or (ii) shall have been consummated after the date hereof and
prior to the date that is one year after the date of such termination, then, in
either case, LDI shall upon demand by Purchaser, pay or cause to be paid
in same day funds to Purchaser $1,000,000 (the "Termination Fee").
"Acquisition Event" shall mean any of the following other than a sale
of the To Be Sold Businesses or LDI's interest in the Picker Joint Venture: (i)
any person or group (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than Purchaser or any of
its affiliates, shall have acquired, subsequent to the date hereof, pursuant to
a tender offer, exchange offer or otherwise, beneficial ownership (including
pursuant to the acquisition of options) of 50% or more of the voting power of
the equity securities of LDI or any of the Subsidiaries or (ii) LDI or any of
the Subsidiaries shall have consummated a transaction, the effect of which is
to (w) effect a merger, consolidation, business combination or sale of
substantially all of the assets of (on a consolidated basis), or similar
transaction involving LDI or any of the Subsidiaries, (x) sell, lease or
otherwise dispose of assets of LDI or the Subsidiaries representing 50% or more
of the consolidated assets of LDI and the Subsidiaries, or (y) issue, sell or
otherwise dispose of other than by means of a widely disbursed public offering
A-22
<PAGE> 62
(including by way of merger, consolidation, share exchange, or any similar
transaction) securities representing 50% or more of the voting power of the
equity securities of LDI.
Section 6.14. INDEMNIFICATION. For five years after the Effective Time,
Purchaser shall indemnify, defend and hold harmless the present and former
officers, directors and employees of LDI and the Subsidiaries (each, an
"Indemnified Party") after the Effective Time against all losses, expenses,
claims, damages or liabilities arising out of actions or omissions occurring on
or prior to the Effective Time to the full extent then permitted under Delaware
law and by LDI's Certificate of Incorporation and By-Laws in effect on the date
hereof except the right to indemnification shall not arise in those instances
in which the party seeking indemnification has participated in the breach of
any covenant or agreement contained herein or knowingly caused any
representation or warranty of LDI contained herein to be false or inaccurate in
any respect and the claim arises principally from such breach or such falsity
or inaccuracy of such representation or warranty.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser consummate the transactions contemplated by
this Agreement shall be subject to the prior satisfaction of the following
conditions:
Section 7.01. REPRESENTATIONS AND WARRANTIES OF LDI CORRECT. The
representations and warranties made by LDI in this Agreement shall be true and
correct at and as of the Effective Time with the same force and effect as
though all such representations and warranties had been made at and as of the
Effective Time (except that any representation or warranty that relates to a
specific date shall be true and correct on and as of that date) except for, in
each case, breaches of such representations and warranties which, individually
and in the aggregate, do not have a Material Adverse Effect, it being agreed
that for purposes of determining whether a Material Adverse Effect has
occurred, limitations in any representations and warranties relating to
knowledge or materiality shall not be given effect, so that each breach shall
be included, regardless of whether LDI knew of the same or the same was,
standing alone, material, and the consequences of any breach by LDI of its
covenants or agreements herein shall be considered in addition to any such
untruth or correctness, and LDI shall have delivered to Purchaser a
certificate, dated the Effective Time and signed by duly authorized officers of
LDI, to such effect to the knowledge of such officers.
Section 7.02. NO PROCEEDINGS PENDING. There shall be (a) no pending
action, suit or proceeding by any governmental authority or administrative
agency that seeks to restrain, prohibit or invalidate the transactions
contemplated by this Agreemept and (b) no outstanding order in any action, suit
or proceeding that restrains or enjoins the transactions contemplated by this
Agreement or that imposes a material limitation on the ability of Purchaser to
exercise full rights of ownership over the Shares or a material portion of the
assets and businesses of LDI.
Section 7.03. GOVERNMENT APPROVALS; OTHER CONSENTS. Purchaser and its
affiliates, and LDI shall have received the approvals, consents and
determinations referred to in Sections 4.04 and 5.06(c), in each case in form
and substance reasonably satisfactory to Purchaser.
Section 7.04. AUDITED YEAR END FINANCIAL STATEMENTS FOR THE YEAR ENDED
JANUARY 31, 1996. Not later than five days prior to the Effective Time, LDI
shall have prepared and delivered to the Purchaser LDI's audited year end
financial statements for the year ended January 31, 1996.
Section 7.05. STOCKHOLDER APPROVAL. The stockholders of LDI have
approved all matters relating to the Merger required to be approved under
applicable law at the Stockholders' Meeting.
Section 7.06. DISPOSITION OF THE PICKER JOINT VENTURE. LDI shall have
sold its interest in the Picker Joint Venture for net consideration of at least
the sum of (x) $4,379,000 and (y) any increase in the book value of the
A-23
<PAGE> 63
Picker Joint Venture to LDI over the book value on October 31, 1995, pursuant to
agreements reasonably satisfactory in form and substance to the Purchaser, and
all indebtedness and other obligations of the Picker Joint Venture to LDI or
any Subsidiary shall have been satisfied. In computing such net consideration,
a reasonable valuation of the ongoing liabilities of LDI respecting such sale
and termination and severance costs respecting any redundant employees and
write-downs of redundant assets shall be deducted from the net consideration
amount required by this Section.
Section 7.07. NOTE FROM MRK TECHNOLOGIES. LDI shall be able to pay or
otherwise realize upon its note from MRK Technologies, Inc. in full promptly
after the Effective Time with the proceeds of the collateral held by it
therefor.
Section 7.08. POTENTIAL DISSENTERS' RIGHTS. Holders of not more than
15% of the Shares shall have properly exercised and perfected appraisal rights
under the DGCL with respect to the Merger.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF LDI
The obligation of LDI to consummate the transactions contemplated by
this Agreement shall be subject to the prior satisfaction of the following
conditions:
Section 8.01. REPRESENTATIONS AND WARRANTIES OF PURCHASER CORRECT. The
representations and warranties made by Purchaser in this Agreement shall be
true and correct in all material respects at and as of the Effective Time with
the same force and effect as though all such representations and warranties had
been made at and as of the Effective Time, and Purchaser shall have delivered
to LDI a certificate, dated the Effective Time and signed by duly authorized
officers of Purchaser, to such effect, to the knowledge of such officers.
Section 8.02. COMPLIANCE WITH TERMS AND CONDITIONS. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
Purchaser on or before the Effective Time shall have been complied with and
performed in all material respects, and Purchaser shall have delivered to LDI a
certificate, dated the Effective Time and signed by duly authorized officers of
Purchaser, to such effect.
Section 8.03. NO PROCEEDINGS PENDING. There shall be (a) no pending
action, suit or proceeding by any governmental authority or administrative
agency that seeks to restrain, prohibit or invalidate the transactions
contemplated by this Agreement, and (b) no outstanding order in any action,
suit or proceeding that restrains or enjoins the transactions contemplated by
this Agreement.
Section 8.04. GOVERNMENTAL APPROVALS. Purchaser and its affiliates, and
LDI shall have received the approvals, consents and determinations referred to
in Sections 4.04 and 5.06(c), in each case in form and substance reasonably
satisfactory to LDI.
Section 8.05. STOCKHOLDERS' APPROVAL. The stockholders of LDI have
approved all matters relating to the Merger required to be approved under
applicable law at the Stockholders' Meeting.
ARTICLE IX - TERMINATION
Section 9.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) By mutual written consent of the Board of Directors of each of
Purchaser and LDI;
A-24
<PAGE> 64
(b) by either Purchaser or LDI if the Merger has not been consummated
on or before July 1, 1996;
(c) by either Purchaser or LDI if a court of competent jurisdiction
shall have issued an order, decree or ruling permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated in this Agreement, and
such order, decree, ruling or other action shall have become final and
non-appealable;
(d) by the Board of Directors of Purchaser if the Federal Reserve
System has denied approval of the Merger and such denial has become final and
non-appealable or, notwithstanding the provisions of Sections 6.06 and 7.04, if
it has approved the Merger subject to conditions that in the judgment of
Purchaser would restrict it or its affiliates in their respective spheres of
operations and business activities after the Effective Time or otherwise be
materially burdensome to Purchaser or its affiliates;
(e) by Purchaser or LDI if the stockholders of LDI fail to approve
the Merger at the Stockholders' Meeting;
(f) by Purchaser in the event any of the Closing conditions set
forth in Article VII are not satisfied at the scheduled Closing; or
(g) by LDI in the event that any of the Closing conditions set
forth in Article VIII are not satisfied at the scheduled Closing.
Section 9.02. PROCEDURE AND EFFECT OF TERMINATION. In the
event of termination of this Agreement pursuant to Section 9.01, written
notice thereof shall forthwith be given by the terminating party to the
other party and this Agreement shall terminate without further action by
either Purchaser or LDI, and neither Purchaser or LDI shall have any
liability or further obligation to the other parties; provided, however,
that the obligations of Purchaser and LDI to pay or share expenses
pursuant to Section 10.01, and the obligations of Purchaser and LDI with
respect to confidentiality of information and release of information
pursuant to Sections 6.01 and 6.05 shall survive the early termination
of this Agreement; and provided, moreover, that termination of this
Agreement for any reason shall not release any party from any liability
that at the time of termination had already accrued to any other party
or that thereafter may accrue in respect of any act or omission taken or
made before such termination. The foregoing shall not be construed to
deprive either Purchaser or LDI of any remedy hereunder or at law if
this Agreement is terminated in violation of Section 9.01 hereof.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. EXPENSES. Except as otherwise provided in this
Agreement, each of the parties hereto shall pay its own expenses
incident to the origination, negotiation and execution of this Agreement
and the consummation of the transactions contemplated herein by the
parties hereto, including, without limitation, all legal and accounting
fees and disbursements.
Section 10.02. PARTIES BOUND; ASSIGNMENT. This Agreement shall
apply to, inure to the benefit of and be binding upon and enforceable
against the parties and their respective successors and permitted
assigns. The respective rights and obligations of any party shall not be
assignable without the consent of the other parties, except that
Purchaser may assign its rights and obligations or any portion thereof
hereunder to an existing or newly formed affiliate provided that any such
assignment by Purchaser shall not relieve Purchaser of any of its obligations
hereunder. In the event that some or all of the interest of Purchaser hereunder
is assigned or transferred in accordance with the terms hereof, references to
Purchaser and to Purchaser herein shall be deemed to include and apply in all
respects to such assignee or transferee. Except as expressly provided in SECTION
6.14 and except for the obligations of Purchaser to pay the Purchase Price to
the holders of the Shares and LDI Options on the Effective
A-25
<PAGE> 65
Time in accordance with Article II, this Agreement is not intended to confer
upon any persons other than the parties and the permitted assignees and
transferees of Purchaser any rights or remedies.
Section 10.03. AMENDMENTS; WAIVERS. Any provision of this Agreement may
be amended by, and only by, a written instrument executed by all of the
parties. LDI may extend the time for or waive the performance of any obligation
of Purchaser, waive any inaccuracies in the representations or warranties by
Purchaser, or waive compliance by Purchaser with any of the terms and
conditions contained in this Agreement. Any such extension or waiver shall be
in writing and executed by LDI. Purchaser may extend the time for or waive the
performance of any obligation of LDI, waive any inaccuracies in the
representations or warranties by LDI or waive compliance by LDI with any of the
terms and conditions contained in this Agreement. Any such extension or waiver
shall be in writing and executed by Purchaser.
Section 10.04. GOVERNING LAW. This Agreement, and the rights and
obligations of the parties hereto, shall be governed by and construed in
accordance with the laws of the State of Delaware (without regard to the
principles of conflicts of laws thereof).
Section 10.05. NOTICES. Any notice, demand, approval, consent, request,
waiver or other communication which may be or is required to be given pursuant
to this Agreement shall be in writing and shall be deemed given on the earlier
of the day actually received or on the close of business on the second business
day next following the day when deposited in the United States mail, postage
prepaid, certified or registered, or when sent by private overnight courier
service for delivery on the next following business day, addressed to the party
at the address set forth after its respective name below, or at such different
address as such party shall have theretofore advised the other party in
writing, with copies sent to the persons indicated:
If to LDI:
LDI Corporation
4770 Hinckley Industrial Parkway
Cleveland, Ohio 44109-6096
Attn: Floyd S. Robinson
- with a copy to -
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn: David S. Inglis
If to Purchaser:
NationsCredit Commercial Corporation
One Canterbury Green
201 Broad Street, 2nd Floor
Stamford, Connecticut 06901
Attn: David Erb
A-26
<PAGE> 66
- with a copy to -
NationsCredit Commercial Corporation
One Canterbury Green
201 Broad Street
Stamford, Connecticut 06901-2056
Attn: John B. Stockton
Section 10.06. EXHIBITS, SUPPLEMENTS AND SCHEDULES. As used herein, the
expression "this Agreement" means the body of this Agreement and the schedules,
certificates or exhibits provided by LDI to Purchaser pursuant to this
Agreement or at Effective Time, and the expressions "herein," "hereof," and
"hereunder" and other words of similar import refer to this Agreement and such
schedules, certificates or exhibits as a whole and not to any particular part
or subdivision thereof.
Section 10.07. NUMBER AND GENDER OF WORDS, INCLUDING. Whenever herein
the singular number is used, same shall include the plural where appropriate,
and the words of either gender shall include the other gender where appropriate
and "including" and similar phrases mean without limitation.
Section 10.08. CAPTIONS. The captions, headings and arrangements used
in this Agreement are for convenience only and do not affect, limit or amplify
the terms and provisions hereof.
Section 10.09. ACCOUNTING TERMS. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in accordance with
GAAP.
SECTION 10.10. WAIVER OF JURY TRIAL. LDI AND THE PURCHASER EACH AGREE
TO WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF ANY ACTION ARISING
HEREUNDER OR OF A DISPUTE REGARDING THIS AGREEMENT, THE MERGER OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 10.11. CONSENT TO JURISDICTION. Each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of any state court of the
State of Delaware in any action or proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby and each party hereto
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court.
Section 10.12. MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original for all
purposes and all of which shall be deemed, collectively, one agreement.
Section 10.13. INVALID PROVISIONS. If any provision hereof is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable. This Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, and the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance here from. In
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part hereof a provision as similar in terms and economic
effect to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
A-27
<PAGE> 67
Section 10.14. ENTIRETY OF AGREEMENT. This Agreement contains the
entire agreement between the parties hereto and supersedes all other
agreements, including the Confidentiality Agreement dated October 19, 1995.
No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LDI CORPORATION
By: /s/ Floyd S. Robinson
Name: Floyd S. Robinson
Title: President and Chief Executive Officer
NATIONSCREDIT COMMERCIAL CORPORATION
By: /s/ David Erb
Name: David Erb
Title: Vice President
A-28
<PAGE> 68
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT dated March 29, 1996 (the "Amendment") among LDI Corporation
("LDI"), a Delaware corporation, NationsCredit Commercial Corporation
("Purchaser"), a Delaware corporation, and JBS Corporation ("Merger Sub"), a
Delaware corporation and a direct wholly owned subsidiary of Purchaser, to the
Agreement and Plan of Merger dated as of February 14, 1996 (the "Agreement")
between LDI and Purchaser.
WHEREAS, LDI and Purchaser entered into the Agreement pursuant to the
terms and subject to the conditions of which Purchaser will acquire LDI through
the merger (the "Merger") of Merger Sub with and into LDI; and
WHEREAS, Merger Sub was incorporated subsequent to the date of the
Agreement and, as contemplated by the Agreement, LDI, Purchaser and Merger Sub
desire to amend the Agreement to include Merger Sub as a party thereto;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Merger Sub shall be a party to the Agreement and Merger Sub
agrees to be bound by the terms and conditions set forth therein and to perform
the obligations of Merger Sub thereunder and LDI shall, for the benefit of
Merger Sub, perform LDI's obligations thereunder.
2. Merger Sub represents and warrants to LDI that:
a. ORGANIZATION AND EXISTENCE. Merger Sub is a
corporation duly organized, validly existing and in good standing
under the laws of Delaware, and has all requisite corporate power and
authority to own, lease or otherwise hold its assets and carry on its
business as it is now being conducted.
b. AUTHORIZATION, EXECUTION AND DELIVERY. Merger Sub
has all requisite corporate power and authority to execute, deliver
and perform its obligations as contemplated under the Agreement. The
execution, delivery and performance of its obligations under the
Agreement has been duly authorized by all requisite corporate action
of Merger Sub. This Amendment has been duly executed and delivered by
Merger Sub and, assuming due execution and delivery by LDI and
Purchaser, constitutes the legal, valid and binding obligations of
Merger Sub, enforceable against Merger Sub in accordance with its
terms, subject to the Remedies Exception (as defined in the
Agreement).
c. NO CONFLICT WITH OTHER INSTRUMENTS. Neither the
execution, delivery and performance of this Amendment or the
Agreement, nor the consummation of the transactions contemplated by
the Agreement nor compliance by Merger Sub with any of the provisions
of the Agreement does or will (i) conflict with the Certificate of
Incorporation or By-Laws of Merger Sub or (ii) violate any law,
regulation, order or decree of any government body or authority to
which Merger Sub is subject or by which Merger Sub, or any of its
properties or assets, may be bound.
3. This Amendment may be executed in multiple counterparts, each
of which shall be deemed an original for all purposes and all of which shall be
deemed, collectively, one agreement.
4. The Agreement, when taken together with this Amendment,
contains the entire agreement between the parties hereto and supersedes all
other agreements, including the Confidentiality Agreement dated October 19,
A-29
<PAGE> 69
1995. No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein, shall be of any force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LDI CORPORATION
By: /s/ Floyd S. Robinson
-------------------------------------
Name: Floyd S. Robinson
Title: President and Chief Executive Officer
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ David Erb
------------------------------------
Name: David Erb
Title: Vice President
JBS CORPORATION
By: /s/ David Erb
------------------------------------
Name: David Erb
Title: Vice President
A-30
<PAGE> 70
APPENDIX B
[BEAR STEARNS LOGO] BEAR,STEARNS & CO.INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
ATLANTA-BOSTON
CHICAGO-DALLAS-LOS ANGELES
NEW YORK-SAN FRANCISCO
AMSTERDAM-GENEVA-HONG KONG
LONDON-PARIS-TOKYO
April 1, 1996
The Board of Directors
LDI Corporation
4770 Hinckley Industrial Parkway
Cleveland, Ohio 44109
Dear Sirs:
We understand that LDI Corporation ("LDI") and NationsCredit Commercial
Corporation ("NationsCredit"), a wholly-owned subsidiary of NationsBank
Corporation, have entered into an Agreement and Plan of Merger (the
"Agreement") pursuant to which NationsCredit will acquire all of the
outstanding stock of LDI (the "Transaction"). The acquisition price shall be
$28,126,023.70 in cash and any adjustments pursuant to Section 1.04 of the
Agreement. You have provided us with the proxy statement which includes the
Agreement, in substantially the form to be sent to the stockholders of LDI (the
"Proxy Statement").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the stockholders of LDI.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed LDI's Annual Reports of Form 10-K for the fiscal years
ended January 31, 1994 and 1995, and its Quarterly Reports on
Form 10-Q for the periods ended April 30, July 31, and
October 31, 1995;
3. reviewed certain operating and financial information,
including projections, provided to us by management relating
to LDI's business and prospects;
4. met with certain members of LDI's senior management to discuss
operations, historical financial statements, regulatory
environment and future prospects, including negotiations with
LDI's banks to restructure its debt;
<PAGE> 71
5. visited LDI's facilities in Cleveland, Ohio;
6. reviewed the historical stock price and trading volume of the
common stock of LDI;
7. reviewed publicly available financial data and stock market
performance data of publicly traded companies which we deemed
generally comparable to LDI; and
8. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by LDI. With
respect to LDI's projected financial result, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of LDI as to the expected future
performance LDI. We have not assumed any responsibility for the information or
projections provided to us and we have further relied upon the assurances of the
management of LDI that they are unaware of any facts that would make the
information or projections provided to us incomplete of misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets of LDI. Our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof.
Based on and subject to the foregoing, it is our opinion that the
Transaction is fair, from a financial point of view, to the stockholders of
LDI.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Robert A. Baer
-------------------------
Managing Director
B-2
<PAGE> 72
APPENDIX C
GENERAL CORPORATION LAW OF DELAWARE
SECTION 262--APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000; and further provided that no appraisal rights shall be available
for any shares of stock of the constituent corporation surviving a merger if
the merger did not require for its approval the vote of the holders of the
surviving corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
C-1
<PAGE> 73
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be sent
by certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not
C-2
<PAGE> 74
been reached by the surviving or resulting corporation. If the petition shall
be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
C-3
<PAGE> 75
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
<PAGE> 76
APPENDIX D
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995
The following composite copy of the Company's Annual Report on Form
10-K in the form included in the Company's 1994 Annual Report and represents a
combination of the Form 10-K as originally filed with the Securities and
Exchange Commission on May 16, 1995 and the amendment thereto filed on May 26,
1995.
D-1
<PAGE> 77
[COMPOSITE CONFORMED COPY]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended January 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-15994
LDI CORPORATION
---------------
(Exact name of Registrant as specified in its charter)
Delaware 31-1179824
-------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4770 Hinckley Industrial Parkway, Cleveland, Ohio 44109
------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 661-5400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: NONE Name of each exchange on which registered:
-------
Securities registered pursuant to Section 12 (g)
of the Act: Common Stock, $.01 par value
----------------------------
(Title of Class)
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 _X__ 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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 31, 1995, was $13,580,452.
The number of shares outstanding of the registrant's Common Stock, $.01
par value, as of March 31, 1995, was 6,727,457.
D-3
<PAGE> 78
PART I
ITEM 1. BUSINESS
The Company was organized in 1972 as Leasing Dynamics, Inc., an Ohio
corporation. In October 1986, LDI Corporation, a Delaware corporation, became a
holding company for Leasing Dynamics, Inc. and certain of its affiliated
corporations. Subsequently, the Company completed an internal realignment
pursuant to which most of its subsidiaries were merged into the Company pursuant
to applicable parent-subsidiary merger statutes.
During the year ended January 1994, the Board of Directors determined
the need to commence preparation of a new long-term strategic business plan for
the Company. The plan included the sale or other divestiture of certain product
lines and non-strategic businesses, the consolidation of facilities and other
measures to increase the Company's overall profitability. The plan is discussed
in more detail in this Item 1, in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in "Notes to Consolidated
Financial Statements."
During the year ended January 1995, the Company completed the
strategic realignment, including the sale or divestiture of all non-strategic
businesses, consolidated its Cleveland-based facilities and hired Floyd S.
Robinson as the President and Chief Executive Officer of the Company. The
Company is currently focusing on the development of its previously identified
"core" businesses including Leasing Services, Technology Services and PC Rental
Services as described below.
All references herein to the "Company," "LDI" or the "Registrant"
refer to LDI Corporation and its subsidiaries, unless the context otherwise
requires.
GENERAL
During the year ended January 31, 1995, LDI implemented a strategic
plan to focus on its historical strength of equipment leasing, maintenance and
technical support services related to computer and other high technology
equipment and short-term computer (PC) rentals. These services were previously
identified as LDI's "core" businesses and represent the foundation of the
ongoing LDI corporate operations.
The Company operations are managed in three product lines: Leasing
Services, Technology Services and PC Rentals. Leasing Services provides
customers with selected high technology and data processing equipment,
telecommunications products, and other capital equipment through sale or lease
transactions. Technology Services provides technical support services, including
system installation, integration, maintenance and other system support related
services both in house and at customer locations. PC Rentals provides
state-of-the-art personal computer technology to corporate customers for
short-term rentals, normally ranging from one week to one year.
LEASING SERVICES
LDI leases a diverse range of equipment, including computer and
telecommunication systems and related peripheral devices, production and
manufacturing machinery, and medical and diagnostic systems.
D-4
<PAGE> 79
The Company leases equipment manufactured by a wide variety of
companies to meet the specific requirements of its customers. LDI also remarkets
this equipment if it is returned at lease expiration. By emphasizing a full
selection of equipment options from many manufacturers, LDI increases its
leasing and remarketing opportunities while mitigating risk through a
diversified portfolio.
Ongoing market dynamics in the computer industry, such as the continued
decline in demand for mainframe computer equipment, have prompted a shift to
smaller systems, peripheral equipment, and related services to meet the changing
needs of customers. Recognizing this, LDI has increased its portfolio of
mid-range systems and peripheral devices, integrated network computing and
cross-platform systems integration.
Even though LDI has shifted growth emphasis to other computer product
lines, it recognizes that the mainframe will continue to be used, sometimes in
new and different roles. In the near term, the Company believes that many
organizations will continue to use mainframe systems for certain
processingintensive functions. Also, these systems are becoming primary back-up
devices for information storage.
LDI also offers its customers lease financing for capital equipment
acquisitions, resulting in an alternative funding source for a significant
portion of their equipment needs. Production equipment, manufacturing systems
and medical equipment are often equipped with technology components that are
improved with new product offerings. This continued introduction of new
technology increases the demand for leasing as customers demand the flexibility
to utilize new technology in their operations. LDI negotiates upgrades to the
equipment which results in amending the existing lease or replacing the
equipment and initiating a new lease contract.
The Company purchases new equipment directly from the manufacturer and
obtains used equipment from its customer base and from the nationwide secondary
market for used data processing and telecommunications equipment. LDI's active
presence in this secondary market, coupled with its large portfolio of equipment
under lease and its technical capabilities to upgrade and refurbish used
equipment, allow it to combine new and used equipment configurations at
competitive prices. Similarly, the Company is often able to facilitate new lease
or sale transactions by either buying, remarketing, or trading a prospective
customer's existing equipment. Management believes that the Company's ability to
fully integrate high-technology products and services represents a competitive
advantage and differentiates it from most of its competitors.
LDI's customers are medium to large corporations and other
organizations that have significant information processing and production
equipment needs that meet the Company's credit standards. LDI's principal
objective is to selectively engage in lease transactions with customers whose
creditworthiness permits the Company to maximize the use of long term
nonrecourse financing. No customer accounts for more than 5% of the Company's
total revenues, and the Company does not believe that it is dependent on any
single customer.
LDI's equipment lease terms generally range from monthly to seven
years, with information processing and telecommunications equipment lease terms
typically from two to five years. The majority of the Company's leases are
capital leases. Capital leases have less risk than shorter-term operating
leases, since a higher percentage of the cost of the equipment is returned in
the form of rental receipts during the initial lease term. Substantially all
leases are noncancellable and place the risk of damage to the equipment on the
lessee. Approximately one-half of the dollar amount of LDI's lease portfolio is
D-5
<PAGE> 80
comprised of small and medium-size transactions ranging from $50,000 to
$200,000. Lessees typically use a significant amount of high-technology
equipment and have multiple capital leases with the Company with varying
expiration dates.
LDI's marketing activities historically have been directed toward the
Midwest and Northeast, although it has equipment on lease throughout the United
States. As of January 31, 1995, LDI employed leasing services sales
representatives in sales offices located in the following metropolitan areas:
Boston, Cincinnati, Chicago, Cleveland, Columbus, Dallas, Detroit, New York and
New Jersey. The sales representatives market the Company's services primarily
through personal sales calls, telemarketing and direct mailing.
TECHNICAL SERVICES
LDI's Technology Services operation provides hardware and software
maintenance and other support services for large, medium, and small computer
systems, personal computers, point-of-sale equipment, and telecommunications
equipment produced by various manufacturers. The operation provides many types
of hardware, software, and support services at the customers' facilities from
its five district operation centers. The largest of these centers is located in
Cleveland at LDI's headquarters. The other operations are located in Columbus,
Cincinnati, Detroit, and Ithaca. Service programs provided include on-site
hardware and software maintenance contracts, depot repair and return, and time
and material contracts as well as tailored agreements to accommodate the needs
of customers. Qualified field engineers and technicians are available
twenty-four hours a day, seven days a week. In addition, LDI provides advanced
engineering support and high-technology remote diagnostic and repair services.
As of January 31, 1995, the Company had 169 employees in its Technology
Services operation, including 94 field engineers and bench technicians. Certain
field engineers perform on-site repair and maintenance services for mainframe
central processing units and larger peripheral devices. Bench technicians
perform repair service functions on various types of equipment, which include
personal computers, telecommunications equipment, and point-of-sale devices.
Because of the Company's participation in the secondary market for used data
processing equipment, the Company is often able to supply a customer with
replacement equipment while repairing their equipment, particularly with respect
to personal computers, terminals, and small items of peripheral equipment.
LDI refurbishes used information processing, telecommunications and
other electronic equipment in connection with its remarketing activities and
also contracts to refurbish used equipment from others. The refurbishing
activities may include enhancing existing computer equipment by adding features
that make systems more powerful or capable of performing additional functions.
The Company believes that these refurbishing capabilities contribute to LDI's
ability to remarket used equipment. Additionally, they are an important
component of LDI's objective of developing long-term relationships with its
customers by meeting their high-technology equipment support and services needs,
thereby differentiating LDI from its competitors.
RENTAL SERVICES
LDI provides short and intermediate term rentals of personal
computers, peripherals and software to corporate customers nationwide. LDI rents
desktop and notebook computers sourced from leading manufacturers such as IBM,
Compaq, Dell, AST and Apple. Printers rented include those manufactured
D-6
<PAGE> 81
by Hewlett-Packard, Epson and Apple. Other products rented include scanners,
plotters, data projection equipment, CD ROM, large screen monitors and external
hard drives.
LDI provides its computer rental services nationwide. To support this
level of service, LDI has offices in the following locations: Cleveland,
Detroit, Chicago, Cincinnati, Dallas, Houston and Atlanta. These offices include
a local sales force, technical staff, and inventory. This structure enables LDI
to provide same day delivery, installation and on-site service. This
full-service strategy differentiates LDI from the majority of its competitors,
who primarily provide box shipping services.
LDI's target customers include rapidly growing companies, service
companies such as financial, accounting, engineering and consulting firms, and
companies which have a large installed base of personal computers. Customers
rent personal computers for many reasons, including access to new technology,
special projects, peak work loads, training, disaster recovery and minimizing
long term capital expenditures. LDI markets its services primarily through
Yellow Pages advertising, telemarketing and outside sales representatives
calling on Fortune 1,000 companies. At January 31, 1995, the Company had 40
employees in its personal computer rentals operation.
CORE BUSINESS REVENUES AND ASSETS
Revenues and assets of LDI's core business of leasing, maintenance and
technical services and personal computer rentals for the years ended January 31,
1994, and January 31, 1995, are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
1994 1995
---------------- ---------------
<S> <C> <C>
Revenues $209.6 62% (A) $162.0 80% (A)
Assets $537.0 91% (A) $426.9 100% (A)
</TABLE>
(A) % of consolidated amounts including discontinued operations.
COMPETITION
The information processing industry is fragmented and characterized by
many different, but related, markets. The Company competes in a number of these
markets with many different competitors. In the mainframe and mid-range computer
equipment leasing business, the Company competes with equipment manufacturers,
leasing companies and large financial institutions, many of which are
substantially larger than the Company and possess significantly greater capital.
Among those are IBM Credit Corporation, General Electric Capital Corporation and
Comdisco, Inc. In the technical support services marketplace, the Company
competes with equipment manufacturers as well as several large technical
organizations. For computer rentals, primary competition comes from companies
offering computer rentals on a national basis. These include GE Rental/Lease,
AT&T and Personal Computer Rentals (PCR).
DISCONTINUED AND NON-STRATEGIC BUSINESSES
The businesses LDI identified as discontinued or non-strategic were
generally characterized as being transactional in nature, commodity oriented and
not conducive to building
D-7
<PAGE> 82
long-term customer relationships. These attributes translated into low-margin,
low-return businesses which did not match LDI's new strategy. The Company's
core business emphasizes exceptional customer service, building long-term
customer relationships and providing value-added services that can translate
into higher margins and acceptable financial returns. These core business
attributes, in conjunction with the completed facilities consolidation and
other cost saving measures, are expected to result in higher margins and
financial returns in future years.
EMPLOYEES
As of January 31, 1995, the Company had 330 full time employees. This
represents a 63% decrease from the prior year employment levels and is
attributable to the implementation of the strategic realignment. Management
believes that the remaining employees are sufficient to support the Company's
ongoing core business. The Company also believes that its employee relations are
good.
ITEM 2. PROPERTIES
During the fiscal year ended January 31, 1995, the Company moved its
executive offices and its leasing and corporate operations previously located in
downtown Cleveland and Westlake, Ohio, respectively, to its recently expanded
Technology Center located in Cleveland. Other facilities eliminated during the
year ended January 31, 1995, related to the implementation of the Company's
strategic realignment and included the closing of three "LDI Computer
Superstores" in Cleveland and Pittsburgh and the buyout of a lease in Solon,
Ohio for office and warehouse space. Although no longer operating a
"Superstore," LDI is leasing one of the former superstore facilities in
Cleveland to an office supplies and equipment retailer. The Company also leases
other sales offices and maintenance centers in various locations throughout the
United States.
The Company believes that its offices and facilities are adequately
insured and sufficient to service their present purposes.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings which require disclosure
pursuant to Item 103 of Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF REGISTRANT
There is hereby incorporated by reference the information with respect
to executive officers of LDI Corporation and its subsidiaries set forth in Item
10 of this Annual Report on Form 10-K.
D-8
<PAGE> 83
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market on
the NASDAQ National Market System under the symbol LDIC. The following schedule
sets forth, for the periods indicated, the range of the high and low sales
prices on the NASDAQ National Market System.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1994 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter (ended April 30) $7.75 $6.25
Second Quarter (ended July 31) 8.00 7.00
Third Quarter (ended October 31) 8.25 7.13
Fourth Quarter (ended January 31) 8.13 6.25
FISCAL YEAR ENDED
JANUARY 31, 1995 HIGH LOW
---------------- ---- ---
First Quarter (ended April 30) 7.25 5.13
Second Quarter (ended July 31) 5.88 3.25
Third Quarter (ended October 31) 6.75 4.00
Fourth Quarter (ended January 31) 6.00 3.50
</TABLE>
As of March 31, 1995, the Company's common stock was held by 510
stockholders of record.
During the year ended January 31, 1994, the Company paid quarterly
cash dividends on its common stock of $.04 per share. During the year ended
January 31, 1995, the Company paid no cash dividends on its common stock.
The Company is prohibited from paying cash dividends under the
covenants of certain of its financing agreements.
ITEM 6. SELECTED FINANCIAL DATA
The following schedule sets forth selected consolidated financial data
regarding the Company for the periods indicated, derived from the Company's
consolidated financial statements. The Company's consolidated financial
statements as of and for each of the five years in the period ended January 31,
1995, have been audited by Deloitte & Touche LLP, the Company's independent
auditors. The information set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing in Item 7 of this report and the Company's
consolidated financial statements and notes thereto appearing in Item 8 of the
report.
D-9
<PAGE> 84
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS STATEMENT DATA: YEAR ENDED JANUARY 31
------------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Leasing $292,806 $262,695 $199,113 $156,606 $103,659
Direct sales 57,606 58,456 82,113 94,852 63,757
Technical services 17,831 18,864 18,240 16,127 15,108
Equity in earnings of 50%
owned affiliate - - 101 733 1,010
Other 1,237 1,980 4,098 3,593 633
------- ------- ------- ------- -------
TOTAL 369,480 341,995 303,665 271,911 184,167
------- ------- ------- ------- -------
Costs and Expenses:
Leasing 209,920 174,676 130,175 121,961 83,833
Direct sales 48,494 50,441 70,637 82,135 54,385
Technical services 11,822 12,274 12,751 11,096 8,345
Interest 49,296 49,746 41,685 33,446 28,333
Debt financing fees 493 1,117 1,318 1,725 3,433
Selling, general and administrative 33,570 37,019 36,088 40,484 30,945
Restructuring charges - - - 6,641 -
------- ------- ------- ------- -------
TOTAL 353,595 325,273 292,654 297,488 209,274
------- ------- ------- ------- -------
Earnings (loss) from continuing
operations before income taxes 15,885 16,722 11,011 (25,577) (25,107)
Income tax expense (benefit) 5,769 6,185 4,240 (9,532) (9,624)
------- ------- ------- ------- -------
Earnings (loss) from continuing
operations 10,116 10,537 6,771 (16,045) (15,483)
Discontinued operations:
Earnings (loss) from operations,
net of tax (172) (179) 164 (1,395) (3,081)
Provision for loss on disposal,
net of tax - - - (7,082) -
------- ------- ------- ------- -------
Net earnings (loss) $ 9,944 $ 10,358 $ 6,935 $(24,522) $(18,564)
======== ======== ======== ======== ========
Earnings (loss) per primary share:
Continuing operations $ 1.50 $ 1.57 $ 1.01 $(2.39) $ (2.30)
Discontinued operations (.02) (.03) .02 (1.26) (.46)
------- ------- ------- ------- -------
Net earnings (loss) $ 1.48 $ 1.54 $ 1.03 $(3.65) $ (2.76)
======== ======== ======== ======== ========
Net earnings per share -
fully diluted $ 1.48 $ 1.47 $ 1.01 - -
Cash dividends paid per share - - - $ .16 -
</TABLE>
Results of operations for all years prior to the year ended January 31, 1995,
have been restated to segregate debt financing fees and the results of
discontinued operations.
D-10
<PAGE> 85
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: YEAR ENDED JANUARY 31
--------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $745,877 $754,455 $688,023 $593,027 $426,909
Leased assets:
Capital leases 580,785 607,524 512,480 412,561 311,478
Operating leases - net of
accumulated depreciation 66,853 40,007 53,092 55,006 37,610
Notes payable 164,147 186,031 148,433 148,175 107,855
Subordinated notes - 10,000 10,000 10,000 10,000
Nonrecourse lease financing 426,190 382,443 330,494 296,794 227,574
Shareholders' equity 77,866 88,565 95,644 70,084 51,595
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
--------------------------------------------------------------------------
APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31,
1993 1993 1993 1994 1994 1994 1994 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 61,644 $64,487 $74,347 $ 71,433 $ 49,037 $ 47,911 $ 49,680 $ 37,539
Gross profit (loss) 19,233 18,859 18,839 (4,538) 14,863 14,981 14,160 (8,043)
Earnings (loss) from
continuing operations 1,262 1,512 963 (19,782) (837) 841 208 (15,695)
Discontinued opera-
tions (net of tax) (52) (239) (267) (7,919) - (3,081) - -
-------- ------- -------- -------- --------- -------- --------- --------
Net earnings (loss) $ 1,210 $1,273 $ 696 $(27,701) $ (837) $ (2,240) $ 208 $(15,695)
======== ======= ======== ======== ========= ======== ========= ========
Earnings (loss) per
share-primary
Continuing operations $ .19 $ .22 $ .14 $ (2.94) $ (.12) $ .12 $ .03 ($2.33)
Discontinued operations (.01) (.03) (.04) (1.18) - (.46) - -
-------- ------- -------- -------- --------- -------- --------- --------
Net earnings (loss) $ .18 $ .19 $ .10 $ (4.12) $ (.12) $ (.34) $ .03 $(2.33)
======== ======= ======== ======== ========= ======== ========= ========
Net Earnings per
share--fully diluted $ .18 $ .19 $ .10 - - - - -
Cash dividends paid
per share $ .04 $ .04 $ .04 $ .04 - - - -
</TABLE>
Results of operations for all quarters have been restated to segregate the
results of discontinued operations. Accordingly, amounts for revenues and gross
profit pertain only to continuing operations.
Earnings (loss) from continuing operations for the three months ended January
31, 1994 includes restructuring charges of $6.6 million ($.62 per share, net of
tax).
Gross profit for the three months ended January 31, 1994 and 1995 includes
equipment valuation adjustments and off-lease writedowns totaling $22 and $21
million, respectively. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Leasing" and Note 3
of "Notes to Consolidated Financial Statements" for additional discussion.)
D-11
<PAGE> 86
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACCOUNTING PRACTICES
Refer to Note 1 of "Notes to Consolidated Financial Statements" for a
discussion of the Company's significant accounting practices.
RESULTS OF OPERATIONS
The following schedule presents the amounts and relative percentages
of total revenues represented by major revenue and expense items for each of the
three years in the period ended January 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------------------------------------
(Dollars in Thousands) 1993 1994 1995
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Leasing $199,113 65.6% $156,606 57.6% $103,659 56.3%
Direct sales 82,113 27.0 94,852 34.9 63,757 34.6
Technical services 18,240 6.0 16,127 5.9 15,108 8.2
Equity in earnings of 50%
owned affiliate 101 - 733 0.3 1,010 0.6
Other 4,098 1.4 3,593 1.3 633 0.3
------- ---- ------- ----- ------- -----
TOTAL 303,665 100.0 271,911 100.0 184,167 100.0
-------- ----- -------- ----- ------- -----
Costs and Expenses:
Leasing 130,175 42.9 121,961 44.9 83,833 45.5
Direct sales 70,637 23.3 82,135 30.2 54,385 29.5
Technical services 12,751 4.2 11,096 4.1 8,345 4.5
Interest 41,685 13.7 33,446 12.3 28,333 15.4
Debt financing fees 1,318 0.4 1,725 0.6 3,433 1.9
Selling, general and administrative 36,088 11.9 40,484 14.9 30,945 16.8
Restructuring charges - - 6,641 2.42 - -
------- ---- ------- ----- ------- -----
TOTAL 292,654 96.4 297,488 109.4 209,274 113.6
------- ---- ------- ----- ------- -----
Earnings (loss) from
continuing operations
before income taxes 11,011 3.6 (25,577) (9.4) (25,107) (13.6)
Income tax expense (benefit) 4,240 1.4 (9,532) (3.5) (9,624) (5.2)
------- ---- ------- ----- ------- -----
Earnings (loss) from
continuing operations 6,771 2.2 (16,045) (5.9) (15,483) (8.4)
Discontinued operations:
Earnings (loss) from
operations, net of tax 164 0.1 (1,395) (0.5) (3,081) (1.7)
Provision for loss on
disposal, net of tax - - (7,082) (2.6) - -
------- ---- ------- ----- ------- -----
Net earnings (loss) $ 6,935 2.3% $(24,522) (9.0)% $(18,564) (10.1)%
======== ==== ======== ===== ======== =====
</TABLE>
D-12
<PAGE> 87
LEASING
A summary of the operating results from leasing for the three years ended
January 31, is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Leasing Revenues $199,113 $156,606 $103,659
Cost of Leasing 130,175 121,961 83,833
-------- -------- ---------
Gross Leasing Margin $ 68,938 $ 34,645 $ 19,826
-------- -------- --------
Percent of Revenue 34.6% 22.1% 19.1%
</TABLE>
<TABLE>
<CAPTION>
COST OF LEASED EQUIPMENT
-------------------------------------------------------------------------------------------
1993 1994 1995
--------------------- ---------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
New Equipment Leases $126,853 94.7% $124,931 86.4% $80,919 80.9%
Re-Leased Equipment 7,158 5.3 19,601 13.6 19,049 19.1
-------- ----- -------- ----- ------- -----
TOTAL $134,011 100.0% $144,532 100.0% $99,968 100.0%
======== ===== ======== ===== ======= ======
Sales-Type Leases $ 91,858 68.6% $74,199 51.3% $37,416 37.4%
Direct Finance Leases 7,246 5.4 42,194 29.2 54,106 54.1
Operating Leases 34,907 26.0 28,139 19.5 8,446 8.5
-------- ----- -------- ----- ------- -----
TOTAL $134,011 100.0% $144,532 100.0% $99,968 100.0%
======== ===== ======== ===== ======= ======
NUMBER OF TRANSACTIONS
-------------------------------------------------------------------------------------------
1993 1994 1995
--------------------- ---------------------- --------------------------
New Equipment Leases 1,153 74.3% 1,343 79.8% 985 83.3%
Re-Leased Equipment 399 25.7 340 20.2 197 16.7
-------- ----- -------- ----- ------- -----
TOTAL 1,552 100.0% 1,683 100.0% 1,182 100.0%
Sales-Type Leases 1,462 94.2% 1,454 86.4% 744 63.0%
Direct Finance Leases 39 2.5 115 6.8 322 27.2
Operating Leases 51 3.3 114 6.8 116 9.8
-------- ----- -------- ----- ------- -----
TOTAL 1,552 100.0% 1,683 100.0% 1,182 100.0%
======== ===== ======== ===== ======= ======
</TABLE>
For the year ended January 31, 1995 leasing revenues decreased 34% as
compared to the 21% decline experienced in the previous year. The results
reflect an overall change in the mix of leases being written by the Company as a
result of changing market conditions. During 1993, 69% of total leased equipment
cost was recorded as sales-type leases, which recognize the major portion of
lease revenue at lease commencement. For the years ended January 31, 1994 and
1995 the percentages of leased equipment cost under sales-type classification
decreased to 51% and 37%, respectively. Over the same period the Company saw its
percentage of leased equipment cost recorded as direct-finance leases increase
from 5% in 1993 to 29% in 1994 and 54% in 1995. Direct finance leases spread
income recognition over the term of the lease. Based upon current market
dynamics and related factors, the Company anticipates its future mix of lease
transactions will parallel recent trends.
The Company also experienced a significant decrease in the cost of
equipment placed under lease as compared to the prior year, which had a direct
influence on leasing revenue. A key factor underlying the decline was a
continued market shift toward less expensive, more powerful mid-range computers
and personal computer networks.
During the quarters ended January 31, 1994 and 1995 the Company
recorded charges which increased cost of leasing (see Note 3 of "Notes to
Consolidated Financial Statements"). The charges,
D-13
<PAGE> 88
primarily related to provisions for estimated future residual value
writedowns, were precipitated by deteriorating customer credit quality and/or a
significant decline in the market value of classes of leased equipment. These
charges are described below and aggregated $21.5 million in 1994 and $21.2
million in 1995.
Asset valuation writedowns of off-lease equipment can occur when the
lessee elects not to renew, extend, or reconfigure the lease, while lease
renewals tend to maintain the in-place value of leased equipment. Leased
equipment is recorded at the lower of cost or fair market value when equipment
is received from lessees at the end of the lease. The Company also reviews
residual values periodically during the lease and, if necessary, reduces the
estimated residual to be realized at the termination of the lease. During the
quarter ended January 31, 1994, several major customers decided not to renew
their leases and negotiated to purchase or return the equipment. These sales and
returns during the quarter resulted in a $7 million charge. The Company also
recorded charges of $14.5 million for equipment valuation writedowns primarily
for lessees in bankruptcy or with deteriorating credit conditions.
During the quarter ended January 31, 1995 the Company recorded charges
of $13.3 million to revise residual values of certain categories of leased
equipment, both for leases terminated in the quarter and similar equipment
leases which will expire in the future. The Company also recorded charges of
$5.1 million to adjust residual values and other assets for equipment leased to
customers with deteriorating credit quality and $2.8 million to reduce the
valuation of PC rental equipment and other inventories.
Although asset valuation adjustments are considered normal operating
costs of the leasing business, the Company believes the amount of the off-lease
writedowns taken in each of the two most recent fiscal years were unusual and
related to specific situations with certain customers and/or included
significant changes in prevailing market conditions for specific classes of
equipment in the Company's lease portfolio. While the Company cannot provide
assurance that future results will not be impacted by similar events, it does
believe that the strategic initiatives announced and implemented during the year
ended January 31, 1995 will result in more predictable gross leasing margins in
the future.
DIRECT SALES
A summary of the operating results from direct sales for the three years ended
January 31, is as follows:
<TABLE>
<CAPTION>
CORE OPERATIONS (1)
--------------------------------------------------------------
1993 1994 1995
------------------ ------------------ -----------------
<S> <C> <C> <C>
Direct Sales $36,315 $38,732 $44,936
Cost of Direct Sales 32,611 33,544 38,204
------------------ ------------------ -----------------
Gross Sales Margins $ 3,704 $ 5,188 $ 6,732
================== ================== =================
Percent of Sales 10.2% 13.4% 15.0%
</TABLE>
<TABLE>
<CAPTION>
RESTRUCTURED OPERATIONS (2)
--------------------------------------------------------------
1993 1994 1995
------------------ ----------------- -----------------
<S> <C> <C> <C>
Direct Sales $ 45,798 $ 56,120 $18,822
Cost of Direct Sales 38,026 48,591 16,182
------------------ ----------------- -----------------
Gross Sales Margins $ 7,772 $ 7,529 $ 2,640
================== ================= =================
Percent of Sales 17.0% 13.4% 14.0%
</TABLE>
D-14
<PAGE> 89
<TABLE>
<CAPTION>
REPORTED OPERATIONS
--------------------------------------------------------------
1993 1994 1995
------------------ ------------------ -----------------
<S> <C> <C> <C>
Direct Sales $ 82,113 $ 94,852 $ 63,757
Cost of Direct Sales 70,637 82,135 54,385
------------------ ------------------ -----------------
Gross Sales Margins $ 11,476 $ 12,717 $ 9,372
================== ================== =================
Percent of Sales 14.0% 13.4% 14.7%
<FN>
(1) Core operations include: Leasing Services, Technology Services, and PC
Rentals which were identified in the strategic plan as those product lines
that constitute the ongoing business of the Company.
(2) Restructured operations include the results of business units which are, for
financial statement presentation purposes only, considered to be a part of
reported operations. As discussed in Note 4 of "Notes to Consolidated
Financial Statements," the restructured operations were determined to be
non-strategic to the future operations of the Company and as such, were
either sold or substantially liquidated during the first half of the year
ended January 31, 1995.
</FN>
</TABLE>
For the year ended January 31, 1994 direct sales from core operations
increased $2.4 million (7%) due primarily to higher levels of sales of equipment
coming off lease. For the year ended January 31, 1995 direct sales increased
$6.2 million (16%) due primarily to the sale, prior to the end of the initial
term, of equipment to lessees. Gross direct sales margin percentages increased
in both years due to more in place sales of equipment, which normally command
higher margins.
The increase in direct sales of restructured operations for the year
ended January 31, 1994 of $10.3 million was due primarily to sales of
microcomputers to commercial accounts. The decrease in direct sales of
restructured operations for the year ended January 31, 1995 of $37.3 million was
due to the sale, effective May 31, 1994, of LDI's corporate microcomputer sales
organization.
TECHNICAL SERVICES
A summary of the operating results from technical services for the three years
ended January 31, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Services Revenues $ 18,240 $ 16,127 $ 15,108
Cost of Services 12,751 11,096 8,344
--------- --------- ----------
Gross Margin $ 5,489 $ 5,031 $ 6,764
========= ========= =========
Percent of Revenues 30.1% 31.2% 44.8%
</TABLE>
For the year ended January 31, 1994, technical services revenues
decreased 12% from the prior year. This was primarily due to a decline of $3.1
million in disaster recovery services as a result of an agreement, effective May
1, 1993, to form a strategic marketing relationship with SunGard Recovery
Services Inc. The Company's contract base of business recovery customers and two
"hot site" recovery centers were transferred to SunGard and are operated by
SunGard as part of the agreement. Increased consulting revenues partially offset
the decline in services revenues.
D-15
<PAGE> 90
For the year ended January 31, 1995, technical services revenues
decreased 6% from the prior year. This decrease is also due primarily to the
strategic marketing relationship with SunGard Recovery Services, Inc. A decline
of $1.0 million in revenues occurred as a result of this transaction.
For the year ended January 31, 1994, the gross margin declined due to
lower revenues, a $1.2 million write-off of obsolete and excessive maintenance
inventories during the fourth quarter, and the absence, beginning in the second
quarter, of disaster recovery operations, which bore higher direct costs per
revenue dollar. In the year ended January 31, 1995, the gross margin increased
by 34% and there was a significant improvement in the gross margin percentage
due principally to lower parts costs and increased labor efficiency in the
maintenance operations.
INTEREST EXPENSE
For the years ended January 31, 1994 and 1995, interest expense
decreased $8.2 million (20%) and $5.1 million (15%), respectively. These
decreases resulted primarily from lower interest rates and reductions in the
average amount of debt outstanding during the year ended January 31, 1994, and
reduction in the average amount of debt outstanding offset by higher interest
rates in the year ended January 31, 1995.
DEBT FINANCING FEES
Debt financing fees increased $0.4 million (31%) and $1.7 million
(99%) for the years ended January 31, 1994 and 1995, respectively. The increase
for the year ended January 31, 1994, primarily represents a full year of fees
from a $50 million installment note completed in August 1992. The increase for
the year ended January 31, 1995, was primarily due to a $1.7 million
amortization of the $2.4 million of costs related to the restructuring of LDI's
senior credit agreements in July 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended January 31, 1994, selling, general and
administrative expenses increased by $4.4 million (12%), and as a percent of
total revenue from 11.9% to 14.9%. The increase was primarily attributable to
additional bad debt reserves ($4.8 million or 1.8% of revenue) resulting from
losses for credit and collection-related situations with several customers and
the decline in leasing revenues discussed in the "Leasing Section of
Management's Discussion and Analysis".
For the year ended January 31, 1995, selling, general and
administrative expenses decreased $9.5 million (23.6%), but as a percent of
revenue increased from 14.9% to 16.8%. The gross dollar decrease was due to the
implementation of the strategic business plan which included facility
consolidation, reduction of work force and the completion of the divestiture or
sale of non-core businesses. This decrease was partially offset by bad debt
charges of $2.7 million recorded during the fourth quarter ended January 31,
1995. The increase as a percentage of revenue was due to the decline in leasing
revenues discussed in the "Leasing Section of Management's Discussion and
Analysis".
Selling, general and administrative expenses are expected to decrease
in the year ending January 31, 1996, as the cost savings from facility
consolidation and reduction in workforce will be in effect for the entire year.
D-16
<PAGE> 91
STRATEGIC BUSINESS PLAN
During the year ended January 31, 1994, the Company initiated a
strategic business plan that included the sale or other divestiture of certain
product lines and non-core businesses, the closing of facilities, and other cost
reduction measures to improve the Company's profitability. The Company completed
the strategic realignment, including divestitures of non-strategic businesses,
during the year ended January 31, 1995.
The businesses the Company identified as discontinued or non-strategic
were generally characterized as transactional in nature, commodity oriented and
not conducive to building long-term customer relationships. These attributes
translated into low-margin, low-return businesses which did not match the
Company's new strategy of focusing on a core business emphasizing exceptional
customer service, building long-term customer relationships and providing
value-added services.
RESTRUCTURING CHARGES
Under the strategic plan implemented during the year ended January 31,
1995, businesses sold or closed (other than those included in Discontinued
Operations) included: (1) LDI Retail Services, which provided hardware,
software, and system integration for retail chain stores; (2) LDI Computer
Systems, which sold microcomputers and related equipment to commercial accounts;
(3) SeaTech Communications, a ship-to-shore satellite telecommunications
venture; and (4) LDI Canada, Ltd., a leasing subsidiary based in Toronto,
Canada.
The cost of implementing the plan was $6.6 million, recorded in the
Company's fourth quarter ended January 31, 1994 ($4.1 million after-tax, or $.62
per share). The costs included $4.3 million attributable to disposing of the
above businesses, $1.7 million for employee severance and termination costs and
$0.6 million for closing facilities. There were no additional costs incurred
during the implementation of the plan in the year ended January 31, 1995.
INCOME TAXES
The Company's effective income tax benefit rate for continuing
operations decreased to 37.3% for the year ended January 31, 1994, from a tax
expense rate of 38.5% for the prior year due to the effect of the Federal tax
rate change.
The effective tax benefit rate for continuing operations increased to
38.3% for the year ended January 31, 1995, due to the effect in the prior year
of the Federal tax rate change.
DISCONTINUED OPERATIONS
Under the restructuring plan, discontinued segments included (1) LDI
Computer Superstores, the retail PC superstores; (2) LDI Computer Outlets, the
retail PC outlet stores; (3) LDI Distribution Supply, a catalog distribution
business selling PC peripheral equipment and modems; and (4) LDI Open Software,
a distributor of software for UNIX-based systems.
As a result of discontinuing these businesses the Company recorded
during its fourth quarter ended January 31, 1994, a charge of $11.7 million
($7.1 million after-tax), consisting of $10.8 million for
D-17
<PAGE> 92
estimated operational losses during the phase-out period and $0.9 million for
employee severance and termination costs.
During the three months ended July 31, 1994, the Company recorded an
additional loss from discontinued operations of $5.0 million (after tax $3.1
million). This loss was due to additional costs related to the liquidation and
closing of the Company's retail computer superstores and retail PC outlets.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of credit facilities, term loans and
internally generated cash flow to finance, on an interim basis, the acquisition
of equipment for lease or sale. Upon completion of lease documentation, the
Company generally finances the present value of future lease rentals by the
assignment of such rentals to banks, insurance companies, or other lenders on a
discounted, nonrecourse basis. In this manner, a substantial portion of the
equipment cost is financed on a long-term basis and the Company limits its risk,
if any, to its equity investment in the equipment. In December 1994, the Company
completed a $50 million expansion of the capacity of one of its securitized
lease receivable financing programs from $75 million to $125 million (see Note
12 of "Notes to Consolidated Financial Statements").
The Company enters into interest rate swap and cap agreements to
manage exposure to changes in interest rates for portions of its recourse and
nonrecourse debt. The agreements generally involve the exchange of fixed or
floating rate interest payments without the exchange of the underlying principal
amounts. The notional amount of interest rate swaps outstanding at January 31,
1995 was $125 million with a weighted average interest rate payable of 5.8%. The
agreements have maturities from one to four years.
During the year ended January 31, 1995, cash generated from operating
activities (including discontinued operations) was $171 million as compared to
$190 million for the year ended January 31, 1994. This $19 million decrease is
primarily attributable to the following: decrease in cash inflows from the sale
or disposal of inventory and off-lease equipment ($83 million); lower cash
outflows for purchases of inventory for resale ($26 million); incremental cash
inflows from changes in assets and liabilities of discontinued operations ($21
million); and the reduction in accounts receivable balances as compared with an
increase in the prior year ($18 million). Cash used in investing activities was
$66 million for the year ended January 31, 1995 as compared to $151 million for
the year ended January 31, 1994. This decrease of $85 million was due primarily
to a $71 million reduction in equipment purchased for lease and the receipt of
$12 million in proceeds from the sale of noncore businesses and properties. Cash
used in financing activities was $102 million for the year ended January 31,
1995 as compared to $35 million for the year ended January 31, 1994. This $67
million increase was primarily the result of incremental payments of $40
million on revolving credit facilities and term loans and incremental net
payments of $28 million on nonrecourse lease financings.
As discussed in Note 11 of "Notes to Consolidated Financial
Statements," the Company's senior secured revolving credit facility and senior
secured term notes were scheduled to mature on April 30, 1995. Pending
finalization of a new agreement, the lenders have extended the maturity date of
the credit facility and term notes through May 31, 1995. Additionally, due to
the operating results for the year ended January 31, 1995, the Company was in
noncompliance with certain financial covenants of its senior debt agreements and
subordinated notes as described in Notes 11 and 13. The Company has obtained
amendments or waivers through May 31, 1995 for noncompliance with these
covenants.
D-18
<PAGE> 93
The Company is negotiating with its lenders to refinance its senior
secured recourse debt and with the holder of its subordinated notes to effect
permanent amendments of the financial covenants. The Company's ability to
continue to meet its liquidity requirements is dependent upon its ability to
successfully complete these negotiations and, in the meantime, upon the
willingness of its creditors to continue to grant extensions and waivers or
otherwise not demand immediate payment with respect to such indebtedness. Based
upon the status of the negotiations to date, management believes that a new
senior debt agreement will be finalized and the subordinated notes will be
amended. The Company expects, however, that the effective interest rate of the
new senior debt agreement, including interest expense and debt financing fees,
may be higher than the effective interest rate of the existing senior credit
facility and term loans for the year ended January 31, 1995.
The Company is also currently negotiating a new financing program
which, if completed, would provide nonrecourse financing of lease equipment
purchases until the related lease documentation is finalized and permanent
nonrecourse funding is obtained. Management believes that cash generated from
operations, cash obtained from this new nonrecourse interim financing program,
borrowings under the new senior credit facility, financing from existing
nonrecourse programs and other sources and, if necessary, proceeds from sales of
leases or other assets will provide sufficient funds to meet the Company's
reasonably foreseeable liquidity needs.
Net assets of discontinued operations decreased from January 31, 1994,
to January 31, 1995, due primarily to sales of inventory and collections of
accounts receivable of the retail computer superstores and the retail PC outlets
and the sale of certain assets of the Company's catalog distribution and
software distribution businesses.
Inventories decreased from January 31, 1994, to January 31, 1995, by
approximately $7.4 million primarily due to the sale of inventories of
non-strategic business units.
Accounts receivable decreased from January 31, 1994, to January 31,
1995, by approximately $18.6 million due primarily to the collection and/or sale
of receivables of non-strategic business units.
The Company does not have any material commitments for capital
expenditures. The Company believes that inflation has not been a significant
factor in its business.
D-19
<PAGE> 94
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LDI CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report......................................................... 17
Consolidated Balance Sheets as of January 31, 1994 and 1995.......................... 18
Statements of Consolidated Earnings for the years ended
January 31, 1993, 1994, and 1995................................................... 19
Statements of Consolidated Cash Flows for the years ended
January 31, 1993, 1994, and 1995................................................... 20
Statements of Consolidated Shareholders' Equity for the years
ended January 31, 1993, 1994, and 1995............................................. 21
Notes to Consolidated Financial Statements........................................... 22-36
Financial Statement Schedule:
Schedule VIII -- Valuation and Qualifying Accounts................................... 37
</TABLE>
D-20
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
LDI CORPORATION:
We have audited the accompanying consolidated balance sheets of LDI Corporation
and its subsidiaries as of January 31, 1994 and 1995, and the related statements
of consolidated earnings, cash flows, and shareholders' equity for each of the
three years in the period ended January 31, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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 LDI Corporation and
its subsidiaries at January 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred significant net
losses for each of the two years in the period ended January 31, 1995. As
discussed in Note 2 to the consolidated financial statements, the Company's
senior secured revolving credit facility and senior secured term notes, which
before extension had a scheduled maturity of April 30, 1995, may become due and
payable after May 31, 1995, unless the debt is refinanced or the existing
agreements are further extended. Additionally, as discussed in Note 2, the
Company was in noncompliance with certain financial covenants of its senior debt
agreements and subordinated notes and has obtained amendments or waivers through
May 31, 1995. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 2. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
May 15, 1995
D-21
<PAGE> 96
LDI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 31
----------------------
ASSETS 1994 1995
---- ----
<S> <C> <C>
Cash and cash equivalents....................................................... $ 8,972 $ 11,744
Receivables--net of allowances for doubtful accounts............................ 41,831 23,244
Inventory held for lease or sale................................................ 18,336 10,933
Leased assets:
Capital leases................................................................ 412,561 311,478
Operating leases--net of accumulated depreciation............................. 55,006 37,610
Land, buildings, equipment, and furniture--net of
accumulated depreciation of $8,521 and $8,062................................. 16,712 12,715
Net assets of discontinued operations........................................... 20,868 -
Other assets ................................................................... 18,741 19,185
-------- --------
Total......................................................................... $593,027 $426,909
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable................................................................. $ 28,793 $13,008
Accrued liabilities.............................................................. 9,508 5,553
Notes payable.................................................................... 148,175 107,855
Subordinated notes............................................................... 10,000 10,000
Deferred income taxes............................................................ 15,941 3,933
Nonrecourse lease financing...................................................... 296,794 227,574
Reserves and liabilities related to discontinued
operations and restructuring programs.......................................... 7,456 1,952
Other liabilities................................................................ 6,276 5,439
-------- --------
Total liabilities................................................................ 522,943 375,314
-------- --------
Shareholders' Equity:
Common stock, par value of $.01 -- 20,000,000
shares authorized, 6,828,984 shares issued..................................... 68 68
Additional paid-in capital....................................................... 44,922 44,997
Retained earnings................................................................ 26,354 7,790
Treasury shares at cost -- 101,527 shares........................................ (1,260) (1,260)
------- --------
Total shareholders' equity..................................................... 70,084 51,595
------- --------
Total............................................................................ $593,027 $426,909
======== ========
<FN>
See the accompanying notes to consolidated financial statements.
</FN>
</TABLE>
D-22
<PAGE> 97
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE YEARS ENDED JANUARY 31, 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Leasing.......................................................... $199,113 $156,606 $103,659
Direct sales .................................................... 82,113 94,852 63,757
Technical services............................................... 18,240 16,127 15,108
Equity in earnings of 50% owned affiliate ....................... 101 733 1,010
Other............................................................ 4,098 3,593 633
--------- -------- --------
TOTAL......................................................... 303,665 271,911 184,167
--------- -------- --------
Costs and Expenses:
Leasing.......................................................... 130,175 121,961 83,833
Direct sales..................................................... 70,637 82,135 54,385
Technical services............................................... 12,751 11,096 8,345
Interest......................................................... 41,685 33,446 28,333
Debt financing fees.............................................. 1,318 1,725 3,433
Selling, general and administrative.............................. 36,088 40,484 30,945
Restructuring charges............................................ - 6,641 -
--------- -------- --------
TOTAL......................................................... 292,654 297,488 209,274
--------- -------- --------
Earnings (loss) from continuing operations
before income taxes.............................................. 11,011 (25,577) (25,107)
Income tax expense (benefit)....................................... 4,240 (9,532) (9,624)
--------- -------- --------
Earnings (loss) from continuing operations......................... 6,771 (16,045) (15,483)
Discontinued operations:
Earnings (loss) from operations, net of
income tax expense (benefit) of $106,
$(907), and $(1,888)........................................... 164 (1,395) (3,081)
Provision for loss on disposal, net of income
tax benefit of $4,604 ......................................... - (7,082) -
--------- -------- --------
Net earnings (loss)................................................ $ 6,935 $(24,522) $(18,564)
======== ======== ========
Earnings (loss) per primary share:
Continuing operations............................................ $ 1.01 $ (2.39) $ (2.30)
Discontinued operations.......................................... .02 (1.26) (.46)
--------- -------- --------
Net earnings (loss).............................................. $ 1.03 $ (3.65) $ (2.76)
======== ======== ========
Net earnings per share - fully-diluted............................. $ 1.01 - -
<FN>
See the accompanying notes to consolidated financial statements.
</FN>
</TABLE>
D-23
<PAGE> 98
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ 6,771 $ (16,045) $ (15,483)
Adjustments to reconcile net earnings to net cash flow
from operating activities:
Depreciation 27,274 24,371 22,437
Deferred income taxes 4,534 (9,844) (9,624)
Additions to sales-type and direct financing leases (117,381) (112,189) (75,543)
Principal portion of lease rentals received 211,259 211,610 166,100
Purchases of inventory for resale (70,584) (75,578) (49,970)
Sales, transfers, and disposals of inventory and equipment 169,307 210,009 127,406
Changes in reserves related to restructuring programs - 6,641 (4,588)
Change in accounts receivable (8,435) (5,898) 12,485
Change in accounts payable 9,564 (24,695) (9,276)
Change in accrued expenses and other liabilities 2,465 (2,763) (4,234)
Other (4,785) (1,564) (1,156)
--------- --------- ---------
Cash provided by continuing operations 229,989 204,055 158,554
--------- --------- ---------
Discontinued operations:
Net earnings (loss) from discontinued operations 164 (1,395) (3,081)
Estimated loss on disposal, net of tax - (7,082) -
Change in assets and liabilities of discontinued operations (3,325) (5,669) 15,373
--------- --------- ---------
Cash provided by (used in) discontinued operations (3,161) (14,146) 12,292
--------- --------- ---------
Total 226,828 189,909 170,846
--------- --------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of equipment for lease (135,517) (147,426) (76,036)
Purchases of land, buildings, equipment and furniture (4,625) (3,544) (2,657)
Purchases of companies, net of cash acquired - (3,328) -
Proceeds from sale of businesses, properties and other assets 166 3,591 12,252
--------- --------- ---------
Total (139,976) (150,707) (66,441)
--------- --------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from nonrecourse lease financing 152,853 179,418 120,673
Payments on nonrecourse lease financing (203,553) (212,621) (181,903)
Change in revolving credit facilities (71,748) 19,842 (30,384)
Proceeds from term loan 50,000 - -
Payments on term loans and notes (15,850) (20,100) (9,936)
Cash dividends paid - (1,076) -
Other (170) (175) (83)
--------- --------- ---------
Total (88,468) (34,712) (101,633)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (1,616) 4,490 2,772
Cash and cash equivalents at beginning of year 6,098 4,482 8,972
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,482 $ 8,972 $ 11,744
========= ========= =========
See the accompanying notes to consolidated financial statements.
</TABLE>
D-24
<PAGE> 99
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Total
Common share-
Additional stock in holders'
Common paid-in Retained treasury equity
Stock capital earnings - at cost
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1992 $ 68 $ 44,740 $ 45,017 $ (1,260) $88,565
------- ---------- -------- -------- -------
Net earnings 6,935 6,935
Employee stock options
exercised, 10,626
shares issued 106 106
Compensation expense under
stock award plan for shares 38 38
issued in a prior year
------- ---------- -------- -------- -------
BALANCE AT JANUARY 31, 1993 68 44,884 51,952 (1,260) 95,644
Net loss (24,522) (24,522)
Cash dividends - $.16 per share (1,076) (1,076)
Compensation expense under
stock award plan for shares
issued in a prior year 38 38
------- ---------- -------- -------- -------
BALANCE AT JANUARY 31, 1994 68 44,922 26,354 (1,260) 70,084
Net loss (18,564) (18,564)
Compensation expense under
stock award plan for shares
issued in a prior year 75 75
------- ---------- -------- -------- -------
BALANCE AT JANUARY 31, 1995 $ 68 $ 44,977 $ 7,790 $ (1,260) $51,595
======= ========== ======== ======== =======
<FN>
See the accompanying notes to consolidated financial statements.
</FN>
</TABLE>
D-25
<PAGE> 100
LDI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT WHERE INDICATED)
FOR THE YEARS ENDED JANUARY 31, 1993, 1994, AND 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. An investment
in a 50 percent owned affiliate is accounted for using the equity method.
LEASE ACCOUNTING - The Company's lease transactions are classified as either
sales-type, direct financing, or operating leases at the inception of the lease
in accordance with Statement of Financial Accounting Standards (SFAS) No. 13.
Sales-type and direct financing leases are those leases (capital leases) which
transfer substantially all of the costs and risks of ownership of the equipment
to the lessee. Generally, the Company classifies a lease as a capital lease if
either (a) the lease term is at least 75 percent of the estimated economic life
of the leased equipment at lease inception or (b) the present value of the
rental payments is at least 90 percent of the fair market value of the leased
equipment at lease inception. Operating leases are those leases in which
substantially all the benefits and risks of ownership of the equipment are
retained by the Company. Generally, the leases that do not meet conditions (a)
or (b) described above are classified as operating leases.
The lease accounting methods used by the Company are:
Sales-Type Leases: At lease inception, the present value of rentals over the
lease term is recorded as leasing revenues. The cost of the equipment less the
present value of the estimated residual value is recorded as leasing costs and a
dealer profit is recognized at the inception. The present values of future
rentals and of the residual are recorded as leased assets. Unearned interest
income, consisting of the excess of the gross rentals and of the residual over
their present values, is amortized to leasing revenues over the lease term to
produce a constant percentage return on the investment.
Direct Financing Leases: At lease inception, the present values of future
rentals and of the residual are recorded as leased assets. Unearned interest
income is amortized to leasing revenues over the lease term to produce a
constant percentage return on the investment.
Operating Leases: The monthly rental is recorded as leasing revenue. The cost
of equipment is recorded as leased assets and is depreciated over the
lease term to an estimated residual value.
Residual Values: The estimated residual values used in leases are reviewed
periodically and reduced if necessary.
Initial Direct Costs: Sales commissions and other direct costs incurred in
producing direct financing and operating leases are deferred and amortized over
the lease term.
NONRECOURSE FINANCING - The Company assigns the rentals under most of its leases
to financial institutions and other lenders on a nonrecourse basis, for which
the Company receives a cash amount equal to a
D-26
<PAGE> 101
discounted value of the lease rentals. In the event of a default by a
lessee, the lender has a security interest in the underlying leased equipment
but has no recourse against the Company. Proceeds from refinancing are recorded
on the balance sheet as nonrecourse lease financing. Under capital leases,
nonrecourse lease financing and leased assets are reduced as lessees make rental
payments under the leases. Under operating leases, leasing revenue is recorded
monthly as lessees are billed. Receivables and nonrecourse lease financing are
reduced as lessees make rental payments.
DIRECT SALES - Revenues and costs of direct sales of equipment are recorded at
the time title to the equipment transfers to the customer.
OTHER REVENUES - Other revenues include fees earned for arranging leases between
unrelated parties and for selling equity interests in lease transactions. The
fees are recognized at the closing of such transactions. In addition to these
fees, the Company also may be entitled at lease termination to fees equal to a
portion of the net proceeds from the subsequent lease or sale of the equipment.
The Company's portion of such net proceeds, if any, is reported as income at the
time of the subsequent lease or sale of the equipment.
INVENTORY - Inventory is valued at the lower of cost or market, using primarily
a first-in, first-out method.
BUILDINGS, EQUIPMENT, AND FURNITURE - Buildings, equipment, and furniture are
stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets.
INCOME TAXES - Income taxes are determined under SFAS No. 109. Deferred income
taxes are provided to give effect to temporary differences between the amount of
assets and liabilities for financial reporting purposes and such amounts as
determined by tax laws and regulations. Principal differences are capital
leases, which are accounted for as sales-type and direct financing leases for
financial reporting purposes and as operating leases for tax purposes, and
certain reserves and liabilities recorded for financial reporting purposes that
are not deductible for tax purposes until paid.
STATEMENT OF CONSOLIDATED CASH FLOWS - For the purposes of this statement, the
Company considers all highly liquid short term investments that have an original
maturity when purchased of ninety days or less to be cash equivalents.
DEBT FINANCING FEES - The Company capitalizes costs incurred to establish
recourse and nonrecourse debt agreements. These costs are amortized on a
straight line basis over the term of the agreement.
INTEREST RATE SWAP AND CAP AGREEMENTS - The Company enters into interest rate
swap and cap agreements to manage exposure to changes in interest rates for
portions of its recourse and nonrecourse debt. The agreements involve the
exchange of fixed or floating rate interest payments without the exchange of the
underlying principal amounts. The differential to be paid or received is accrued
as interest rates change and is recognized over the life of the agreements as an
adjustment to interest expense. Gains or losses as a result of termination of
swaps and caps are deferred and amortized over the maturity of the terminated
agreement.
EARNINGS PER SHARE - Primary earnings per share are computed on the basis of the
weighted average number of common shares outstanding during each year. For the
year ended January 31, 1993, fully diluted earnings per share were computed on
the basis of the weighted average number of common shares outstanding and the
dilutive effect of the assumed conversion of the convertible notes from the
date of
D-27
<PAGE> 102
issuance, with related interest expense reduced accordingly, and the
assumed exercise of stock options and warrants. For the years ended January 31,
1994 and 1995, fully diluted earnings per share are not shown since the effect
would be anti-dilutive.
The number of common shares used for computing earnings per share are as
follows:
<TABLE>
<CAPTION>
Year Ended January 31
------------------------------------------------------
1993 1994 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Primary 6,727 6,727 6,727
Fully diluted 7,383 - -
</TABLE>
NOTE 2 LIQUIDITY AND DEBT REFINANCING
As discussed in Note 11, the Company's senior secured revolving credit facility
and senior secured term notes were scheduled to mature on April 30, 1995.
Pending finalization of a new agreement, the lenders have extended the maturity
date of the credit facility and term notes through May 31, 1995. Additionally,
due to the operating results for the year ended January 31, 1995, the Company
was in noncompliance with certain financial covenants of its senior debt
agreements and subordinated notes as described in Notes 11 and 13. The Company
has obtained amendments or waivers through May 31, 1995 for noncompliance with
these covenants.
The Company is negotiating with its lenders to refinance its senior secured
recourse debt and with the holder of its subordinated notes to effect permanent
amendments of the financial covenants. The Company's ability to continue to meet
its liquidity requirements is dependent upon its ability to successfully
complete these negotiations and, in the meantime, upon the willingness of its
creditors to continue to grant extensions and waivers or otherwise not demand
immediate payment with respect to such indebtedness. Based upon the status of
the negotiations to date, management believes that a new senior debt agreement
will be finalized and the subordinated notes will be amended. The Company
expects, however, that the effective interest rate of the new senior debt
agreement, including interest expense and debt financing fees, may be higher
than the effective interest rate of the existing senior credit facility and term
loans for the year ended January 31, 1995.
The Company is also currently negotiating a new financing program which, if
completed, would provide nonrecourse financing of lease equipment purchases
until the related lease documentation is finalized and permanent nonrecourse
funding is obtained. Management believes that cash generated from operations,
cash obtained from this new nonrecourse interim financing program, borrowings
under the new senior credit facility, financing from existing nonrecourse
programs and other sources and, if necessary, proceeds from sales of leases or
other assets will provide sufficient funds to meet the Company's reasonably
foreseeable liquidity needs.
The Company's consolidated financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Until a new senior
secured recourse debt agreement is finalized and the subordinated notes are
amended, there is substantial doubt concerning the Company's ability to continue
as a going concern for a reasonable period of time. The consolidated financial
statements do not include any adjustments relating to the recoverability of
assets that may result should the Company be unable to continue as a going
concern.
D-28
<PAGE> 103
NOTE 3 RESULTS OF CONTINUING OPERATIONS
During the years ended January 31, 1994 and 1995, results of continuing
operations were adversely impacted by charges recorded during the fourth
quarter. These charges were in addition to those discussed in Note 4 related to
the restructuring of the Company, and those discussed in Note 5 related to
discontinued operations.
During the fourth quarter ended January 31, 1994, the Company recorded charges
of $21.5 million to leasing costs. Approximately $7.0 million of these charges
related to off-lease writedowns primarily for end of lease buyouts or
settlements negotiated during the quarter. Approximately $14.5 million of these
charges related to equipment valuation writedowns primarily for lessees in
bankruptcy or with deteriorating credit conditions. The Company also recorded
technical service expenses of $1.2 million to write-off obsolete or excessive
maintenance inventories. Additionally, $4.8 million of bad debt charges were
recorded to selling, general and administrative expenses. These charges were
receivable reserves for lessees in bankruptcy or with deteriorating credit
quality.
During the fourth quarter ended January 31, 1995, the Company recorded charges
of $21.2 million to leasing costs. Approximately $13.3 million of these charges
resulted from revisions to residual values of certain categories of leased
equipment, both for leases terminated in the quarter and similar equipment
leases which will expire in the future. These charges also include $5.1 million
to adjust residual values for equipment leases to customers with deteriorating
credit quality and $2.8 million to reduce the valuation of PC rental equipment
and other inventories. Additionally, selling, general and administrative
expenses include $2.7 million of bad debt charges which were recorded for
lessees in bankruptcy or with deteriorating credit quality.
NOTE 4 RESTRUCTURING CHARGES
During the year ended January 31, 1994, the Board of Directors determined the
need to commence a strategic realignment of operations of the Company and to
discontinue certain business segments (see Note 5). The strategic plan included
the sale or other divestiture of certain product lines and non-strategic
businesses, the closing of facilities, and other measures to improve the
Company's overall profitability. The cost of implementing the plan was $6.6
million, recorded in the Company's fourth quarter ended January 31, 1994
(after-tax $4.1 million, or $.62 per share).
The costs included $4.3 million attributable to disposing of certain product
lines and businesses, $1.7 million to employee severance and terminations and
$0.6 million to the closing of facilities. No additional costs were incurred
during the year ended January 31, 1995. There were reserves and liabilities at
January 31, 1994 and 1995 of $3.6 and $2.0 million, respectively, relating to
these items.
Summary financial information for the years ended January 31, 1994 and 1995 for
operations subject to sale or other divestiture (exclusive of discontinued
business segments) were as follows:
<TABLE>
<CAPTION>
Year Ended January 31
---------------------------------------
1994 1995
------------------- ----------------
<S> <C> <C>
Revenues $62,250 $22,134
Operating results (before taxes) (5,219) 71
Assets 35,129 -
Liabilities 28,963 -
</TABLE>
D-29
<PAGE> 104
Revenues and operating income of the non-strategic businesses for the year ended
January 31, 1995, represent the results of operations through the sale or
divestiture dates. All of the non-strategic businesses were sold or otherwise
disposed of during the year.
NOTE 5 DISCONTINUED OPERATIONS
During the year ended January 31, 1994, management of the Company initiated a
comprehensive plan to exit the retail computer superstores, retail PC outlet
stores, catalog distribution, and software distribution business segments. The
software distribution segment was sold in March 1994, and all retail outlet
stores were closed in April 1994. The Company sold the catalog distribution
segment in May 1994 and completed the liquidation of the retail computer
superstores in the third quarter ended October 31, 1994.
The Company recorded in the fourth quarter ended January 31, 1994, a charge of
$11.7 million (after-tax, $7.1 million), consisting of $10.8 million for
estimated losses during the planned phase-out period and $0.9 million for
employee severance and termination costs. At January 31, 1994, there were
reserves and liabilities of $3.9 million relating to these items.
During the second quarter ended July 31, 1994, the Company recorded an
additional loss from discontinued operations of $5.0 million (after-tax $3.1
million). This loss was related to incremental costs for the liquidation and
closing of the Company's retail computer superstores and retail PC outlets.
Combined revenues of the four discontinued segments were $40 million, $65
million, and $19 million during the years ended January 31, 1993, 1994, and
1995, respectively. Assets of the discontinued operations, consisting primarily
of accounts receivable and inventory at January 31, 1994, are reported on the
balance sheets as net assets of discontinued operations. The consolidated
financial statements disclose the operating results of discontinued operations
separately from continuing operations.
NOTE 6 ACQUISITIONS
During the year ended January 31, 1994, the Company acquired the assets of
companies engaged in sales of microcomputers and related equipment to commercial
accounts, short-term rentals of computer equipment, and the distribution of
communications products. The aggregate consideration for these acquisitions was
$3.3 million.
These acquisitions have been accounted for using the purchase method and,
accordingly, the results of operations of these companies have been included in
the consolidated results of operations from the date of acquisition. The
operations of the companies prior to acquisition were not material in relation
to the consolidated amounts.
Certain of these businesses were determined to be non-strategic and were sold
during the year ended January 31, 1995, as discussed in Notes 4 and 5.
D-30
<PAGE> 105
<TABLE>
<CAPTION>
NOTE 7 RECEIVABLES
JANUARY 31
-----------------------------
1994 1995
---- ----
<S> <C> <C>
Trade accounts $34,441 $19,351
Trade notes 13,537 7,688
Other 153 2,209
Allowances for doubtful accounts (6,300) (6,004)
------- -------
Net receivables $41,831 $23,244
======= =======
</TABLE>
<TABLE>
<CAPTION>
NOTE 8 LEASING ACTIVITIES
Assets leased under capital leases consist of:
JANUARY 31
-----------------------------
1994 1995
---- -----
<S> <C> <C>
Future minimum lease rentals $388,966 $303,102
Net estimated residual values of leased equipment 98,779 73,386
Allowance for impaired lease rentals and residual values (14,105) (13,659)
Less unearned income (61,079) (51,351)
-------- --------
Total $412,561 $311,478
======== ========
</TABLE>
<TABLE>
<CAPTION>
Assets leased under operating leases consist of: JANUARY 31
-----------------------------
1994 1995
---- ----
<S> <C> <C>
1995
Equipment at cost $ 78,418 $ 59,730
Accumulated depreciation (23,412) (22,120)
-------- --------
Net $ 55,006 $ 37,610
======== ========
</TABLE>
<TABLE>
<CAPTION>
Future minimum lease rentals are:
NON-CANCELABLE
YEAR ENDING JANUARY 31 CAPITAL LEASES OPERATING LEASES
---------------------- -------------- ----------------
<S> <C> <C>
1996 $128,740 $13,144
1997 82,828 8,821
1998 56,023 1,429
1999 26,514 565
2000 8,892 -
2001 and subsequent 105 -
----------- -----------
Total $303,102 $23,959
======== =======
</TABLE>
Noncancelable leases are extended automatically on a month-to-month basis for a
minimum of usually 120 days unless the Company or the lessee provides written
notice of termination.
D-31
<PAGE> 106
NOTE 9 INCOME TAXES
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of:
YEAR ENDED JANUARY 31
-----------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Continuing operations:
Current:
State, local and other $ (188) $ 312 $ -
------ -------- --------
Deferred:
Federal 3,735 (9,177) (8,006)
State, local and other 693 (1,208) (1,618)
---
Federal tax rate adjustment - 541 -
------ -------- --------
Total 4,428 (9,844) (9,624)
------ -------- --------
Total continuing operations 4,240 (9,532) (9,624)
------ -------- --------
Discontinued operations:
Deferred:
Federal 93 (4,896) (1,586)
State, local and other 13 (615) (302)
------ -------- --------
Total discontinued operations 106 (5,511) (1,888)
------ -------- --------
Total provision (benefit) $4,346 $(15,043) $(11,512)
====== ======== ========
</TABLE>
The following is a reconciliation between the federal statutory tax rate and the
Company's effective tax rate for continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Statutory tax expense (benefit) rate 34.0% (35.0%) (35.0%)
Effects of:
State income tax expense (benefit) 4.2 (4.3) (4.3)
Federal tax rate adjustment - 2.1 -
Other 0.3 (0.1) 1.0
----- -------- ------
Effective tax expense (benefit) rate 38.5% (37.3%) (38.3%)
===== ======== ======
</TABLE>
Principal components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1994 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Investment tax credit and tax loss
carryforwards $36,508 $37,708
Reserves and liabilities 10,108 10,101
Other 318 549
------- -------
Total 46,934 48,358
Deferred income tax liabilities - leases 62,875 52,291
------- -------
Net deferred income tax liability $15,941 $ 3,933
======= =======
</TABLE>
D-32
<PAGE> 107
At January 31, 1995, the Company has investment tax credit carryforwards for
income tax purposes of $2.9 million that expire in various amounts beginning in
1999 and has tax loss carryforwards for income tax purposes of $88.3 million.
These tax loss carryforwards expire in future years as follows: 2004 ($19
million), 2005 ($19 million), 2006 ($4.5 million), 2007 ($18.1 million), 2008
($2.6 million) and 2010 ($25.1 million).
The Company expects to realize fully its deferred tax assets and, accordingly,
has made the determination that recording a valuation allowance is not required.
The primary component of the net operating loss carryforwards results from the
temporary differences in the accounting for sales-type leases (see Note 1).
Based on management's review of the current lease portfolio, the majority of
existing sales-type lease differences will reverse in the next three years,
resulting in recognition of taxable income. Management also projects that
sales-type lease volume in future years will decline. Other actions which the
Company could take to generate taxable income to utilize the carryforwards
include the election of straight-line, rather than accelerated, tax depreciation
for equipment purchased for lease, and structuring of partnerships and joint
ventures which would purchase lease transactions from the Company.
The Omnibus Budget Revenue Reconciliation Act of 1993, enacted in August 1993,
included a one percent increase in the Federal tax rate for corporations, which
was effective retroactive to January 1, 1993. Under the provisions of SFAS No.
109, the effect on taxes currently payable and deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date. Accordingly, deferred tax liabilities as of February 1,
1993, increased by $541,000 as a result of the new law.
NOTE 10 ACCRUED AND OTHER LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
JANUARY 31
1994 1995
---- ----
<S> <C> <C>
Compensation $3,896 $2,189
Interest 1,594 1,078
Sales tax 1,022 354
Miscellaneous 2,996 1,932
------- -------
Total $9,508 $5,553
====== ======
Other liabilities consist of:
JANUARY 31
1994 1995
---- ----
Customer rental prepayments $4,035 $3,668
Deferred revenues 2,084 1,724
Miscellaneous 157 47
------- --------
Total $6,276 $5,439
====== ======
</TABLE>
D-33
<PAGE> 108
NOTE 11 NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1994 1995
---- ----
<S> <C> <C>
Revolving credit facilities $ 97,075 $100,307
Term loans and notes 51,100 7,548
-------- --------
Total $148,175 $107,855
======== ========
</TABLE>
As of January 31, 1995, the Company had a $103.0 million senior secured
revolving credit facility with a group of banks that provides for a floating
interest rate based on either LIBOR or the prime rate. The facility amortized to
$102.6 million at its scheduled maturity on April 30, 1995. As described in Note
2, the maturity date of the facility has been extended through May 31, 1995. At
January 31, 1995, $103.0 million was outstanding on this facility at an interest
rate of 8.5%. This facility resulted from the consolidation on May 2, 1994 of a
senior unsecured $130 million revolving credit facility and a four year senior
unsecured $50 million term loan. This facility was subsequently modified on July
29, 1994, to include restrictions on the amount of borrowings under the facility
based on the amounts of certain assets as defined in the agreements. At January
31, 1994, $129.8 million was outstanding on the former revolving credit
facilities at an interest rate of 4.3% and $38.8 million was outstanding on the
former unsecured term loan.
Subsequent to January 31, 1994 and 1995, $32.7 million and $2.7 million,
respectively, of the borrowings under the revolving credit facilities were
refinanced on a nonrecourse basis. Accordingly, the refinanced amounts have been
included in nonrecourse lease financing at January 31, 1994 and 1995.
The Company also had an $8.3 million revolving credit facility which was
converted on May 2, 1994, to a secured amortizing term loan. This facility had
an outstanding balance of $1.4 million at January 31, 1995, and was paid in
full, as scheduled, on May 10, 1995.
On May 2, 1994, senior unsecured installment notes of $9.7 million were changed
to senior secured term notes with modifications made to the principal repayment
schedule to proportionately match the principal amortization of the senior
secured revolving credit facility. These notes aggregated $6.1 million at
January 31, 1995, and were scheduled to mature on April 30, 1995. The maturity
date of the notes has been extended through May 31, 1995, and certain waivers
have been obtained from the holders as described in Note 2. Additionally, $2.6
million of unsecured installment notes were changed to secured notes, and paid
in full, as originally scheduled, on August 31, 1994.
The installment notes consist of fixed rate notes with interest rates ranging
from 9.7 percent to 10.0 percent.
Under the terms of the above debt agreements, the Company is required to
maintain certain liquidity, leverage, and net worth ratios. The covenants also
prohibit the payment of cash dividends and place restrictions on the amount of
borrowings under the facilities based on the amounts of certain assets as
defined in the agreements. The loan agreements are secured by receivables,
inventories and substantially all other unpledged assets of the Company. As
described in Note 2, at January 31, 1995, the Company was in noncompliance with
certain financial covenants and has obtained amendments or waivers through May
31, 1995.
D-34
<PAGE> 109
NOTE 12 NONRECOURSE LEASE FINANCING
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1994 1995
---- ----
<S> <C> <C>
Nonrecourse discounted lease rentals consist of:
Financial institutions $182,713 $119,365
Commercial paper 114,081 108,209
-------- -------
Total $296,794 $227,574
======== ========
</TABLE>
Nonrecourse discounted lease rentals include fixed rate capital obtained from
financial institutions on a nonrecourse basis. The lender has a security
interest in the lease rental stream and the underlying assets, but has no
recourse to the Company in the case of default by the lessee.
The Company also established two asset-backed financing programs to fund lease
transactions on a nonrecourse basis through the use of commercial paper secured
by lease rental receivables. The programs are rated A-1 by Standard & Poor's and
P-1 by Moody's. These ratings represent the highest attainable ratings available
under the respective classification systems.
Under one of the programs, the Company sold lease receivables to a wholly owned
special purpose corporation that issues commercial paper backed by an annually
renewing five year letter of credit. At January 31, 1994 and 1995, $43.8 million
and $26.1 million of commercial paper was outstanding under this program at
average interest rates of 3.4% and 6.3%, respectively. Effective May 1, 1994,
the letter of credit under this program was not extended; however, leases funded
previously continue to amortize under the terms of the existing agreement.
A second securitized program provides for the financing of lease receivables
through an independent corporation which issues commercial paper. This program
is backed by a surety bond. On June 3, 1994, the Company executed a letter
agreement to increase the availability to finance under this program from $75
million to $125 million in two steps. The first $25 million of additional
capacity became available on September 9, 1994, and the remaining $25 million
became available December 1, 1994. Effective with the December increase, the
program began operating through a wholly owned subsidiary of the Company to
which the Company sells lease receivables and transfers the related equipment.
The subsidiary then transfers the receivables to the independent corporation to
support the issuance of commercial paper, which is nonrecourse to the Company.
At January 31, 1994 and 1995, $70.3 million and $82.1 million of commercial
paper was outstanding under this program at average interest rates of 3.3% and
6.0%, respectively.
D-35
<PAGE> 110
Contractual payments of principal and interest required on nonrecourse lease
financings are:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31
<S> <C>
1996 $107,556
1997 74,480
1998 45,309
1999 20,941
2000 5,411
2001 and subsequent 3,520
--------
Total 257,217
Less interest (29,643)
--------
Principal amount $227,574
========
</TABLE>
The average interest rate on all nonrecourse lease financing was 7.2% and 6.5%
for the years ended January 31, 1994 and 1995, respectively.
NOTE 13 SUBORDINATED NOTES
The Company has $10 million of 9.375 percent subordinated notes, with interest
payable semiannually, maturing in August 2000. Prior to May 1994, the notes were
convertible into shares of the Company's common stock. The notes require annual
repayments of $2.5 million beginning in August 1997. The notes are callable by
the Company at a premium of 109 3/8 beginning August 1994, with the premium
declining ratably to par in August 1999.
In conjunction with the issuance of the notes, the Company also issued 45,496
warrants. Each warrant is exercisable by the holder through August 15, 1996,
into one share of the Company's common stock. The exercise price is subject to
adjustment for stock dividends, splits and certain other issuances of common
stock.
On May 2, 1994, the notes were amended to eliminate the conversion feature, to
adjust the exercise price of the outstanding warrants to $6.35 per share, and to
issue 1,529,307 additional warrants with the same exercise price, terms, and
expiration date as the previously issued warrants. In exchange, the holder of
the notes agreed to permit the Company to grant security interests to its
recourse lenders as described in Note 11. Additionally, the Company and the
holder agreed to modify certain other terms and conditions of the notes.
As described in Note 2, at January 31, 1995, the Company was in noncompliance
with certain financial covenants and has obtained amendments or waivers through
May 31, 1995.
NOTE 14 SHAREHOLDERS' EQUITY
EMPLOYEE STOCK OPTION PLAN - The Company has a stock option plan for officers
and key employees and has reserved 1,500,000 shares of common stock for
distribution under the plan. Options are exercisable beginning not less than one
year after the date of grant and expire ten years after the date of grant.
Options are granted at market value and become exercisable at the rate of 20
percent per year. Options granted under the plan may qualify as incentive stock
options under the Internal Revenue Code or
D-36
<PAGE> 111
may be non-qualified stock options. Options issued to date, except for
those granted during the year ended January 31, 1995, have qualified as
incentive stock options.
Stock option transactions during the three years ended January 31, 1995, are:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE RANGE
SHARES PER SHARE
------ ---------
<S> <C> <C>
Balance, February 1, 1992 484,459 $8.25 - $10.36
Granted 5,000 $14.00
Exercised (10,626)
Canceled (58,779)
-------
Balance, January 31, 1993 420,054 $8.25 - $14.00
Granted 298,000 $7.13 - $7.84
Exercised -
Canceled (35,931)
-------
Balance, January 31, 1994 682,123 $7.13 - $14.00
Granted 250,000 $3.75
Exercised -
Canceled (431,427)
-------
Balance, January 31, 1995 500,696 $3.75 - $10.36
========
</TABLE>
At January 31, 1995, there were 499,304 options available for grant and 144,341
options were exercisable.
RESTRICTED STOCK PLAN - The Company also has a restricted stock plan for
officers and key employees and has reserved 55,000 shares of common stock for
distribution under the plan in amounts and at times as determined by the Board
of Directors. Common stock awarded becomes vested at such time as specified by
the Board. On March 21, 1994, the Board of Directors approved an acceleration of
vesting with respect to the 10,000 shares granted in 1990, which were originally
scheduled to vest at the rate of 5,000 shares each on February 1, 1995 and 1996.
The plan shall continue until terminated by the Board. However, no awards may be
granted after January 31, 1999, and all awards shall vest no later than January
31, 2004.
RETIREMENT SAVINGS PLAN - The Company has a Section 401(k) retirement savings
plan for eligible employees and has reserved 275,000 shares of common stock for
distribution under the plan.
DIRECTOR STOCK OPTION PLAN - On March 27, 1995, the Board of Directors adopted a
stock option plan, subject to the approval of the Company's shareholders, for
non-employee directors and reserved 150,000 shares of common stock for
distribution under the plan. Each eligible director on the date of adoption of
the plan was granted options to purchase 10,000 shares, and each future eligible
director will be granted options to purchase 10,000 shares upon joining the
Board. Each eligible director will also receive options to purchase an
additional 10,000 shares on each third anniversary of that director's initial
grant, if remains an eligible director on that anniversary. Options are
granted at market value and become exercisable six months after the date of
grant. They expire ten years after the date of grant.
D-37
<PAGE> 112
In June 1991, the shareholders approved the grant of options to purchase 10,500
shares to a non-employee director with an option price of $13.81 per share. The
options are currently exercisable and expire nine years after the date of grant.
PREFERRED STOCK - The Board of Directors is authorized to issue 2,000,000 shares
of preferred stock, $.01 par value, with terms as may be subsequently determined
by the Board of Directors without further action by the shareholders of the
Company. At January 31, 1995, none of the shares were outstanding.
NOTE 15 EMPLOYEE RETIREMENT BENEFIT PLANS
The Company had two defined contribution employee retirement benefit plans: the
LDI Corporation Pension Plan and Trust and the LDI Corporation Retirement
Savings Plan. These plans provided retirement benefits for eligible employees
who meet certain service requirements. The Company's annual contributions under
the pension provision are determined each year by the Board of Directors. The
Company's contributions under the retirement savings provision are based on
various percentages of the voluntary pretax contributions of the participants,
up to a maximum contribution of 2.75 percent of the participant's annual
compensation. Effective June 30, 1994, in conjunction with the strategic
realignment of the Company and in an effort to improve the administrative
efficiencies and the overall return on investments, the Board of Directors of
the Company elected to merge the plans. The Board of Directors did not authorize
a contribution to the Pension Plan for the fiscal year ended January 31, 1994.
Costs for the plans maintained by the Company for the years ended January 31,
1993, 1994, and 1995 were $1.4 million, $1.0 million, and $0.5 million,
respectively.
NOTE 16 RELATED PARTY TRANSACTIONS
The Company has engaged in certain transactions with entities owned or
controlled by certain of its principal shareholders.
(a) The Company rented office, technical and warehouse facilities from a
related partnership under leases which had a scheduled expiration in
2000. During the year ended January 31, 1995, an agreement was reached
whereby the Company assigned its interest in a sublease arrangement to
the partnership and the Company was released from further obligation
under the leases. Rental payments made to the partnership during the
years ended January 31, 1993, 1994, and 1995 were $587, $343, and $355,
respectively.
(b) The Company contracted with the related partnership for building
management and maintenance services, and paid the partnership other
specified consulting fees. Expenditures under these agreements
aggregated $325, $156, and $40 during the years ended January 1993,
1994, and 1995, respectively.
(c) On May 31, 1994, the Company sold to the predecessor of MRK
Technologies, Ltd. ("MRK") substantially all of the assets of a
subsidiary and a division of the Company engaged in the
businesses of selling computer systems and software and related
equipment, network connectivity products and related services. Michael
R. Kennedy, who is a principal shareholder of the Company, is the
Chairman and Chief Executive Officer and one of the principal members
of MRK. The purchase price paid by MRK for the assets consisted of
cash
D-38
<PAGE> 113
and short-term notes in the aggregate amount of approximately $8.5
million and a subordinated note in the original principal amount of $2
million payable in installments through 1999. The note is subordinated
to certain commercial financing arrangements of MRK, is guaranteed by
Mr. Kennedy and is secured by Mr. Kennedy's pledge to the Company of
shares of the Company held by him. The unpaid principal amount of the
note and accrued interest at January 31, 1995, was $2.1 million. In
connection with the sale, the Company leases to MRK certain furniture,
fixtures and equipment used in the business. The lease provides for
aggregate rentals of approximately $796 over a term of thirty-six
months and gives MRK the option to purchase the leased equipment at the
end of the lease term for a nominal amount. Rentals earned for the
year ended January 31, 1995, by the Company under the terms of the
lease were $177. On March 31, 1994, the Company sold to Open Software,
Inc. substantially all of the assets of the Company's open systems
software distribution business. The purchase price consisted of $100 in
cash and certain percentage amounts based on software revenues during
the two months following the closing. Mr. Kennedy was the Chairman and
Chief Executive Officer and one of the principal stockholders of Open
Software, Inc., which is now a part of MRK.
(d) During the year ended January 31, 1995, the Company purchased computer
equipment which was leased to its customers and acquired other products
and services from MRK. The aggregate amount of these purchases was $5.3
million, for which the Company owed MRK $145 at January 31, 1995. In
addition, the Company provided $180 of goods and services to MRK during
the year. At January 31, 1995, the Company was owed approximately $360
from MRK for goods and services, and custodial funds held by MRK.
(e) The Company is reimbursed for expenses paid on behalf of its 50 percent
owned affiliate. At January 31, 1994, accounts receivable from the
affiliate were $72. In addition the Company advanced the affiliate $3.5
million during the year ended January 31, 1995, with interest at 8%.
The note was secured by all unencumbered assets of the affiliate and
was repaid in full, including $136 of accrued interest. The Company has
also guaranteed the repayment of certain indebtedness of the affiliate
under two credit arrangements in an aggregate amount not to exceed the
lesser of $12.5 million or 50% of such indebtedness. At January 31,
1995, the amount guaranteed by the Company was $5.5 million.
NOTE 17 LEASE OBLIGATIONS
In addition to the lease obligations described in Note 16, the Company leases
office, technical, and other facilities from unrelated third parties. Rent
expense for these leases was $941, $969, and $605 for the years ended January
31, 1993, 1994, and 1995, respectively. Annual rentals are subject to increases
for escalation in operating costs.
Additionally, the Company leases data processing equipment under agreements
classified as capital leases (as a lessee) and subleases this equipment to third
parties (as a lessor) under agreements classified as capital or operating
leases. Rent payments for these leases were $156, $45, and $54 for the years
ended January 31, 1993, 1994, and 1995, respectively.
D-39
<PAGE> 114
A summary of the Company's commitments with respect to capital and operating
leases is:
<TABLE>
<CAPTION>
OBLIGATIONS
OBLIGATIONS UNDER
UNDER OPERATING
CAPITAL LEASES LEASES
-------------- ------------
(EQUIPMENT) (FACILITIES)
YEAR ENDING JANUARY 31
<S> <C> <C> <C>
1996 $ 40 $ 753
1997 - 602
1998 - 383
1999 - 322
2000 - 295
2001 and subsequent - 1,348
---- -------
Total 40 3,703
Less interest (2) -
---- -------
Net amount $ 38 $ 3,703
==== =======
</TABLE>
At January 31, 1995, future minimum rentals to be received under noncancelable
subleases for facilities included in the Company's obligations under operating
leases above totaled $4,349.
NOTE 18 FINANCIAL INSTRUMENTS
Credit loss exposure of interest rate swap and cap agreements in the event of
nonperformance by the other party is limited to the amount of net cash payments
due under the swap or cap agreements. Collateral is not obtained from
counterparties to swap or cap agreements. Terms of the swaps and caps as of
January 31, 1995, are set forth in the table below.
<TABLE>
<CAPTION>
<S> <C>
Notional Amount $124,593
Weighted Average Maturity (in years) 1.74
Receive - Variable Index Primarily LIBOR
Pay - Weighted Average Fixed Rate 5.79%
</TABLE>
The estimated fair value amounts have been determined by the Company, using
current available market information as of each balance sheet date and
appropriate valuation methods. Considerable judgment is necessary in
interpreting market data to develop the estimates of fair value. The use of
different market assumptions and/or methods of estimation may have a material
effect on the estimated fair value amounts. Accordingly, the estimates presented
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange or the value that ultimately will be realized by the
Company upon maturity or disposition.
Generally accepted accounting principles exclude certain items from its
disclosure requirements such as the Company's investment in leased assets.
Accordingly, the aggregate fair value amounts presented are not intended to
represent the underlying value of the net assets of the Company.
The carrying amounts for cash, receivables, accounts payable, accrued
liabilities, and revolving and line of credit notes payable approximate fair
value because of the short maturity of these instruments or, as to trade notes
receivable, bear interest rates that approximate current market rates.
D-40
<PAGE> 115
The estimated fair values of the Company's other financial instruments are
assets (liabilities) as follows:
<TABLE>
<CAPTION>
JANUARY 31
----------------------------------------------------------
1994 1995
------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Nonrecourse lease financing $(296,794) $(297,099) $(227,574) $(226,305)
Term loans and notes (50,832) (51,230) (7,505) (7,125)
Subordinated notes (9,588) (10,433) (9,636) (9,527)
Interest rate swaps and caps contracts 226 (1,520) 859 2,288
Letter of credit - (2,561) - (1,987)
</TABLE>
The fair values of nonrecourse lease financing, term loans and notes and
subordinated notes are estimated based on market rates of comparable debt for
similar remaining maturities at year end. The fair values of interest rate swaps
and caps, and the letter of credit are estimated based on pricing models or
formulas using current assumptions.
The fair value estimates presented herein are based on pertinent information
available to management as of January 31, 1994 and 1995. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued since that
date and, therefore, current estimates of fair value may differ significantly
from the amounts presented herein.
NOTE 19 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The amounts below reflect the total cash paid by the Company and are not
restated for the discontinued entities.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Interest $42,354 $34,332 $28,848
Income taxes 18 190 422
</TABLE>
D-41
<PAGE> 116
LDI CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JANUARY 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED DEDUCTIONS BALANCE
AT TO COSTS (ACCOUNTS AT END
BEGINNING AND WRITTEN OF
OF PERIOD EXPENSES OFF) PERIOD
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Year ended January 31, 1993:
Allowance for doubtful accounts $ 3,860 $ 1,230 $ (1,390) $ 3,700
======= ======== ======== ========
Allowance for uncollectible future lease rentals(1) $ 2,772 $ 335 $ (1,052) $ 2,055
======= ======== ======== ========
Reserve for inventory valuation (2) $ 529 $ 870 $ (21) $ 1,378
======= ======== ======== ========
Year ended January 31, 1994:
Allowance for doubtful accounts $ 3,700 $ 5,975 $ (3,375) $ 6,300
======= ======== ======== ========
Allowance for uncollectible future lease rentals(1) $ 2,055 $ 4,590 -- $ 6,645
======= ======== ======== ========
Reserve for inventory valuation (2) $ 1,378 $ 7,138 $ (746) $ 7,770
======= ======== ======== ========
Reserves and liabilities related to discontinued
operations and restructuring programs -- $ 7,456 -- $ 7,456
======= ======== ======== ========
Reserve for residual valuation (3) -- $ 11,060 $ (3,600) $ 7,460
======= ======== ======== ========
Year ended January 31, 1995:
Allowance for doubtful accounts $ 6,300 $ 2,401 $ (2,697) $ 6,004
======= ======== ======== ========
Allowance for uncollectible future lease rentals(1) $ 6,645 $ 338 $ (2,927) $ 4,056
======= ======== ======== ========
Reserve for inventory valuation (2) $ 7,770 $ 4,071 $ (6,220) $ 5,621
======= ======== ======== ========
Reserves and liabilities related to discontinued
operations and restructuring programs $ 7,456 $ 3,094 $ (8,598) $ 1,952
======= ======== ======== ========
Reserve for residual valuation (3) $ 7,460 $ 14,354 $(12,211) $ 9,603
======= ======== ======== ========
<FN>
(1) The allowance for uncollectible future lease rentals is included in the
caption "Leased assets-Capital leases" in the accompanying consolidated
balance sheet.
(2) The reserve for inventory valuation is included in the caption "Inventory
held for lease or sale" in the accompanying consolidated balance sheet.
(3) The reserve for residual valuation is included in the caption "Leased
assets-Capital leases" in the accompanying consolidated balance sheet.
</TABLE>
D-42
<PAGE> 117
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A description of the directors of the Company follows:
<TABLE>
<CAPTION>
Offices Held and Director Term
NAME Age Business Experience Since Expires
---- --- ------------------- ----- -------
<S> <C> <C> <C>
Scott S. Cowen (1) 48 Dean of the Weatherhead School of 1989 1995
Management at Case Western Reserve
University since July 1984.
Thomas A. Cutter 52 Member of Capstone Management Ltd., a 1986 1995
privately-owned real estate investment
and management company, since October
1994; Vice Chairman and Senior
Executive Vice President of the Company
from February 1989 through May 1994;
Senior Vice President of Leasing
Dynamics, Inc. from December 1983 to
May 1991.
Robert S. Kendall 56 Chairman, President and Director of CPS 1986 1996
Capital, Ltd., a privately-owned mergers
and acquisitions and institutional
investments company, since September
1994; Chairman of the Company since
February 1989; Chief Executive Officer
of the Company from February 1989 to
July 1994; Chairman of Leasing
Dynamics, Inc. from July 1989 to May
1991.
Michael R. Kennedy 52 Chairman, Chief Executive Officer and 1986 1996
Director of MRK Technologies, Ltd., a
privately-owned computer sales and
service company, since June 1994;
President and Chief Operating Officer of
the Company from February 1989 to May
1994; Executive Vice President of
Leasing Dynamics, Inc. from February
1972 to May 1991.
Floyd S. Robinson 48 President and Chief Executive Officer of 1994 1997
the Company since August 1994;
President-Business Equipment Financing
of USL Capital from January 1992 to
July 1994; President and Chief Operating
Officer of Fleet Credit Corporation from
1986 to January 1992.
D-43
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
Offices Held and Director Term
NAME Age Business Experience Since Expires
---- --- ------------------- ----- -------
<S> <C> <C>
Norton W. Rose (2) 66 Vice Chairman and Director of Blue 1994 1997
Coral, Inc., a privately-owned consumer
chemical company, and Chairman and
Director of Premier Travel Partners, a
privately-owned travel management
company, since 1991; Vice President of
Creative Art Activities Inc., a privately-
owned toy company, since January 1994;
Chairman of Action Auto Rental, Inc., an
automobile leasing company, from
November 1991 to January 1993; Vice
Chairman of Progressive Corporation, a
liability and casualty insurance company,
from 1985 to August 1990.
<FN>
- ---------------
(1) Mr. Cowen is also a director of American Greetings Corporation, Cyberex Corporation, FabriCenters of America,
Inc., Premier Industrial Corporation, Society Corporation, Forest City Enterprises, Inc. and Weatherhead Industries,
Inc. and is on the Board of Advisors of Charles Fradin, Inc./Copley Industries.
(2) Mr. Rose is also a director of Telxon Corporation, Cohesant Technologies and Specialty Chemical Resources, Inc.
Action Auto Rental, Inc. filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on January 28,
1993.
</TABLE>
A description of the executive officers of the Company follows:
<TABLE>
<CAPTION>
Offices Held and
NAME Age Business Experience
---- --- -------------------
<S> <C> <C>
Robert S. Kendall 56 Chairman, President and Director of CPS Capital, Ltd., a privately-
owned mergers and acquisitions and institutional investments
company, since September 1994; Chairman of the Company since
February 1989; Chief Executive Officer of the Company from
February 1989 to July 1994; Chairman of Leasing Dynamics, Inc.
from July 1989 to May 1991.
Floyd S. Robinson 48 President and Chief Executive Officer of the Company since
August 1994; President-Business Equipment Financing of USL
Capital from January 1992 to July 1994; President and Chief
Operating Officer of Fleet Credit Corporation from 1986 to January
1992.
Frank G. Skedel 48 Executive Vice President and Chief Financial Officer of the
Company since June 1994; Senior Vice President of the Company
from June 1991 to June 1994; Treasurer of the Company since
March 1991; Secretary of the Company since October 1994; Vice
President of the Company from April 1989 to June 1991; President
of LDI Financial Services Corp. from July 1989 until its merger
into the Company in April 1991.
</TABLE>
D-44
<PAGE> 119
<TABLE>
<CAPTION>
Offices Held and
NAME Age Business Experience
---- --- -------------------
<S> <C> <C>
Mont C. Hollingsworth 47 Senior Vice President of the Company since June 1994; Vice
President of the Company from December 1992 to June 1994;
Controller of the Company since December 1992; Vice President
and Controller, Leasing Services Group, from April 1991 to
December 1992; Vice President and Controller of Leasing
Dynamics, Inc. from January 1989 until its merger into the
Company in April 1991.
Stephen F. Smith 44 Senior Vice President of the Company since October 1994;
International Operations Manager of G.E. Capital (Vendor Financial
Services) from June 1994 to October 1994; Senior Vice President
of Credit and Operations of USL Capital from August 1992 to June
1994; Senior Vice President of Credit of Fleet Credit Corporation
from November 1989 to July 1992.
Richard G. Greece 47 Vice President and Assistant Treasurer of the Company since July
1994; Director and Assistant Treasurer from August 1993 to July
1994; Director of Accounting and Financial Projects from April
1991 to July 1993; Director of Accounting of LDI Financial
Services from June 1990 until its merger into the Company in April
1991.
John S. Rainsberger 38 Vice President Sales-Leasing Services of the Company since
December 1991; District Sales Manager of Leasing Dynamics, Inc.
from January 1990 until December 1991.
Brian Turnbull 47 Vice President, Technology Services of the Company since
December 1992; President and CEO of Servicescope Corporation
from November 1990 to October 1992; Senior Vice President,
Operations of Mediq Corporation from January 1987 to October
1990.
</TABLE>
The Company is required to identify any officer or director who failed to
timely file with the Securities and Exchange Commission a required report
relating to ownership and changes in ownership of the Company's equity
securities. Based on material provided to the Company, it believes that during
the year ended January 31, 1995, all such filing requirements were complied with
by its officers and directors, except that the Form 3 filed for Mr. Robinson
upon his joining the Company reported only his initial stock options and failed
to include shares of restricted stock awarded to him. This omission was
discovered in the preparation of his annual Form 5, and the restricted stock was
included on that Form.
D-45
<PAGE> 120
ITEM 11. EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and certain other persons who served as executive officers of
the Company during the year ended January 31, 1995.
<TABLE>
<CAPTION>
I. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------ -------------------------
Awards
-------------------------
Other Restricted
Year Annual Stock Options/ All Other
Ended Salary Bonus Compensation Awards SARs Compensation
Name and Principal Position (1) Jan. 31 ($) ($) ($)(2) ($) (#) ($)(5)
- ---------------------------------- --------- -------- --------- -------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Floyd S. Robinson 1995 188,970 50,000 53,172 54,375 (3) 250,000 (4) - 0 -
President and Chief Executive
Officer
Robert S. Kendall 1995 173,131 - 0- N/A - 0 - - 0 - 53,318
Chairman of the Board and former 1994 371,153 65,025 N/A - 0 - 10,000 6,189
Chief Executive Officer 1993 275,000 337,450 N/A - 0 - - 0 - 17,470
Frank G. Skedel 1995 160,000 50,000 27,322 - 0 - - 0 - 5,098
Executive Vice President and 1994 160,000 46,000 N/A - 0 - 10,000 4,701
Chief Financial Officer 1993 160,000 49,500 N/A - 0 - - 0 - 15,059
John S. Rainsberger 1995 172,352 16,817 N/A - 0 - - 0 - 2,565
Vice President--Sales
Mont C. Hollingsworth 1995 100,275 37,500 N/A - 0 - - 0 - 2,578
Senior Vice President and 1994 93,934 21,000 N/A - 0 - 10,000 2,506
Controller 1993 98,798 19,000 N/A - 0 - - 0 - 8,325
Benjamin W. Cannon 1995 122,195 129,000 N/A - 0 - - 0 - 6,025
Former Vice President and 1994 199,236 31,000 N/A - 0 - 10,000 5,115
General Counsel 1993 168,152 23,250 N/A - 0 - - 0 - 10,876
William G. Zenallis 1995 160,000 30,986 N/A - 0 - - 0 - 5,083
Vice President--National Sales 1994 168,101 36,074 N/A - 0 - 10,000 5,022
1993 159,660 - 0 - N/A - 0 - - 0 - 12,374
</TABLE>
- ----------
(1) Because of executive changes during the year ended January 31, 1995, more
than five officers are included in this table. Messrs. Robinson and
Kendall both served as Chief Executive Officer during the year. Messrs.
Skedel, Rainsberger and Hollingsworth are the next three highest paid
persons who were executive officers at the end of the fiscal year. Messrs.
Cannon and Zenallis were executive officers during the year and would have
been among the five highest paid executive officers if they had remained
as executive officers at the end of the year. Because Messrs. Robinson and
Rainsberger were not executive officers of the Company during the fiscal
years ended January 31, 1994 or 1993, no information is provided for them
as to those years.
(2) The amount set forth in this column for Mr. Robinson consists almost
entirely of relocation expenses of Mr. Robinson and his family paid or
reimbursed by the Company. The amount for Mr. Skedel represents club
membership expenses paid or reimbursed by the Company. Certain other
executive officers were reimbursed for club membership expenses and other
business perquisites in amounts that are less than the reporting
thresholds established by the Securities and Exchange Commission.
(3) Consists of 15,000 shares of restricted stock, which will vest on July 19,
1995. The value of the shares is calculated at the value on January 31,
1995.
D-46
<PAGE> 121
(4) The options were granted to Mr. Robinson on July 19, 1994 and have an
exercise price of $3.75 per share. They will vest in 20% installments on
July 19 in each of the years 1995 through 1999, except that they will vest
100% upon any change in control (as defined) of the Company.
(5) Consists of amounts contributed by the Company under the LDI Corporation
Retirement Savings Plan and the LDI Corporation Pension Plan and Trust,
except that the amount for Mr. Kendall includes severance payments to Mr.
Kendall of $52,877 during the year ended January 31, 1995 (see "Employment
Agreements and Arrangements with Respect to Severance Compensation" in
this Item 11).
II. OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
Individual Grants TERM
- ------------------------------------------------------------------------------------ --------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION
NAME (1) GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------- --------------- ------------------- ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Floyd S. Robinson 250,000 100% $3.75 7/19/2003 $447,625 $1,072,125
(1) No options were granted during the year ended January 31, 1995 to any of the other persons named in the
Summary Compensation Table.
</TABLE>
<TABLE>
<CAPTION>
III. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS "IN-THE-MONEY" OPTIONS
AT JANUARY 31, 1995 (#) AT JANUARY 31, 1995 ($)
---------------------------------------------------- --------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Floyd S. Robinson - 0 - 250,000 - 0 - - 0 -
Robert S. Kendall - 0 - - 0 - - 0 - - 0 -
Frank G. Skedel 27,410 13,250 - 0 - - 0 -
John S. Rainsberger 9,560 9,890 - 0 - - 0 -
Mont C. Hollingsworth 13,592 9,575 - 0 - - 0 -
Benjamin W. Cannon - 0 - - 0 - - 0 - - 0 -
William G. Zenallis 7,880 9,470 - 0 - - 0 -
</TABLE>
COMPENSATION OF DIRECTORS
Each member of the Board of Directors who is not an employee of the Company
receives an annual director's fee of $16,000 ($32,000 for the Chairman). In
addition, each such director receives $1,000 ($2,000 for the Chairman) for
attendance at each meeting of the Board and each meeting of a committee thereof
not held in conjunction with a Board meeting, plus reimbursement of expenses
incurred in attending any such meeting.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH RESPECT TO SEVERANCE COMPENSATION
The Company has entered into an employment agreement with Mr. Robinson
providing for an annual base salary of $350,000, a bonus of $50,000 payable upon
commencement of his employment and a guaranteed
D-47
<PAGE> 122
bonus of $100,000 in respect of the fiscal year ended January 31, 1995. For
subsequent fiscal years, Mr. Robinson will be entitled to participate in a bonus
plan providing for an annual bonus based upon performance goals to be determined
by the Board of Directors, such bonus not to exceed the amount of the base
salary. The agreement also provides for Mr. Robinson to be granted options to
purchase a total of 750,000 shares of common stock. One third of the options
were granted on July 19, 1994, and the remaining options will be granted in
equal installments on July 19, 1995 and 1996 at the market value of the common
stock on those dates. If Mr. Robinson's employment is terminated other than for
cause (as defined), he will be entitled to continuation of his base salary and
medical benefits for a period of one year.
The Company has entered into employment agreements with each of Messrs.
Skedel and Hollingsworth which provide for severance compensation aggregating
between $100,000 and $300,000 depending on the circumstances under which the
individual terminates his employment with the Company. The individual will also
receive medical and dental benefits so long as payments of severance
compensation continue or until the individual receives similar benefits from a
new employer. The Company had a similar employment agreement with Jerry E. Kish,
former Executive Vice President and Chief Financial Officer, under which the
Company is paying Mr. Kish severance compensation in the aggregate amount of
$300,000 and is maintaining medical and dental benefits.
The Company has entered into severance agreements with each of Messrs.
Kendall, Kennedy and Cutter. These agreements provide for monthly payments of
severance compensation to continue through November 1996 for each of Messrs.
Kennedy and Cutter and through January 1997 for Mr. Kendall. Payments of
severance compensation are contingent upon the former officer fulfilling certain
obligations and upon the Company not being in violation of any covenants,
representations or warranties under any of its loan agreements. The aggregate
amount of severance paid and payable to each of them under these agreements is
$450,000.
The Board of Directors approved a severance plan in connection with the
Company's reduction in work force announced and implemented during the year
ended January 31, 1995. Employees who were designated between March 1 and June
30, 1994 to be part of the reduction received severance payments based on their
tenure with the Company and level of responsibility. The amounts of such
severance payments were equal to four weeks' pay for each year of service with
respect to senior managers and senior directors; two weeks' pay for each year of
service with respect to supervisors and managers; and one week's pay for each
year of service with respect to non-executives and non-exempt personnel. The
amounts of severance payments to executive officers were considered on a
case-by-case basis. Affected employees were also entitled to continued medical
and dental benefits. Payments of severance were made in lump sums, except for
the senior managers, who received their severance amounts in bi-weekly payments,
and executives, who received their amounts as determined on a case-by-case
basis.
D-48
<PAGE> 123
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 31, 1995, certain information
with regard to the beneficial ownership of the Company's common stock by each
holder of more than five percent of the Company's outstanding common stock, each
director of the Company, each of the current executive officers of the Company
set forth in the Summary Compensation Table and all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT Percent
BENEFICIAL OWNER BENEFICIALLY OWNED (1) of Class
- ---------------- ---------------------- --------
<S> <C> <C>
Floyd S. Robinson 15,000 (2) *
Scott S. Cowen 15,633 (3)(4) *
Thomas A. Cutter 876,900 (5)(6) 13.03%
Robert S. Kendall 1,122,168 (5)(7) 16.68%
Michael R. Kennedy 1,011,262 (5)(8) 15.03%
Norton W. Rose 2,500 (4) *
Frank G. Skedel 33,348 (9) *
Mont C. Hollingsworth 17,437 (9) *
John S. Rainsberger 9,560 (9) *
Dimensional Fund Advisors Inc. 419,876 (10) 6.24%
Olympus Private Placement Fund, L.P. 1,574,803 (11) 18.97%
The TCW Group, Inc. 579,500 (12) 8.61%
Tweedy, Browne Company L.P. and Related Parties 496,100 (13) 7.37%
All Directors and executive
officers as a group (12 persons) 3,106,003 (14) 45.73%
<FN>
* Less than 1%
(1) Beneficial ownership includes having or sharing voting power or dispositive
power of the securities.
(2) Consists of shares of restricted stock, all of which will vest on July 19,
1995.
(3) Includes 10,500 shares issuable upon the exercise of options to purchase
common stock. Also includes 1,050 shares held by Marjorie Cowen, his
spouse, as to which shares Mr. Cowen disclaims any beneficial ownership.
(4) Does not include shares issuable upon the exercise of options to purchase
common stock granted pursuant to the Stock Option Plan for Non-Employee
Directors to be submitted to the stockholders for approval at the 1995
Annual Meeting of Stockholders.
(5) Messrs. Kendall, Kennedy and Cutter and certain other stockholders of the
Company are parties to a Stockholders Agreement (the "Stockholders
Agreement") pursuant to which the parties thereto have agreed to vote all
of the shares held by them in the same manner as a majority of the shares
held by Messrs. Kendall, Kennedy and Cutter. An aggregate of 3,351,520
shares of common stock, or approximately 49.82% of the shares outstanding,
are subject to the Stockholders Agreement.
(6) Includes 766,964 shares held by Margaret Cutter, his spouse, and 49,215
shares held by a foundation of which Mr. Cutter is trustee, as to all of
which shares he disclaims any beneficial ownership.
(7) Includes 1,050,000 shares held by CPS Capital, Ltd., of which Mr. Kendall
is the principal member. Also includes 56,471 shares held by a foundation
of which Mr. Kendall is trustee, as to which shares he disclaims
beneficial ownership.
</TABLE>
D-49
<PAGE> 124
(8) Includes 8,000 shares held by a foundation of which Mr. Kennedy
is trustee. Does not include 96,906 shares held of record by
National City Bank as trustee of an irrevocable trust established by
Mr. Kennedy for the benefit of his children. Mr. Kennedy disclaims
beneficial ownership of all of such shares.
(9) Includes shares held under the LDI Corporation Retirement Savings Plan.
Also includes 27,410 shares of common stock issuable to Mr. Skedel, 13,592
shares issuable to Mr. Hollingsworth and 9,560 shares issuable to Mr.
Rainsberger upon the exercise of options to purchase common stock granted
pursuant to the LDI Corporation Employee Stock Option Plan, which options
are exercisable within 60 days of March 31, 1995.
(10) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 419,876 shares, all of
which shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all
such shares. This information is as of December 31, 1994 and was
obtained from a Schedule 13G field by Dimensional with the Securities
and Exchange Commission on or about February 9, 1995.
(11) Consists of shares issuable upon the exercise of outstanding warrants to
purchase common stock.
(12) This information was obtained from a Schedule 13G filed by The TCW Group,
Inc. with the Securities and Exchange Commission on or about February 10,
1995.
(13) This information was obtained from a Schedule 13G filed by Tweedy,
Browne Company L.P., TBK Partners, L.P. and Vanderbilt Partners, L.P.
with the Securities and Exchange Commission on or about August 12, 1993.
(14) Includes shares held under the LDI Corporation Retirement Savings Plan.
Includes 52,402 shares of common stock issuable to all executive officers
as a group upon the exercise of options to purchase common stock granted
pursuant to the LDI Corporation Employee Stock Plan, which options are
exercisable within 60 days of March 31, 1995.
The address of each of the persons shown in the preceding table who are the
beneficial owners of more than five percent of the outstanding shares of the
Company's outstanding common stock, as of March 15, 1995, is as follows: Mr.
Kendall and CPS Capital, Ltd., Suite 1510, 1801 East Ninth Street, Cleveland,
Ohio 44114; Mr. Kennedy, 30700 Carter Street, Solon, Ohio 44139; Mr. Cutter,
29299 Clemens Road, Suite 1K, Westlake, Ohio 44145; Olympus Private Placement
Fund, L.P., Metro Center, One Station Place, Stamford, Connecticut 06902;
Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401; The TCW Group, Inc., 865 South Figueroa Street, Los Angeles,
California 90017; and Tweedy, Browne Company L.P., 52 Vanderbilt Avenue, New
York, New York 10017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended January 31, 1995, the Company leased office,
warehouse and operations space from NCP Ltd. ("NCP"), an Ohio limited
partnership, the general partners of which are Messrs. Kendall, Kennedy and
Cutter and Jay J. Ross, a former officer of the Company. Jerry E. Kish, a former
officer and director of the Company, was a partner of NCP until January 1, 1995,
at which date he surrendered his partnership interest back to NCP. The Company
made rental payments to NCP of $355,000 for the year ended January 31, 1995. The
Company paid $40,000 to NCP for the year ended January 31, 1995, for building
maintenance, consulting services and building management fees. In connection
with the consolidation of the Company's facilities and the sale of certain of
its noncore businesses, all of the leases from NCP have been terminated, and the
Company has no remaining commitments to NCP for rentals with respect to
facilities.
On May 31, 1994, the Company sold to the predecessor of MRK Technologies,
Ltd. ("MRK") substantially all of the assets of a subsidiary and a division of
the Company engaged in the businesses of selling computer systems and software
and related equipment, network connectivity products and related services. Mr.
D-50
<PAGE> 125
Kennedy is the Chairman and Chief Executive Officer and one of the principal
members of MRK. The purchase price paid by MRK for the assets consisted of cash
and short-term notes in the aggregate amount of approximately $8.5 million and a
subordinated note in the original principal amount of $2 million payable in
installments through 1999. The note is subordinated to certain commercial
financing arrangements of MRK, is guaranteed by Mr. Kennedy and is secured by
Mr. Kennedy's pledge to the Company of shares of the Company held by him. The
unpaid principal amount of the note at March 31, 1995 was $1.5 million. In
connection with the sale, the Company leased to MRK certain furniture, fixtures
and equipment used in the business. The lease provides for aggregate rentals of
approximately $796,000 over a term of thirty-six months and gives MRK the option
to purchase the leased equipment at the end of the lease term for a nominal
amount.
On March 31, 1994, the Company sold to Open Software, Inc. substantially
all of the assets of the Company's open systems software distribution business.
The purchase price consisted of $100,000 in cash and certain percentage amounts
based on software revenues during the three months following the closing. Mr.
Kennedy was the Chairman and Chief Executive Officer and one of the principal
stockholders of Open Software, Inc., which is now a part of MRK. Michael T.
Joseph, who was Senior Vice President of the Company immediately prior to the
sale, was the President and Chief Operating Officer of Open Software, Inc.
During the year ended January 31, 1995, the Company purchased computer
equipment for lease to its customers and acquired other products and services
from MRK. The aggregate amount of these purchases was $5.3 million, for which
the Company owed MRK $145,000 at January 31, 1995. In addition, the Company sold
$180,000 of goods and services to MRK during the year. At January 31, 1995, the
Company was owed approximately $375,000 from MRK for goods and services and
custodial funds held by MRK.
D-51
<PAGE> 126
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements and related notes of
the Registrant and its subsidiaries are included herein:
Independent Auditors' Report
Consolidated Balance Sheets, as of January 31, 1994, and 1995
Statements of Consolidated Earnings for the Years Ended January 31,
1993, 1994, and 1995
Statements of Consolidated Cash Flows for the Years Ended
January 31, 1993, 1994, and 1995
Statements of Consolidated Shareholders' Equity for the Years Ended
January 31, 1993, 1994, and 1995
Notes to Consolidated Financial Statements for the Years Ended
January 31, 1993, 1994, and 1995
(a)(2) Financial Statement Schedule:
The following financial statement schedule is included herein:
Schedule VIII--Valuation and Qualifying Accounts
(a)(3) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.01 Asset Acquisition Agreement dated May 31, 1994, between LDI
Corporation and LDI Computer Systems, Inc., as Sellers, and MRK
Computer Systems, Inc., as Buyer (Included as an exhibit to the
Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for the
quarter ended July 31, 1994, and incorporated herein by reference.)
3.01 Restated Certificate of Incorporation (Included as an exhibit to
the Registrant's Registration Statement on Form S-1 (No.
33-14486) and incorporated herein by reference.)
3.02 By-laws, as amended (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended
October 31, 1994, and incorporated herein by reference.)
4.01 Specimen Stock Certificate (Included as an exhibit to
the Registrant's Registration Statement on Form S-1
(No 33-14486) and incorporated herein by reference.)
4.02 Note Purchase Agreement dated as of July 2, 1991, between
Registrant and Olympus Private Placement Fund, L.P. (Included
as an exhibit to the Registrant's Quarterly Report on Form 10-Q
(No. 0-15994) for the quarter ended July 31, 1991, and incorporated
herein by reference.)
D-52
<PAGE> 127
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.03 Amendment dated April 29, 1994, to Note Purchase Agreement
dated as of July 2, 1991, between Registrant and Olympus
Private Placement Fund, L.P. (Included as an exhibit to the
Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for the
quarter ended April 30, 1994, and incorporated herein by
reference.)
4.04 Form of Indemnification Agreement (Included as an exhibit to
the Registrant's Registration Statement on Form S-1 (No.
33-14486) and incorporated herein by reference.)
4.05 Stockholders' Agreement dated May 22, 1987, among the
Registrant, Robert S. Kendall, Michael R. Kennedy, Thomas A.
Cutter, Ronald M. Lipson, Jay J. Ross, Primus Capital Fund and
National City Venture Corporation, as amended (Included as an
exhibit to the Registrant's Annual Report on Form 10-K (No. 0-
15994) for the year ended January 31, 1991, and incorporated
herein by reference.)
4.06 Amended and Restated Credit Agreement dated November 16, 1990,
between LDI Lease Funding Corporation and the Dai-Ichi Kangyo
Bank Ltd., Chicago Branch, and specimen Nonrecourse
Promissory Note of LDI Lease Funding Corporation (Included as an
exhibit to the Registrant's Annual Report on Form 10-K (No. 0-
15994) for the year ended January 31, 1992, and incorporated
herein by reference.)
4.07 First Amendment dated August 1, 1991, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Ltd.,
Chicago Branch (Included as an exhibit to the Registrant's Annual
Report on Form 10-K (No. 0-15994) for the year ended January 31,
1992, and incorporated herein by reference.)
4.08 Second Amendment dated November 15, 1991, to Amended and
Restated Credit Agreement dated November 16, 1990, between LDI
Lease Funding Corporation and the Dai-Ichi Kangyo Bank Ltd.,
Chicago Branch (Included as an exhibit to the Registrant's
Annual Report on Form 10-K (No. 0-15994) for the year ended
January 31, 1992, and incorporated herein by reference.)
4.09 Third Amendment dated January 15, 1992, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Ltd.,
Chicago Branch (Included as an exhibit to the Registrant's Annual
Report on Form 10-K (No. 0-15994) for the year ended January 31,
1992, and incorporated herein by reference.)
4.10 Fourth Amendment dated April 29, 1992, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Ltd., Chicago
Branch (Included as an exhibit to the Registrant's Quarterly
Report on Form 10-Q (No. 0-15994) for the quarter ended April 30,
1992, and incorporated herein by reference.)
D-53
<PAGE> 128
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.11 Fifth Amendment dated October 1, 1992, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Limited, Chicago
Branch (Included as an exhibit to the Registrant's Quarterly
Report on Form 10-Q (No. 0-15994) for the quarter ended October
31, 1992, and incorporated herein by reference.)
4.12 Sixth Amendment dated July 15, 1993, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Limited, Chicago
Branch (Included as an exhibit to the Registrant's Annual Report
on Form 10-Q (No. 0-15994) for the quarter ended August 31, 1993,
and incorporated herein by reference.)
4.13 Seventh Amendment dated October 1, 1993, to Amended and Restated
Credit Agreement dated November 16, 1990, between LDI Lease
Funding Corporation and the Dai-Ichi Kangyo Bank Limited, Chicago
Branch (Included as an exhibit to the Registrant's Annual Report
on Form 10-Q (No. 0-15994) for the quarter ended October 31, 1993,
and incorporated herein by reference.)
4.14 Lease Receivables Transfer Agreement dated as of October 7,
1994, among LDI Lease Receivables Funding Corp., CXC Incorporated
and Citicorp North America, Inc. (Included as an exhibit to
the Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for
the quarter ended October 31, 1994, and incorporated herein by
reference.)
4.15 Lease Receivables Purchase and Contribution Agreement dated as of
October 7, 1994, between LDI Lease Receivables Funding
Corp. and Registrant. (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended
October 31, 1994, and incorporated herein by reference.)
4.16 Note Purchase Agreement dated as of August 1, 1989, among the
Registrant, Northwestern National Life Insurance Company and
the other parties listed in Appendix I thereto (Included as an
exhibit to the Registrant's Quarterly Report on Form 10-Q (No.
0-15994) for the quarter ended October 31, 1989, and incorporated
herein by reference.)
4.17 Amendment dated as of January 31, 1992, to the Note Purchase
Agreement dated August 31, 1989, among the Registrant,
Northwestern National Life Insurance Company and the other parties
listed in Appendix I thereto (Included as an exhibit to the
Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for the
quarter ended April 30, 1992, and incorporated herein by
reference.)
D-54
<PAGE> 129
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.18 Amendment dated May 2, 1994, to Note Purchase Agreement dated
August 31, 1989, among Registrant, Northwestern National
Life Insurance Company and the other parties listed in Appendix I
thereto (Included as an exhibit to the Registrant's Annual Report
on Form 10-K (No. 0-15994) for the year ended January 31, 1994,
and incorporated herein by reference.)
4.19 Letter Amendment dated July 29, 1994, to Note Purchase Agreement
dated August 31, 1989, among Registrant, Northwestern
National Life Insurance Company and the other parties listed in
Appendix I thereto (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended
July 31, 1994, and incorporated herein by reference.)
4.20 Amended and Restated Promissory Note of the Registrant dated as
of July 1, 1993, in favor of National Westminster Bank USA
(Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q (No. 0-15994) for the quarter ended October 31, 1993,
and incorporated herein by reference.)
4.21 Amendment dated April 29, 1994, to Amended and Restated
Promissory Note of Registrant dated as of July 1, 1993, in
favor of National Westminster Bank USA (Included as an exhibit to
the Registrant's Quarterly Report on Form 10-Q (No. 0- 15994) for
the quarter ended April 30, 1994, and incorporated herein by
reference.)
4.22 Second Amended and Restated Credit Agreement dated July 29, 1994
among Registrant, certain Commercial Lending Institutions, and
National City Bank, Society National Bank and Continental Bank
N.A., as co-agents (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended
July 31, 1994, and incorporated herein by reference.)
4.23 Consent, Waiver and Amendment No. 1 dated as of January 20, 1995
to Second Amendment and Restated Credit Agreement dated
July 29, 1994.
4.24 Amendment No. 2 dated as of March 10, 1995 to Second Amended and
Restated Credit Agreement dated July 29, 1994.
4.25 Amendment No. 3 dated as of April 28, 1995 to Second Amended and
Restated Credit Agreement dated July 29, 1994.
4.26 Letter Amendment dated as of April 28, 1995 to Note Purchase
Agreement dated August 31, 1989, among registrant, Northwestern
National Life Insurance Company and the other parties listed in
Appendix I thereto.
4.27 Amendment No. 4 dated as of May 15, 1995 to Second Amended and
Restated Credit Agreement dated July 29, 1994.
D-55
<PAGE> 130
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.28 Letter Amendment dated as of May 15, 1995 to Note Purchase
Agreement dated August 31, 1989, among registrant, Northwestern
Mutual Life Insurance Company and the other parties listed in
Appendix I thereto.
4.29 Amendment dated April 27, 1995, to Note Purchase Agreement dated
as of July 2, 1991, between registrant and Olympus Private
Placement Fund, L.P.
10.01 1995 Non-Employee Directors' Stock Option Plan.
10.02 Amended and Restated Employee Stock Option Plan.
11.01 Computation of Earnings Per Share for the year ended
January 31, 1995.
27.01 Financial Data Schedules as required under the Securities &
Exchange Commission EDGAR rule release effective for EDGAR
filings submitted on or after September 1, 1994.
(b) Reports on Form 8-K:
On March 22, 1995, the Registrant filed a report on Form 8-K with respect
to certain special charges to be recorded as of January 31, 1995.
(c) Exhibits:
The Exhibits listed in Item 14 are included and submitted with this
report.
(d) Financial Statement Schedules:
The financial statement schedules required to be filed with this report
are included in Item 8 of this report.
D-56
<PAGE> 131
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LDI CORPORATION
Date: May 16, 1995 By: /s/ Floyd S. Robinson
[Amended May 26, 1995] -----------------------
Floyd S. Robinson, President and Chief
Executive Officer
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 date indicated.
/s/ Floyd S. Robinson President, Chief Executive Officer May 16, 1995
- -------------------------- and Director (Principal Executive
Floyd S. Robinson Officer)
/s/ Frank G. Skedel Executive Vice President and Chief May 16, 1995
- -------------------------- Financial Officer (Principal Financial
Frank G. Skedel Officer)
/s/ Mont C. Hollingsworth Senior Vice President and Controller May 16, 1995
- -------------------------- (Principal Accounting Officer)
Mont C. Hollingsworth
/s/ Robert S. Kendall Chairman of the Board and Director May 16, 1995
- --------------------------
Robert S. Kendall
/s/ Scott S. Cowen Director May 16, 1995
- --------------------------
Scott S. Cowen
/s/ Thomas A. Cutter Director May 16, 1995
- --------------------------
Thomas A. Cutter
/s/ Michael R. Kennedy Director May 16, 1995
- --------------------------
Michael R. Kennedy
/s/ Norton W. Rose Director May 16, 1995
- --------------------------
Norton W. Rose
D-57
<PAGE> 132
APPENDIX E
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number: 0-15994
-------
LDI CORPORATION
------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 31-1179824
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4770 Hinckley Industrial Parkway, Cleveland, Ohio 44109-6096
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 661-5400
--------------
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 X NO
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,763,957 shares of Common Stock, $.01 par value,
as of November 30, 1995
E-1
<PAGE> 133
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
==========================================================================================================
1995 1994
---------------- ----------------
<S> <C> <C>
REVENUES:
Leasing............................................... $ 20,238 $ 26,441
Direct sales.......................................... 5,686 18,583
Technical services.................................... 2,821 3,929
Equity in earnings of 50% owned affiliate............. 212 462
Other................................................. 571 265
---------------- ----------------
Total............................................ 29,528 49,680
---------------- ----------------
COSTS AND EXPENSES:
Leasing............................................... 12,640 17,204
Direct sales.......................................... 4,510 15,891
Technical services.................................... 1,672 2,171
Interest.............................................. 5,668 7,046
Debt financing fees................................... 2,014 1,089
Selling, general, and administrative.................. 4,968 5,944
---------------- ----------------
Total............................................ 31,472 49,345
---------------- ----------------
EARNINGS (LOSS) BEFORE INCOME TAXES........................ (1,944) 335
Income tax expense......................................... - 127
---------------- ----------------
NET EARNINGS (LOSS)........................................ $ (1,944) $ 208
================ ================
NET EARNINGS (LOSS) PER PRIMARY SHARE...................... $ (.29) $ .03
================ ================
Average shares outstanding................................. 6,764 6,727
================ ================
</TABLE>
NOTE: Certain reclassifications have been made to the prior year's
consolidated financial statements to conform to the current period's
presentation.
See the accompanying notes to consolidated financial statements.
E-3
<PAGE> 134
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
=================================================================================================
1995 1994
--------------- ---------------
<S> <C> <C>
REVENUES:
Leasing............................................. $ 57,403 $ 78,233
Direct sales........................................ 28,350 55,012
Technical services.................................. 9,110 11,814
Equity in earnings of 50% owned affiliate........... 748 841
Other............................................... 1,718 728
--------------- ---------------
Total.......................................... 97,329 146,628
--------------- ---------------
COSTS AND EXPENSES:
Leasing............................................. 32,658 48,292
Direct sales........................................ 24,016 47,280
Technical services.................................. 5,053 6,512
Interest............................................ 18,802 21,879
Debt financing fees................................. 5,215 2,237
Selling, general, and administrative................ 16,019 20,086
--------------- ---------------
Total.......................................... 101,763 146,286
--------------- ---------------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES........................ (4,434) 342
Income tax expense (benefit)............................ (199) 130
--------------- ---------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS............... (4,235) 212
Loss from discontinued operations, net of
income tax benefit of $1,888........................ - (3,081)
--------------- ---------------
NET EARNINGS (LOSS)...................................... $ (4,235) $ (2,869)
=============== ===============
EARNINGS (LOSS) PER PRIMARY SHARE:
Continuing operations.................................... $ (.63) $ .03
Discontinued operations.................................. - (.46)
--------------- ---------------
NET EARNINGS (LOSS)...................................... $ (.63) $ (.43)
=============== ===============
Average shares outstanding............................... 6,746 6,727
=============== ===============
</TABLE>
NOTE: Certain reclassifications have been made to the prior year's
consolidated financial statements to conform to the current period's
presentation.
See the accompanying notes to consolidated financial statements.
E-4
<PAGE> 135
LDI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 (Unaudited) AND JANUARY 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
===============================================================================================================
October 31, January 31,
1995 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ 4,345 $ 11,744
Receivables - net of allowance for doubtful accounts............... 17,204 23,244
Inventory held for lease or sale................................... 13,409 10,933
Leased assets:
Capital leases................................................... 241,785 311,478
Operating leases - net of accumulated depreciation of $30,024
and $22,120................................................... 30,163 37,610
Land, buildings, equipment and furniture - net of accumulated
depreciation of $9,613 and $8,062................................ 11,442 12,715
Other assets....................................................... 16,637 19,185
----------------- -----------------
Total...................................................... $ 334,985 $ 426,909
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable................................................... $ 5,886 $ 13,008
Accrued liabilities................................................ 6,643 5,553
Notes payable...................................................... 81,482 107,855
Subordinated notes................................................. 10,000 10,000
Deferred income taxes.............................................. 3,721 3,933
Nonrecourse lease financing........................................ 174,020 227,574
Other liabilities.................................................. 5,826 7,391
----------------- -----------------
Total liabilities.......................................... 287,578 375,314
----------------- -----------------
SHAREHOLDERS' EQUITY:
Common stock, par value of $.01 - 20,000,000 shares
authorized; 6,865,484 and 6,828,984 shares issued................ 69 68
Additional paid-in capital......................................... 45,043 44,997
Retained earnings.................................................. 3,555 7,790
Treasury shares at cost - 101,527 shares........................... (1,260) (1,260)
----------------- -----------------
Total shareholders' equity................................. 47,407 51,595
----------------- -----------------
Total.................................................... $ 334,985 $ 426,909
================= =================
</TABLE>
NOTE: The balance sheet at January 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. Certain reclassifications have been made
to the prior year's consolidated financial statements to conform to the
current period's presentation.
See the accompanying notes to consolidated financial statements.
E-5
<PAGE> 136
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-------------- ---------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations...................... $ (4,235) $ 212
Adjustments to reconcile net earnings (loss) to net cash flow from
operating activities:
Depreciation...................................................... 13,630 15,633
Deferred income taxes............................................. (199) (2,152)
Additions to capital leases....................................... (54,267) (71,596)
Principal portion of lease rentals received....................... 123,960 126,424
Purchases of inventory for resale................................. (9,703) (45,975)
Sales, transfers, and disposals of inventory and equipment........ 39,823 107,173
Change in accounts receivable..................................... 6,040 6,351
Change in accounts payable........................................ (7,122) (2,487)
Change in accrued expenses and other liabilities.................. (452) (7,570)
Other............................................................. 2,547 (820)
-------------- ---------------
Cash provided by continuing operations.............................. 110,022 125,193
-------------- ---------------
Discontinued operations:
Net loss from discontinued operations............................ - (3,081)
Change in assets and liabilities of discontinued operations...... - 14,117
-------------- ---------------
Cash provided by discontinued operations............................ -0- 11,036
-------------- ---------------
Total........................................................... 110,022 136,229
-------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of equipment for lease.................................... (37,197) (59,520)
Purchases of land, buildings, equipment and furniture............... (308) (2,000)
Proceeds from sale of businesses, properties and other assets....... - 8,226
-------------- ---------------
Total............................................................ (37,505) (53,294)
-------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from nonrecourse lease financing........................... 51,549 90,479
Payments on nonrecourse lease financing............................. (105,103) (137,079)
Net repayments of senior recourse debt facilities................... (26,373) (42,887)
Other............................................................... 11 (92)
-------------- ---------------
Total............................................................ (79,916) (89,579)
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents..................... (7,399) (6,644)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 11,744 8,972
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 4,345 $ 2,328
============== ===============
</TABLE>
See the accompanying notes to consolidated financial statements.
E-6
<PAGE> 137
LDI CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 (UNAUDITED) AND
FOR THE YEAR ENDED JANUARY 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
====================================================================================================================
Common Total
Additional stock in share-
Common paid-in Retained treasury holders'
stock capital earnings at cost equity
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1994...... $ 68 $ 44,922 $ 26,354 $ (1,260) $ 70,084
Net loss......................... (18,564) (18,564)
Compensation expense under
stock award plan.............. 75 75
--------- ---------- ---------- --------- ----------
BALANCE AT JANUARY 31, 1995...... 68 44,997 7,790 (1,260) 51,595
Net loss......................... (4,235) (4,235)
Compensation expense under
stock award plans............. 1 46 47
--------- ---------- ---------- --------- ----------
BALANCE AT OCTOBER 31, 1995...... $ 69 $ 45,043 $ 3,555 $ (1,260) $ 47,407
========= ========== ========== ========= ==========
</TABLE>
See the accompanying notes to consolidated financial statements.
E-7
<PAGE> 138
LDI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in Thousands, Except Where Indicated)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals, except as otherwise disclosed)
considered necessary for a fair presentation have been included. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended January
31, 1995.
2. RECEIVABLES
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
---------- ----------
<S> <C> <C>
Trade accounts....................... $ 12,638 $ 19,351
Trade notes.......................... 5,151 7,688
Other................................ 2,150 2,209
Allowance for doubtful accounts...... (2,735) (6,004)
---------- ----------
Net receivables...................... $ 17,204 $ 23,244
========== ==========
3. ACCRUED AND OTHER LIABILITIES
October 31, January 31,
1995 1995
---------- ----------
Accrued liabilities consist of:
Compensation......................... $ 1,422 $ 2,189
Interest............................. 878 1,078
Debt financing fees.................. 2,555 -
Sales tax............................ 421 354
Other................................ 1,367 1,932
---------- ----------
Total................................ $ 6,643 $ 5,553
========== ==========
Other liabilities consist of:
Customer rental prepayments.......... $ 2,662 $ 3,668
Deferred revenues.................... 2,007 1,724
Other................................ 1,157 1,999
---------- ----------
Total................................ $ 5,826 $ 7,391
========== ==========
</TABLE>
E-8
<PAGE> 139
4. NOTES PAYABLE
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
------------- -------------
<S> <C> <C>
Revolving credit facilities............ $ 52,182 $ 100,307
Term loans and notes................... 29,300 7,548
------------- -------------
Total.................................. $ 81,482 $ 107,855
============= =============
</TABLE>
Effective July 21, 1995, the Company entered into a new revolving
credit and term loan agreement with its senior lenders. The new facility,
which refinanced all of the Company's then outstanding senior secured recourse
debt, consists of a revolving credit commitment in the initial amount of $74.3
million and term loans in the amount of $29.3 million, all of which mature on
January 31, 1997. The interest rate on the revolving credit borrowings is
equal to the prime rate plus 1% and the interest rate on the term loans is
equal to the prime rate minus 1%. The revolving credit commitment will reduce
on a quarterly basis to a total commitment of not more than $47.3 million
during the last three months of the commitment period. The facility is secured
by substantially all of the Company's unencumbered assets.
At October 31, 1995, $84.7 million was outstanding under this facility.
Subsequent to October 31, 1995, $3.2 million of the revolving credit borrowings
were financed on a nonrecourse basis. Accordingly, these amounts have been
included in nonrecourse lease financing at October 31, 1995.
Under the terms of the refinancing, the Company committed to pay fees
and expenses substantially in excess of those payable under the former loan
agreements. At the closing of the refinancing, the Company was required to
pay agent fees of $0.7 million, participant fees of $0.8 million, professional
fees of approximately $1.3 million and an initial development fee of $0.5
million. Additional agent and participant fees totaling $1.2 million will be
payable on specified dates if the facility is in place until January 31, 1997.
Additional development fees in the amount of $1.0 million per quarter
($7.0 million over the term of the facility) accrue beginning on the closing
date of the loan agreement and thereafter on the first day of each fiscal
quarter. The Company will have the right to reduce such fees by refinancing the
facility with another lender or group of lenders prior to its maturity date or
by otherwise repaying the outstanding borrowings more quickly than required by
the agreement. However, at least $2.1 million of such fees will be payable,
regardless of the amount of amortization, if the facility is in place until
January 31, 1997. All accrued and unpaid development fees, as so reduced, are
payable on the earlier of January 31, 1997 or the repayment in full of the
loans.
The loan agreement contains certain covenants, including an earnings
covenant and a covenant concerning the ratio of outstanding borrowings to
collateral values. The covenants also prohibit the payment of cash dividends.
Management believes that cash generated from operations, borrowings
under the senior credit facility and financing from existing nonrecourse
programs and other sources will provide sufficient funds to meet the Company's
reasonably foreseeable liquidity needs. However, the substantial principal
amortization and debt financing fee payments under the senior recourse debt
agreement may require that additional liquidity be generated through other
sources including, but not restricted to, the sale of various assets.
5. NONRECOURSE LEASE FINANCING
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
------------- --------------
<S> <C> <C>
Financial institutions . . . . . . . . . . . $ 90,535 $ 119,365
Commercial paper . . . . . . . . . . . . . . 83,485 108,209
------------- --------------
Total . . . . . . . . . . . . . . . . . . . . $ 174,020 $ 227,574
============= ==============
</TABLE>
E-9
<PAGE> 140
Nonrecourse discounted lease rentals consist of fixed rate capital
obtained from financial institutions on a nonrecourse basis. The lender has a
security interest in the lease rental stream and the underlying assets, but has
no recourse to the Company in the case of default by the lessee.
The Company established two asset-backed financing programs to fund
lease transactions on a nonrecourse basis through the use of commercial paper
securitized by lease rental receivables. The programs are rated A-1 by
Standard & Poor's or P-1 by Moody's. These ratings represent the highest
attainable ratings available under the respective classification systems.
Under one of the programs, the Company sold lease receivables to a
wholly owned special purpose corporation that issues commercial paper backed by
an annually renewing five year letter of credit. At October 31, 1995, $13.8
million of commercial paper was outstanding under this program. Effective May
1, 1994, the letter of credit under this program was not extended, however,
leases funded previously continue to amortize under the terms of the existing
agreement.
A second securitized program provides for the financing of lease
receivables through an independent special purpose corporation which issues
commercial paper. This program is backed by a surety bond. The program
operates through a wholly owned subsidiary of the Company to which the Company
sells lease receivables and transfers the related equipment. The subsidiary
then transfers the receivables to the independent corporation to support the
issuance of commercial paper, which is nonrecourse to the Company. At October
31, 1995, $69.7 million of commercial paper was outstanding under this program.
6. SUBORDINATED NOTES
The Company has $10.0 million of subordinated notes maturing in August
2000. The notes require annual repayments of $2.5 million beginning in August
1997. The notes are callable by the Company at a premium of 109 3/8 at October
31, 1995, which declines ratably to par in August 1999.
The Company also issued a total of 1,574,803 warrants in conjunction
with these notes. Each warrant is exercisable by the holder through August 15,
1998, for one share of the Company's common stock at $5.00 per share. The
exercise price is subject to adjustment for stock dividends, splits and certain
other issuances of common stock.
Effective as of August 1, 1995, the Company and the holder of the notes
amended the notes and the related note purchase agreement to increase the
interest rate on the notes from 9.375 percent to 12.75 percent per annum, to
change interest payment dates from semi-annual to quarterly and to delete the
financial covenants (with which the Company was previously not in compliance).
7. RESTRUCTURED OPERATIONS
During the year ended January 31, 1995, the Company (1) sold
substantially all the assets of its personal computer distribution and direct
sales business; (2) completed the sale of the stock of the Company's Canadian
leasing subsidiary; and (3) sold certain assets of its point-of-sale equipment
businesses.
The revenues and expenses of Restructured Operations are included in
the results of Continuing Operations through the date of disposition.
8. DISCONTINUED OPERATIONS
During the year ended January 31, 1995, the Company (1) completed the
liquidation and closing of its retail computer superstores; (2) completed the
liquidation and closing of its retail PC outlet stores; (3) sold certain assets
of its software distribution business; and (4) sold certain assets and
transferred certain liabilities of its catalog distribution business.
E-10
<PAGE> 141
During the second quarter ended July 31, 1994, the Company recorded a
loss from discontinued operations of $5.0 million ($3.1 million after tax).
This loss, which was in addition to amounts accrued in the prior fiscal year,
was related to incremental costs for the liquidation and closing of the
Company's retail computer superstores and retail PC outlets.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Nine Months Ended October 31
----------------------------
1995 1994
----- -------
[S] [C] [C]
Cash paid for:
Interest.......................... $19,001 $23,016
Income taxes...................... $ 13 $ 293
E-11
<PAGE> 142
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LDI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Nine Months Ended October 31, 1995
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of credit facilities, term loans and
internally generated cash flow to finance, on an interim basis, the acquisition
of equipment for lease or sale. Upon completion of lease documentation, the
Company generally finances the present value of future lease rentals by the
assignment of such rentals to banks, insurance companies, or other lenders on a
discounted, nonrecourse basis. In this manner, a substantial portion of the
equipment cost is financed on a long-term basis and the Company limits its
risk, if any, to its equity investment in the equipment.
The Company enters into interest rate swap and cap agreements to manage
exposure to changes in interest rates for portions of its recourse and
nonrecourse debt. The agreements generally involve the exchange of fixed or
floating rate interest payments without the exchange of the underlying
principal amounts. At October 31, 1995, the Company had a total of $265.5
million of recourse and nonrecourse interest-bearing obligations, of which
$168.3 million were on a floating rate basis. Of the total floating rate
financings, $77.7 million were converted to fixed rate financing through
interest rate swap agreements and $14.0 million were subject to interest rate
ceilings through interest rate cap agreements.
During the nine months ended October 31, 1995, cash generated from
operating activities was $110 million compared to $136 million for the period
ended October 31, 1994. This $26 million decrease is attributable primarily to
the following: decrease in cash inflows from the sale or disposal of inventory
and off-lease equipment ($67 million); lower cash outflows for purchases of
inventory for resale ($36 million); additions to capital leases ($17 million);
and a reduction in cash inflows from changes in assets and liabilities of
discontinued operations ($11 million). Cash used in investing activities was
$38 million for the period ended October 31, 1995 compared to $53 million for
the period ended October 31, 1994. This decrease of $15 million was due to a
$22 million reduction in equipment purchased for lease offset by a decrease in
proceeds from the sale of businesses, properties and other assets of $8
million. Cash used in financing activities was $80 million for the period
ended October 31, 1995 as compared to $90 million for the period ended October
31, 1994. The decrease of $10 million was due to a lower net paydown of the
senior recourse debt facilities of $17 million, partially offset by higher net
payments for nonrecourse financing activity of $6 million.
As discussed in Note 4 of Notes to Consolidated Financial Statements,
effective July 21, 1995, the Company entered into a new revolving credit and
term loan agreement with its senior lenders. The new facility, which
refinanced all of the Company's then outstanding senior secured recourse debt,
consists of a revolving credit commitment in the initial amount of $74.3
million and term loans in the amount of $29.3 million, all of which mature on
January 31, 1997. The interest rate on the revolving credit borrowings is equal
to the prime rate plus 1% and the interest rate on the term loans is equal to
the prime rate minus 1%. The revolving credit commitment will reduce on a
quarterly basis to a total commitment of not more than $47.3 million during the
last three months of the commitment period. The facility is secured by
substantially all of the Company's unencumbered assets.
Management believes that cash generated from operations, borrowings
under the senior credit facility and financing from existing nonrecourse
programs and other sources will provide sufficient funds to meet the Company's
reasonably foreseeable liquidity needs. However, the substantial principal
amortization and debt financing fee payments under the senior recourse debt
agreement may require that additional liquidity be generated through other
sources including, but not restricted to, the sale of various assets.
The Company does not have any material commitments for capital
expenditures. The Company believes that inflation has not been a significant
factor in its business.
E-12
<PAGE> 143
LDI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Three Months Ended October 31, 1995 as
Compared to the Three Months Ended October 31, 1994
================================================================================
LEASING:
A summary of the operating results from leasing for the three months
ended October 31, 1995 and 1994 is as follows:
(Dollars in Thousands) 1995 1994
- ------------------------------------------------------------------------
Leasing Revenues $ 20,238 $ 26,441
Cost of Leasing 12,640 17,204
--------------- ----------------
Gross Leasing Margin $ 7,598 $ 9,237
=============== ================
Percent of Revenue 37.5% 34.9%
A summary of new leasing activity, which is a measure of business volume, for
the three months ended October 31, 1995, and 1994, is as follows:
<TABLE>
<CAPTION>
COST OF LEASED EQUIPMENT
-----------------------------------------------------------
1995 1994
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
New Equipment Leases $ 12,566 81.5% $ 26,779 88.5%
Re-Leased Equipment 2,847 18.5% 3,469 11.5%
----------- ----------- ----------- -----------
TOTAL $ 15,413 100.0% $ 30,248 100.0%
=========== =========== =========== ===========
Sales-Type Leases 7,601 49.3% $ 11,472 37.9%
Direct Finance Leases 5,877 38.1% 17,212 56.9%
Operating Leases 1,935 12.6% 1,564 5.2%
----------- ----------- ----------- -----------
TOTAL $ 15,413 100.0% $ 30,248 100.0%
=========== =========== =========== ===========
NUMBER OF TRANSACTIONS
-----------------------------------------------------------
1995 1994
---------------------------- ---------------------------
New Equipment Leases 137 85.6% 282 89.5%
Re-Leased Equipment 23 14.4% 33 10.5%
----------- ----------- ----------- -----------
TOTAL 160 100.0% 315 100.0%
=========== =========== =========== ===========
Sales-Type Leases 99 61.9% 181 57.4%
Direct Finance Leases 42 26.2% 90 28.6%
Operating Leases 19 11.9% 44 14.0%
----------- ----------- ----------- -----------
TOTAL 160 100.0% 315 100.0%
=========== =========== =========== ===========
</TABLE>
For the three months ended October 31, 1995, aggregate leasing revenues
declined $6.2 million (23.5%) from the same period in the prior year. Leasing
revenues consist of sales-type lease revenues, finance income and operating
lease revenues, all of which declined during the period. The decrease in
sales-type lease revenues ($3.8 million) was primarily the result of the lower
volume of equipment placed on sales-type leases during the three months ended
October 31, 1995 as compared to the same period of the prior year. The
decrease in finance income and operating lease revenues ($2.4 million) was
principally due to the reduction ($117.1 million or 29.3%) in average leased
assets of the Company for the three months ended October 31, 1995 as compared
to the prior year period.
E-13
<PAGE> 144
Gross leasing margin percentage increased from 34.9% for the three
months ended October 31, 1994 to 37.5% for the most recent three month period.
This margin increase is due to finance income and operating lease rentals
constituting a higher proportion of leasing revenues in the current quarter as
compared to the prior year. There are lower leasing costs directly related to
finance and operating lease rental income. Consequently, when these revenues
account for a larger portion of the overall revenue mix, costs of leasing as a
percentage of total revenue tend to decrease, resulting in a corresponding
favorable increase in the realized gross leasing margin percentage.
DIRECT SALES:
A summary of the operating results from direct sales for the three
months ended October 31, 1995 and 1994 is as follows:
(Dollars In Thousands) 1995 1994
- -----------------------------------------------------------
Direct Sales $ 5,686 $ 18,583
Cost of Direct Sales 4,510 15,891
-------------- ---------------
Gross Sales Margin $ 1,176 $ 2,692
============== ===============
Percent of Sales 20.7% 14.5%
Direct sales for the three months ended October 31, 1995 decreased
approximately $13.0 million (69.4%) from the prior year's period. This
decrease resulted largely from a $7.5 million single transaction recorded
during the prior year quarter. Excluding the lower gross sales margin
associated with this prior year transaction, the current year gross sales
margin percentage is comparable to prior periods.
TECHNICAL SERVICES:
A summary of the operating results from technical services for the
three months ended October 31, 1995 and 1994 is as follows:
(Dollars In Thousands) 1995 1994
- -----------------------------------------------------------
Services Revenues $ 2,821 $ 3,929
Cost of Services 1,672 2,171
-------------- ---------------
Gross Margin $ 1,149 $ 1,758
============== ===============
Percent of Revenues 40.7% 44.7%
For the three months ended October 31, 1995, technical services
revenues decreased by 28.2% from the prior year's third quarter. The revenue
decline reflects a decrease in the Company's technical services contract base
and lower per unit maintenance revenues as the cost of new computers and
peripherals has declined.
The gross margin percentage decreased 4.0% reflecting overall higher
cost relationships in proportion to the volume of technical services performed.
Competitive market conditions also continue to pressure pricing decisions and
have resulted in some erosion of gross sales margins.
INTEREST EXPENSE:
For the three months ended October 31, 1995, interest expense decreased
by 19.6% from the prior year's quarter, primarily as a result of a $96 million
(25.6%) reduction in the average amount of outstanding debt offset by an
increase in the average rate of interest.
E-14
<PAGE> 145
DEBT FINANCING FEES:
Debt financing fees increased during the quarter ended October 31, 1995
by $0.9 million (85.0%) primarily due to fees associated with the senior
secured credit facility discussed in Note 4 of Notes to Consolidated Financial
Statements. Approximately $1.4 million of the fees accrued at October 31, 1995
can be recovered as described in Note 4.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
<TABLE>
<CAPTION>
Three months ended October 31
------------------------------
(Dollars in Thousands) 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Selling, general, and administrative expense $5,036 $6,544
Addition to allowance for doubtful accounts 432 200
Capitalized initial direct costs (500) (800)
--------- ---------
Reported selling, general, and administrative expense $4,968 $5,944
========= =========
</TABLE>
Excluding the effects detailed above for changes in allowance for
doubtful accounts and initial direct costs, selling, general, and administrative
expense decreased $1.5 million (23.0%) in the quarter ended October 31, 1995
compared to the prior year's third quarter. The decrease is due primarily to
head count reductions and facilities consolidation instituted as part of the
Company's strategic plan.
INCOME TAXES:
As of January 31, 1995, the Company had investment tax credits for
income tax purposes of $2.9 million and tax loss carryforwards for income tax
purposes of $86.7 million. During the quarter ended October 31, 1995 the
Company recorded a valuation reserve of $0.8 million against the deferred tax
asset. The reserve relates to the portion of the tax credit carryforwards
that management does not believe will be utilized prior to expiration. The
decision to record this valuation reserve was based in part on revised income
projections. Before recording this reserve, the effective tax benefit rate for
the quarter ended October 31, 1995 was 38%, which was comparable to the prior
year period.
E-15
<PAGE> 146
LDI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Nine Months Ended October 31, 1995 as
Compared to the Nine Months Ended October 31, 1994
================================================================================
LEASING:
A summary of the operating results from leasing for the nine months
ended October 31, 1995 and 1994 is as follows:
(Dollars in Thousands) 1995 1994
- ----------------------------------------------------------------------
Leasing Revenues $ 57,403 $ 78,233
Cost of Leasing 32,658 48,292
-------------- ----------------
Gross Leasing Margin $ 24,745 $ 29,941
============== ================
Percent of Revenue 43.1% 38.3%
A summary of new leasing activity, which is a measure of business
volume, for the nine months ended October 31, 1995, and 1994, is as follows:
<TABLE>
<CAPTION>
COST OF LEASED EQUIPMENT
-----------------------------------------------------
1995 1994
-------------------------- ---------------------
<S> <C> <C> <C> <C>
New Equipment Leases $ 37,197 91.0% $ 60,605 85.2%
Re-Leased Equipment 3,673 9.0% 10,529 14.8%
--------- --------- -------- --------
TOTAL $ 40,870 100.0% $ 71,134 100.0%
========= ========= ======== ========
Sales-Type Leases $ 17,132 41.9% $ 26,954 37.9%
Direct Finance Leases 17,758 43.5% 37,474 52.7%
Operating Leases 5,980 14.6% 6,706 9.4%
--------- --------- -------- --------
TOTAL $ 40,870 100.0% $ 71,134 100.0%
========= ========= ======== ========
NUMBER OF TRANSACTIONS
-----------------------------------------------------
1995 1994
-------------------------- ---------------------
New Equipment Leases 443 83.9% 760 83.4%
Re-Leased Equipment 85 16.1% 151 16.6%
--------- --------- -------- --------
TOTAL 528 100.0% 911 100.0%
========= ========= ======== ========
Sales-Type Leases 349 66.1% 565 62.0%
Direct Finance Leases 125 23.7% 252 27.7%
Operating Leases 54 10.2% 94 10.3%
--------- --------- -------- --------
TOTAL 528 100.0% 911 100.0%
========= ========= ======== ========
</TABLE>
For the nine months ended October 31, 1995, aggregate leasing revenues
declined $20.8 million (26.6%) from the same period in the prior year. Leasing
revenues consist of sales-type lease revenues, finance income and operating
lease revenues, all of which declined during the period. The decrease in
sales-type lease revenues ($11.8 million) was primarily due to the lower volume
of equipment placed on sales-type leases during the nine months ended October
31, 1995 as compared to the same period of the prior year. The decrease in
finance income and operating lease revenues ($9.0 million) was principally due
to the reduction ($112.8 million or 26.8%) in
E-16
<PAGE> 147
average leased assets of the Company for the nine months ended October 31,
1995 as compared to the prior year period.
Gross leasing margin percentage increased from 38.3% for the nine
months ended October 31, 1994 to 43.1% for the current year comparable period.
This margin increase is due to finance income and operating lease rentals
constituting a higher proportion of leasing revenues for the nine months ended
October 31, 1995 compared to the prior year corresponding period. There are
lower leasing costs directly related to finance and operating lease rental
income. Consequently, when these revenues account for a larger portion of the
overall revenue mix, costs of leasing as a percentage of total revenue tend to
decrease, resulting in a corresponding favorable increase in the realized gross
leasing margin percentage.
DIRECT SALES:
A summary of the operating results from direct sales for the nine
months ended October 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Restructured Reported
Core Operations (1) Operations (2) Operations
------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands) 1995 1994 1995 1994 1995 1994
- ---------------------- ------------------- -------------------- -------------------
Direct Sales $ 28,350 $36,190 - $ 18,822 $ 28,350 $ 55,012
Cost of Direct Sales 24,016 31,098 - 16,182 24,016 47,280
------------------- -------------------- -------------------
Gross Sales Margins $ 4,334 $ 5,092 - $ 2,640 $ 4,334 $ 7,732
=================== ==================== ===================
Percent of Sales 15.3% 14.1% - 14.0% 15.3% 14.1%
</TABLE>
(1) Core operations include Leasing Services, Technology Services, and
PC Rentals, which were identified in the strategic plan as those
product lines that constitute the ongoing business of the
Company.
(2) Restructured operations include the results of business units which
are, for financial statement presentation purposes only, considered to
be a part of reported operations. As discussed in Note 7 of Notes to
Consolidated Financial Statements, the restructured operations were
either sold or substantially liquidated during the year ended January
31, 1995.
Core operations' direct sales for the nine months ended October 31, 1995
decreased approximately $8.0 million (21.7%) from the prior year's period. This
decrease resulted primarily from a $7.5 million single transaction recorded in
the quarter ended October 31, 1994. Gross core operations sales margin
percentages remained comparable from period to period.
TECHNICAL SERVICES:
A summary of the operating results from technical services for the nine
months ended October 31, 1995 and 1994 is as follows:
(Dollars In Thousands) 1995 1994
- -------------------------------------------------------------
Services Revenues $ 9,110 $ 11,814
Cost of Services 5,053 6,512
--------------- ---------------
Gross Margin $ 4,057 $ 5,302
=============== ===============
Percent of Revenues 44.5% 44.9.%
For the nine months ended October 31, 1995, technical services revenues
decreased by 22.9% from the prior year's comparable period. The revenue decline
reflects a decrease in the Company's technical services contract
E-17
<PAGE> 148
base and lower per unit maintenance revenues resulting from decreases in the
cost of new computers and peripherals.
The gross margin percentages are comparable from period to period.
INTEREST EXPENSE:
For the nine months ended October 31, 1995, interest expense decreased
by 14.1% from the prior year's period, primarily as a result of a $107.3
million (26.0%) reduction in the average amount of outstanding debt offset by
an increase in the average rate of interest.
DEBT FINANCING FEES:
Debt financing fees increased during the nine months ended October 31,
1995 by $3.0 million (133.1%), primarily due to fees associated with the senior
secured credit facility discussed in Note 4 of Notes to Consolidated Financial
Statements. Approximately $1.4 million of the fees accrued at October 31, 1995
can be recovered as described in Note 4.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
<TABLE>
<CAPTION>
Nine months ended October 31
-----------------------------
(Dollars in Thousands) 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Selling, general, and administrative expense $15,612 $22,008
Additions to allowance for doubtful accounts 1,662 290
Capitalized initial direct costs (1,255) (1,800)
Adjustment of prior year pension accrual - (412)
------- -------
Reported selling, general, and administrative expense $16,019 $20,086
======= =======
</TABLE>
Excluding the effects detailed above for changes in allowance for
doubtful accounts, initial direct costs, and pension accrual adjustment,
selling, general, and administrative expense decreased $6.4 million (29.1%) in
the nine months ended October 31, 1995 compared to the prior year's period.
The decrease is due primarily to head count reductions and facilities
consolidation instituted as part of the Company's strategic plan and the effect
of the sale of the restructured businesses as discussed in Note 7 of Notes to
Consolidated Financial Statements.
INCOME TAXES:
As a result of the $1.7 million valuation reserve recorded in the
second and third quarters, the effective income tax benefit rate for the nine
month period ended October 31, 1995 was 5.8%. Had the valuation reserve not
been recorded in the current period, the effective income tax benefit rate for
the nine month period ended October 31, 1995 would have been 38%, which is
comparable to the prior year period.
E-18
<PAGE> 149
<TABLE>
<CAPTION>
Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.01 Asset Acquisition Agreement dated May 31, 1994, between LDI Corporation and LDI
Computer Systems, Inc., as Sellers, and MRK Computer Systems, Inc., as Buyer
(Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q (No.
0-15994) for the quarter ended July 31, 1994, and incorporated herein by
reference.)
3.01 Restated Certificate of Incorporation (Included as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-14486) and incorporated herein by
reference.)
3.02 By-laws, as amended (Included as an exhibit to the Registrant's Quarterly Report
on Form 10-Q (No. 0-15994) for the quarter ended October 31, 1994, and
incorporated herein by reference.)
4.01 Specimen Stock Certificate (Included as an exhibit to the Registrant's
Registration Statement on Form S-1 (No 33-14486) and incorporated herein by
reference.)
4.02 Form of Indemnification Agreement (Included as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-14486) and incorporated herein by
reference.)
4.03 Stockholders' Agreement dated May 22, 1987, among the Registrant, Robert S.
Kendall, Michael R. Kennedy, Thomas A. Cutter, Ronald M. Lipson, Jay J. Ross,
Primus Capital Fund and National City Venture Corporation, as amended (Included
as an exhibit to the Registrant's Annual Report on Form 10-K (No. 0-15994) for
the year ended January 31, 1991, and incorporated herein by reference.)
4.04(a) Note Purchase Agreement dated as of July 2, 1991, between the Registrant and
Olympus Private Placement Fund, L.P. (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended July 31, 1991,
and incorporated herein by reference.)
4.04(b) Amendment dated April 29, 1994, to Note Purchase Agreement dated as of July 2,
1991, between the Registrant and Olympus Private Placement Fund, L.P. (Included
as an exhibit to the Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for
the quarter ended April 30, 1994, and incorporated herein by reference.)
4.04(c) Amended and Restated Amendment dated October 18, 1995 to Note Purchase Agreement
dated as of July 2, 1991, between the Registrant and Olympus Private Placement
Fund, L.P.
4.05(a) Lease Receivables Transfer Agreement dated as of October 7, 1994, among LDI Lease
Receivables Funding Corp., CXC Incorporated and Citicorp North America, Inc.
(Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q (No.
0-15994) for the quarter ended October 31, 1994, and incorporated herein by
reference.)
4.05(b) Lease Receivables Purchase and Contribution Agreement dated as of October 7,
1994, between LDI Lease Receivables Funding Corp. and the Registrant (Included as
an exhibit to the Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for
the quarter ended October 31, 1994, and incorporated herein by reference.)
</TABLE>
E-19
<PAGE> 150
<TABLE>
<S> <C>
4.06(a) Third Amended and Restated Credit Agreement dated as of July 21, 1995, among the
Registrant, certain Commercial Lending Institutions, and National City Bank and
Society National Bank, as co-agents (Included as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (No. 0-15994) for the quarter ended July 31, 1995,
and incorporated herein by reference.)
4.06(b) Second Amended and Restated Security Agreement dated as of July 21, 1995, between
the Registrant and Society National Bank, as Collateral Agent (Included as an
exhibit to the Registrant's Quarterly Report on Form 10-Q (No. 0-15994) for the
quarter ended July 31, 1995, and incorporated herein by reference.)
4.06(c) Subordinated Second Amended and Restated Security Agreement dated as of July 21,
1995, between the Registrant and Society National Bank, as Collateral Agent
(Included as an exhibit to the Registrant's Quarterly Report Form on 10-Q (No.
0-15994) for the quarter ended July 31, 1995, and incorporated herein by
reference.)
4.06(d) Security Agreement dated as of July 21, 1995, between LDI Computer Rentals, Inc.
and Society National Bank, as Collateral Agent (Included as an exhibit to the
Registrant's Quarterly Report Form 10-Q (No. 0-15994) for the quarter ended
July 31, 1995, and incorporated herein by reference.)
10.01 1995 Non-Employee Directors' Stock Option Plan (Included as an exhibit to the
Registrant's Annual Report on Form 10-K (No. 0-15994) for the year ended
January 31, 1995, and incorporated herein by reference.)
10.02 Amended and Restated Employee Stock Option Plan (Included as an exhibit to the
Registrant's Annual Report on Form 10-K (No. 0-15994) for the year ended
January 31, 1995, and incorporated herein by reference.)
11.01 Computation of Earnings Per Share for the period ended October 31, 1995
27.01 Financial Data Schedules
</TABLE>
E-20
<PAGE> 151
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LDI CORPORATION
---------------
Date: December 14, 1995 By: /s/ Mont C. Hollingsworth
--------------------------
Mont C. Hollingsworth, Senior Vice President,
Controller and chief accounting officer
E-21
<PAGE> 152
LDI CORPORATION
SPECIAL MEETING OF STOCKHOLDERS, APRIL 29, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Floyd S. Robinson or Eric P.
Telljohann as proxy, each with power to appoint his substitute, and
hereby authorizes each of them to vote as directed below all the
shares of common stock of LDI Corporation ("LDI") which the
undersigned would be entitled to vote, if personally present, at the
Special Meeting of Stockholders of LDI to be held at AmeriSuites
Cleveland South, 6025 North Rockside Road, Independence, Ohio, on
April 29, 1996 at 10:00 A.M. (local time), or any postponements or
adjournments thereof.
PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, dated
as of February 14, 1996, as amended March 29, 1996 ("Merger
Agreement"), between LDI and NationsCredit Commercial Corporation
("NationsCredit"), and THE MERGER of a wholly-owned subsidiary of
NationsCredit with and into LDI upon terms and subject to the
conditions thereof, pursuant to which shares of common stock of LDI
will be converted into the right to receive $4.10 per share, on the
terms and subject to the adjustments and conditions set forth in the
Merger Agreement.
FOR ____ AGAINST ____ ABSTAIN ____
The undersigned hereby authorizes the proxies in their discretion to
vote on any other business which may properly be brought before the
meeting and any postponements or adjournments thereof.
This proxy, when properly executed, will be voted in the manner
directed above. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE MERGER AGREEMENT AND THE MERGER.
The undersigned acknowledges receipt from LDI prior to the
execution of this proxy of the Proxy Statement dated April 1, 1996.
Please sign exactly as name appears below.
Date: ______________ , 1996
----------------------------
Signature
When shares are held by
joint tenants, either may
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by the
President or other
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
/ / If you plan to attend the Special Meeting, please check this box.
