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FORM 10-K

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

For the transition period from                to                

Commission file number 000-21407

Registrant’s telephone number, including area code: (248) 597-5800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(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 the 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 registrant’s voting stock held by non-affiliates of the registrant as of March 24, 2000, computed by reference to the last sale price for such stock on that date as reported on the Nasdaq National Market System, was $133,205,416.

     As of March 24, 2000, 19,316,674 shares of Common Stock , par value $0.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Notice of 2000 Annual Meeting of Shareholders and Proxy Statement (Part III).

      Lason, Inc. (together with its subsidiaries, “Lason” or the “Company”) may from time to time provide information including certain statements included in or incorporated by reference in this Form 10-K which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include the intent, belief or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) variations in quarterly results; (ii) the assimilation of acquisitions; (iii) the management of the Company’s growth and expansion; (iv) dependence on major customers, dependence on key personnel; (v) development by competitors of new or superior products or services, or entry into the market of new competitors; (vi) fluctuations in paper prices; (vii) reliability of the Company’s data; (viii) volatility of the Company’s stock price; (ix) management’s ability to successfully complete its restructuring initiatives; (x) any financial and legal impact of the class action litigation; (xi) changes in the business services outsourcing industry; (xii) significance of intangible assets; (xiii) changes related to compensatory stock options; and (xiv) other risks identified from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission.

ITEM I.  BUSINESS

General

      Lason Systems, Inc., a Michigan corporation and the predecessor (the “Predecessor”) to Lason, was formed in 1985 as a result of a management buyout of the direct mail division of McKesson Corporation’s 3PM subsidiary. In January 1995, the founders and principal shareholders of the Predecessor recapitalized it (the “Recapitalization”) by selling substantially all of its assets to Lason Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Lason, Inc., which was then named Lason Holdings, Inc. In August 1996, Lason Holdings, Inc. changed its name to Lason, Inc. After the acquisition, Lason Acquisition Corp. changed its name to Lason Systems, Inc., and continued the business operations of the Predecessor.

      Lason provides integrated information outsourcing for image and data capture, data management and output processing services. The investments the Company has made in imaging and communications technology, personnel, equipment and systems over the past decade have given it the capabilities and expertise necessary to meet the growing and increasingly complex information management requirements of its customers. The Company primarily serves customers in the commercial, healthcare, financial services and professional services industries. The Company’s core competencies in input processing, data management and output processing enable it to provide a broad range of services across a wide range of media types and allow customers to fulfill their information management outsourcing needs with a single vendor. The Company’s strategy has been to offer a wide range of services across a broad geographic area to its customers and to use technologically advanced solutions to expand its service offerings.

      Lason believes that companies will continue to increase their use of outsourced information management services, and the market for its services will continue to grow due to a variety of factors including: (i) continuing advancements in computer, networking, facsimile, printing and other technologies which have greatly facilitated the production and distribution of documents; (ii) government regulations that require lengthy document retention periods and rapid accessibility for many types of records; (iii) increased customer expectations of low cost access to records on short notice at different locations; and (iv) an increasingly litigious society, necessitating access to relevant documents and records for extended periods. To manage large volumes of documents efficiently, a customer would be required to make significant investments in equipment, processes and technology which may only be fully utilized occasionally. Through outsourcing, companies can avoid these investments, as well as the risks of obsolescence that arise from the rapid changes in information

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      The information management industry is highly fragmented, consisting of a large number of small companies providing limited service offerings. An important element of the Company’s growth strategy has been to selectively make acquisitions of companies with complementary technologies or customer bases to consolidate its position as a provider of comprehensive information management services across a broad geographic area. See “Recent Developments — Restructuring”.

      The Company’s goal is to become a global, single source provider of information management services for customers in its targeted industries. To achieve this goal, the Company will continue to implement a focused business strategy based on the following elements: (i) provide a broad range of services that will allow both existing and new customers to secure all their information management services from one source; (ii) facilitate the cross-selling of additional services to customers through its comprehensive marketing program and develop national brand recognition for the quality and scope of Lason’s services; (iii) continue to develop additional high value-added applications within its core service offerings; and (iv) continue to develop scalable applications utilizing an open architecture and modular approach that will enable the Company to service the unique needs of various customers across a broad range of volume requirements.

      Since June 1995, the Company has acquired a substantial number of companies involved in records management, duplication, conversion services, facilities management, item processing and research, micrographics, litigation support document management services, electronic sorting of mass mailings, proxy solicitations, mail creation and distribution and database management services.

      The Company’s acquisition strategy has been to selectively make acquisitions of companies that (a) have proven operating track records and strong customer franchises that could benefit from the Company’s technology and broad product and service offerings; (b) have solid management teams that will join and remain with the Company after the acquisition; (c) have an existing presence in the Company’s core competencies to build economies of scale through volume purchasing and facility utilization; (d) expand the Company’s customer base and thereby increase its cross-selling opportunities and (e) broaden the Company’s geographic reach. See “Recent Developments — Restructuring”.

E-Commerce

      Lason’s e-business represents the services and products the Company provides that are initially transacted via the internet or web. These offerings can be delivered in either a land based or electronic mode. The Company’s e-commerce business will be transacted via the Company’s worldwide portal, called Lason Exchange. By using Lason Exchange, the Company’s customers will be able to order services and products directly via the web without having to interface with the Company’s employees. This will improve the delivery of services and products to the Company’s customers, while reducing the Company’s cost of sales and distribution. Products initially targeted for Lason Exchange include equipment and supplies for document imaging, digital reprographics, digital print and the Company’s internal office supply requirements.

      In December 1999, the Company announced that it’s Board of Directors had authorized the engagement of investment bankers to explore the spin-off, or other means, to capitalize on Lason’s existing e-commerce business. After a thorough review of Lason’s strategy in this area which included consulting with its external technical and financial advisors, Lason has reconfirmed that these e-commerce offerings are important to its integrated approach of providing full service solutions to customers. Accordingly, Lason has decided not to spin-off these high potential areas as separate entities but will continue to build this business through internal growth and through strategic partnering.

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Discontinued Operations

      In December 1999, Lason announced its intention to discontinue, by sale or exit from the market, its activities providing traditional litigation support, software development and other analog services. Those services are no longer consistent with Lason’s long-term growth strategy as they are largely analog and are expected to have slow long-term growth. The businesses to be discontinued consist of nine litigation copy businesses, an offset print business, a digital graphics business and the software development business that was acquired as part of the M-R acquisition in 1999. The Company has engaged brokers and has begun to actively market these businesses. Combined, the discontinued businesses had revenues of approximately $33.0 million and a pre tax loss of approximately $6.2 million for the year ended December 31, 1999. The Company expects to realize a pre tax loss of approximately $32.4 million, including a write-off of goodwill totaling $34.1 million, as a result of disposing of and/or exiting these businesses. Management anticipates that the sale or exit from these businesses will be completed during 2000.

Restructuring

      On June 30, 1999, the Company completed its merger with M-R Group plc (“M-R”), a leading document and data management company headquartered in the United Kingdom. In connection with the M-R merger, the Company recorded a $7.8 million pre tax restructuring charge during the second quarter of 1999 for costs associated with discontinued leases, the consolidation of facilities, severance and other related expenses for Lason facilities which were to be closed or consolidated with M-R facilities. For businesses that have had facilities closed or consolidated with other facilities, the tangible assets to be disposed of have been written down to their estimated fair value, less cost of disposal. In addition, as a result of the consolidation of approximately 21 facilities, approximately 423 employees have been separated from the Company as of December 31, 1999.

      In the fourth quarter of 1999, management completed a thorough review of its operations and approved a restructuring plan to make the Company more efficient and to lower overall costs. These decisions resulted in the Company recording a one-time pre tax charge to operations of $14.9 million in the fourth quarter of 1999. The charge consists of severance, facility closure and exit costs related primarily to discontinued leases and equipment write-downs. The restructuring plan calls for the consolidation of facilities and operations, the closure of facilities, and the streamlining of the administrative support functions.

      As part of the Company’s restructuring, management has shifted its focus from acquisitions and has accelerated the integration of its businesses to enhance the Company’s future profitability.

M-R Acquisition

      Effective with the completion of the transaction, the acquisition of M-R was presented for financial reporting purposes using the pooling of interest method of accounting. In December 1999, Lason took certain actions, including those discussed above under “Discontinued Operations”, which required a change to the purchase method of accounting for the acquisition of M-R. The change to purchase accounting resulted in an increase to goodwill of approximately $128.0 million, which will increase annual goodwill amortization expense by approximately $4.4 million.

Class-Action Litigation

      On December 21, 1999 and various dates thereafter, several individuals filed complaints against the Company and certain executive officers in various United States District Courts. The complaints purport to be brought as class actions on behalf of purchasers of shares of the Company’s common stock during periods ranging from August 14, 1998, through December 17, 1999. The complaints generally allege that the Company and certain of its officers made public statements concerning the Company’s revenues and earnings and inflated the market price of the shares of the Company’s common stock. The complaints allege violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and one complaint alleges violations of the Securities Act of 1933. The complaints seek unspecified damages allegedly incurred as a result of the decline in the market price of shares of the Company’s common stock after the Company

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      These actions are in a preliminary stage. However, the Company believes, based on the advice of outside legal counsel, that it and the named officers have substantial defenses to the plaintiffs’ claims, and the Company intends to vigorously defend these claims. While the final resolution of this litigation cannot be presently determined, management does not believe it will have a material adverse effect on the Company’s business or the future consolidated financial statements, although such adverse effect could be possible.

      The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures About Segments of an Enterprise and Related Information, during the year ended December 31, 1998. SFAS No. 131 requires the Company to report certain information about its operating segments.

      For years prior to 1998, the Company was managed as one operating segment and there were no material individual segments. Beginning in 1998, the Company’s reportable segments generally consist of a group of business units that are organized geographically. Each of the Company’s six United States geographic regions has a separate management team and infrastructure, and offer different combinations of the Company’s services.

      The segment disclosures required by SFAS No. 131 are presented in Note 12 of Notes to Consolidated Financial Statements included in this Form 10-K.

      Although there is significant overlap, the Company’s information management service offerings can generally be divided into the areas of image and data capture, data management and output processing. The Company’s image and data capture services include the scanning and conversion of documents from a variety of input media to a digital format. The Company also provides traditional microfilm and microfiche services as well as on-site facility management services. The Company’s data management services include electronic document storage and retrieval, database management and internet-based services, as well as list manipulation, sorting services and information search solutions so that customers’ data can be customized and updated for specific target market mailings. The Company’s output processing services include print on demand, business communications and statement processing services.

      The Company provides a broad range of image and data capture services that enable it to meet its customers’ information management outsourcing needs, including electronic conversion services, micrographic conversion services, high volume and quick-turn reprographics, and on-site facilities management. The Company’s experience and capabilities enable it to provide a broad range of document conversion services with respect to a wide variety of input and output formats, including digital, film, CD-ROM, optical disk, magnetic disk, aperture card and hardcopy, including engineering drawings.

      Electronic Conversion Services.  A company implementing a document storage and retrieval (“DSR”) program frequently faces the challenge of converting hundreds of thousands to millions of paper and/or microfilm documents to digital format. These paper and microfilm documents can be converted to indexed digital images or, using OCR technology, into electronically recognizable text. The Company’s investments in advanced document scanners and imaging software combined with its experience in scanning and converting documents typically enables the Company to perform this document conversion process more efficiently and in significantly less time than a potential customer. The Company’s technical support staff is skilled at assisting customers in developing customized indexing systems and selecting optimal file formats and naming conventions.

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      Micrographics Conversion Services.  The Company performs traditional micrographic conversions including the conversion of paper documents into microfilm images, film processing, computer-based indexing and formatting of microfilm images. Micrographic services often are selected as a cost competitive technology to paper-based systems in order to reduce the physical size of stored records, for their long term (typically over 100 years) archival capabilities and as an intermediate step in certain imaging or reprographics applications.

      High Volume, Quick-Turn Reprographics. The Company, through its imaging centers, provides high volume, quick-turn reprographics services 24 hours a day, seven days a week. In addition, the Company possesses the capability to handle reprographic projects including conversion services.

      On-Site Facilities Management. The Company can equip, staff and manage most aspects of a customer’s information management needs at a customer’s facility. In addition to copying and printing, Company employees perform file room maintenance, decentralized copier management, facility mail and courier services, and address list maintenance. Typically, the Company will operate its own satellite production center (called a Lason Servicenter) on the customer’s premises. By working in partnership with a customer at the customer’s facility, the Company and the customer frequently identify additional ways the Company can help meet the customer’s information management needs both on-site and at the Company’s imaging centers. The Company established its first Lason Servicenter in 1992 and currently provides on-site services at over 100 facilities.

      Data management services include electronic document storage and retrieval, database management and web-based services.

      Electronic Document Storage and Retrieval. The Company has developed a flexible electronic DSR system, called Visions, that enables Lason’s customers to obtain the benefits of electronic document storage and retrieval without developing and purchasing their own DSR system. By using Visions, customers can access large volumes of documents immediately that would be impossible using conventional filing systems. DSR systems also provide rapid distribution of archived information to multiple destinations and remove the logistical burden and cost of archiving paper documents. Lason’s Visions system enables it to store and index a customer’s digital documents whether the document was converted to digital format from paper format or was originally produced in digital format. Because stored documents can be indexed by several criteria, a customer can use simple but exacting computer search techniques to rapidly access individual documents or groups of documents.

      Database Management Services. The Company’s sophisticated database management systems support data manipulation, item sorting and information search solutions so that various customers’ lists can be customized and updated for specific target markets and targeted mailings. These database capabilities save customers money while increasing response rates. These services are typically offered in conjunction with other services the Company provides.

      Internet-Based Services. The Company’s Corporate ID system allows customers and their employees to utilize the internet to manage and control the procurement of corporate identification materials. Corporate ID provides fully automated ordering, approval, tracking, manufacturing, fulfillment and reporting to all of a customer’s designated employees to ensure that all corporate materials ordered conform to organizational guidelines.

      The Company offers a variety of output processing services to its customers, which enables them to cost-effectively produce and distribute large volumes of customized documents on short notice.

      Digital Communication Services. Lason’s customers benefit from outsourcing their high volume communications needs to the Company through improved turn-around time, reduced production constraints and the flexibility and benefits provided by using the latest software and mail handling processes.

	•	Priority Gram™. The Company’s Priority Gram™ is a nationally recognized product that large volume mailers have found to be an effective mode of communication in a variety of applications. Among these customers are firms involved in debt collection. The Company works with leading software vendors to provide credit institutions with an effective system of debt collection communications.

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	•	PROXYGRAM™. The Company’s PROXYGRAM™ serves the time sensitive proxy solicitation sector of the financial services market. PROXYGRAMs solicit, collect, report and validate shareholders proxy votes while providing flexibility to shareholders and cost savings and greater shareholder participation to customers. Outgoing messages to shareholders contain instructions on how to vote shares by a toll-free telephone call using a confidential identification number to assure shareholder verification and validity.
	•	Fax, Electronic Distribution, Print and Mail. The Company’s business communication services provide customers with rapid, reliable and cost-effective methods for making large-scale distributions of statements, reports and letters to customer and other target audiences by fax, electronic distribution, print and mail. The Company develops customized programs for its customers to support event driven response requirements, such as product recall and credit card solicitation campaigns. For example, the Company currently provides declination letter and incomplete application letter processing with respect to credit card applications for a leading credit card company. Such letters can be generated on a daily basis as the status of the customer’s application file requires. By combining volumes of mail from all of its customers and presorting such mail to United States Postal Service specifications, the Company is able to generate significant postal discounts for its customers. Each customer enjoys the maximum postal discounts allowed for First Class Mail regardless of the volume of mail sent by that customer. The Company can incorporate these savings in quotes to customers on its services.

      Print on Demand Solutions. The Document Express (print on demand) system enables customers to cost effectively produce and distribute large volumes of a document on 24-hour notice. The customer supplies the Company with either an electronic copy or a hard copy of the document, which the Company converts to an electronic copy, which is then stored on the Document Express system. The customer can then use its own computer system to place a print order, including production amount and distribution method and location, and the Company completes the print and distribution process.

      The Document Express system offers an alternative to traditional printing methods for companies which produce documents that are subject to frequent revisions or unpredictable demand. Since conventional offset printing requires large production runs to produce high quality documents in a cost-effective manner, a company which utilizes offset printing to print such documents runs the risk that it will find itself with a costly inventory of outdated and useless documents. In addition, the flexibility of the Document Express system provides customers with an ability to increase the quality of their product offerings by enabling them to make document enhancements (such as corrections or improvements to product manuals) which would otherwise be prohibitively expensive. The Company believes that the demand for print on demand services by manufacturers, financial and insurance institutions will continue to increase as technological advances create shorter product life cycles and increased product variation.

International

      With the completion of the M-R acquisition, the Company has substantially increased its international operations in 1999. The international segment had net revenues of approximately $56.0 million and pre tax income of approximately $8.2 million in 1999.

Customers

      The Company currently has over 10,000 customers primarily in the commercial, healthcare, financial services and professional services industries. The Company services accounts of all sizes, from small business and professional groups to Fortune 100 companies. The Company’s largest customers include Fleetboston Financial Corporation, Blue Cross/ Blue Shield, Bank One Corporation, First Union Corporation, VERITAS Software, Ameritrade, Inc., Federal Express Corporation, Ford Motor Company, General Electric Company, General Motors Corporation, Nationsbank, Sears Roebuck and Co., Shell Oil Company, Her Majesty’s Land Registry and Trans Union. No single customer accounted for more than 10% of the Company’s total consolidated net revenues in 1999.

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Competition

      The Company’s businesses are highly competitive. A significant source of competition is the in-house document handling capability of the Company’s target customer base. In addition, with respect to those services that are outsourced, the Company has a variety of competitors, including large national or multinational companies, which have greater financial resources than the Company, and small regional or local companies. The Company’s major competitors, in addition to various regional competitors, include IKON Office Solutions, Inc., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney Bowes, Inc.) and Xerox Business Services, with respect to its image and data capture services; Dataplex Corp., F.Y.I. Incorporated and IKON Office Solutions, Inc., with respect to its database management services; and First Financial Management Corp. (First Image), Sun Guard Mailing Services and Output Technology Solutions, with respect to its output processing services. The Company’s businesses compete on the basis of price, service and innovation.

Proprietary Rights and Processes

      The Company regards the systems, information and know-how underlying its services as proprietary and relies primarily on a combination of contract, trade secrets, confidentiality agreements and contractual provisions to protect its rights. The Company’s business is not materially dependent on any patents. Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to obtain and use information that the Company regards as proprietary, and policing unauthorized use of the Company’s proprietary information is difficult. Litigation may be necessary for the Company to protect its proprietary information and could result in substantial cost to, and diversion by, the Company.

Environmental Matters

      The Company is subject to federal, state and local laws, regulations and ordinances that: (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes; or (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposal or other release of solid wastes and hazardous substances.

      The Company is not aware of any environmental conditions that would be likely to have a material adverse effect on the business, financial condition or results of operations of the Company. However, there can be no assurance that environmental liabilities in the future will not have a material adverse effect on the business, financial condition or results of operations of the Company.

Employees

      As of March 24, 2000, the Company had approximately 10,300 employees, including approximately 4,000 in foreign countries. No domestic employees of the Company are represented by a labor union, however, some foreign employees are represented by local labor unions in certain countries. The Company considers its relationship with its employees to be good.

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Executive Officers of the Registrant

      The following table sets forth certain information concerning the Company’s executive officers as of March 24, 2000:

      Gary L. Monroe has served as Chairman of the Board of the Company since April 1998, President of the Company from April 1997 to January 1999, as Chief Executive Officer of the Company since February 1996 and as a Director of the Company since he joined the Company in September 1995. From September 1995 to February 1996, Mr. Monroe served as Executive Vice President of the Company. From May 1992 to September 1995, Mr. Monroe served as President of Kodak Imaging Services, Inc., a subsidiary of Eastman Kodak Co. Mr. Monroe is employed pursuant to an employment agreement for a two year period ending May 31, 2001.

      William J. Rauwerdink has served as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company since he joined the Company in May 1996 and as a director of the Company since May 1999. Mr. Rauwerdink is employed at the discretion of the Board. From February 1993 to April 1995, Mr. Rauwerdink served as Executive Vice President, Chief Financial Officer and Treasurer of The MEDSTAT Group, Inc., a publicly traded company in the healthcare information industry. Mr. Rauwerdink was a partner with the Detroit office of the international accounting and consulting firm of Deloitte & Touche from 1983 to 1993. Mr. Rauwerdink is a certified public accountant. Mr. Rauwerdink is also a director of Mercy Health Services, Inc., a non-profit multistate health care services organization.

      On December 11, 1995, Mr. Rauwerdink consented to the entry of an order enjoining him from violating certain antifraud and tender offer provisions of the federal securities laws. The order required him to give up profits and pay penalties and interest totaling approximately $225,000. He neither admitted nor denied the allegations made in the proceeding.

      The proceeding involved the rollover of certain funds from a former employer’s profit sharing plan. The investment directions made in connection with the rollover into Mr. Rauwerdink’s 401(k) account at his new employer specified that the investment of such funds be made 50% in the stock of his employer and 50% in other investments in his 401(k) account and resulted in the purchase of shares of common stock of the new employer at the time when it was alleged that the employer was engaged in merger negotiations. The shares purchased in the rollover transaction constituted approximately 8% of Mr. Rauwerdink’s total holdings in his new employer’s common stock.

      John R. Messinger has served as an officer of the Company since he joined the Company in July 1997 and is the Company’s President and Chief Operating Officer. Mr. Messinger is employed pursuant to an employment agreement for a two year period ending January 31, 2001. From November 1995 to July 1997, Mr. Messinger served as President and Director of Image Conversion Services, Inc. From 1983 to November 1995, Mr. Messinger served in various positions with Anacomp, Inc., including Group President, Regional Vice President and District Manager.

      Randy L. Baker has served as Executive Vice President — Human Resources and Business Integration, since he joined the Company in July 1999. Mr. Baker is employed at the discretion of the Board. From January 1998 to April 1999, he served as Senior Vice President, Human Resources, for Republic Industries, a publicly traded company in the automotive retail and automotive rental industry. Beginning in January 1995

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ITEM 2.  PROPERTY

      The Company has operations in 29 U.S. states, the United Kingdom, Canada, Mexico, India, Maritius and the Caribbean. Except for two facilities that are owned by the Company, all the facilities are leased and are used for operations and general administrative functions. The Company also operates over 100 facility management sites located on customers’ premises.

ITEM 3.  LEGAL PROCEEDINGS

      On December 21, 1999 and various dates thereafter, several individuals filed complaints against the Company and certain executive officers in various United States District Courts. The complaints purport to be brought as class actions on behalf of purchasers of shares of the Company’s common stock during periods ranging from August 14, 1998, through December 17, 1999. The complaints generally allege that the Company and certain of its officers made public statements containing material omissions or misrepresentations which created the misleading impression that the Company’s revenues and earnings were on target with market forecasts and consequently artificially inflated the market price of the shares of the Company’s common stock. The complaints allege violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and one complaint alleges violations of the Securities Act of 1933. The complaints seek unspecified damages allegedly incurred as a result of the decline in the market price of shares of the Company’s common stock after the Company announced on December 17, 1999 that it expected lower fourth quarter earnings per share compared with concensus analysts’ estimates.

      These actions are in a preliminary stage. However, the Company believes, based on the advice of outside legal counsel, that it and the named officers have substantial defenses to the plaintiffs’ claims, and the Company intends to vigorously defend these claims. While the final resolution of this litigation cannot be presently determined, management does not believe it will have a material adverse effect on the Company’s business, or the future consolidated financial statements, although such adverse effect could be possible.

      Various other claims have been made against the Company in the normal course of business. Management believes that none of those legal proceedings will have a material adverse effect on the Company’s business, financial condition or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      There were no matters submitted to a vote of the Company’s shareholders during the fourth quarter of 1999.

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      The Company’s common stock is traded on the Nasdaq National Market System under the symbol “LSON”. As of March 24, 2000, there were approximately 2,660 holders of the Company’s common stock.

      The quarterly trading range for shares of the Company’s common stock during 1999 and 1998 is presented below:

      The Company intends to retain any earnings to finance operations and expansion and, therefore, does not anticipate paying any cash dividends on its common stock in the foreseeable future. Cash dividends, if any, would be determined by the Board of Directors and would be based on the Company’s earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. Except for certain constructive dividends related to partial forgiveness of certain shareholder loans in connection with its initial public offering, the Company has not paid any dividends on its capital stock.

      In the fourth quarter of 1999, in connection with the acquisition of the shares of a company and as a partial payment of the purchase price, the Company issued 19,537 shares of its common stock valued at approximately $900,000. The shares were issued at $46.06 per share.

      In the fourth quarter of 1999, the Company issued 93,032 shares of its common stock to owners of companies Lason had previously acquired as additional consideration for the achievement of certain target levels of financial performance after the respective acquisition. The shares were issued at per share prices ranging from $31.68 to $45.30, for an aggregate value of approximately $3,026,500.

      The issuance of the securities described in the two prior paragraphs was exempt from registration under the Securities Act of 1933 by virtue of Section 4 (2) thereof as transactions not involving a public offering.

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      The following table sets forth selected consolidated financial data of the Company and includes the financial results of M-R since June 30, 1999, the date the acquisition was completed using the purchase method of accounting. The selected consolidated financial data presented below have been derived from the Company’s consolidated financial statements which have been audited by PricewaterhouseCoopers, LLP as described in their report thereon and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in this Form 10-K.

Overview

      Lason is a leading provider of information management services. The Company’s strategy is to process information in the following ways: (1) To provide integrated solutions that capture information across a variety of formats; (2) to manage information through database development; (3) to manage information through electronic storage and retrieval services; and (4) to disseminate information through hardcopy output, print on demand and electronic formats.

      Lason’s capability to capture, manage and output information includes both traditional and digital services that support customer migration to new technologies including internal-based applications.

E-Commerce

      Lason’s e-business represents the services and products the Company provides that are initially transacted via the internet or web. These offerings can be delivered in either a land based or electronic mode. The Company’s e-commerce business will be transacted via the Company’s worldwide portal, called Lason Exchange. By using Lason Exchange, the Company’s customers will be able to order products and services directly via the web without having to interface with the Company’s employees. This will improve the delivery of services and products to the Company’s customers, while reducing the Company’s cost of sales and distribution. Products initially targeted for Lason Exchange include equipment and supplies for document imaging, digital reprographics, digital print and the Company’s internal office supply requirements.

      In December 1999, the Company announced that it’s Board of Directors had authorized the engagement of investment bankers to explore the spin-off, or other means, to capitalize on Lason’s existing e-commerce

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Acquisitions

      Since 1995, the Company has acquired a significant number of businesses. The information management industry is highly fragmented, consisting of a large number of small companies providing limited service offerings. An important element of the Company’s growth strategy to date has been to selectively make acquisitions of companies with complementary technologies or customer bases to consolidate its position as a provider of comprehensive information management services across a broad geographic area. However, as part of the Company’s restructuring, management has now shifted its focus away from acquisitions and has accelerated the integration of its businesses to enhance the Company’s future profitability. Accordingly, business acquisitions are not expected to be a significant part of the Company’s growth and operating strategy going forward.

Results of Operations — Year Ended December 31, 1999 Compared With Year Ended December 31, 1998

      Consolidated net revenues increased 85% to $479.6 million for the year ended December 31, 1999 from $258.8 million in 1998. Approximately $209.5 million of the increase was due to acquisitions and approximately $11.3 million was due to growth in the Company’s existing business, excluding the results of discontinued operations. Revenue growth from the Company’s existing business was negatively affected by a slow down in fourth quarter sales largely the result of delays in certain integrated systems sales due to customer Y2K concerns, several contracts not reaching expected revenue estimates and the performance of discontinued operations and other operations to be sold or eliminated.

      Gross profit increased to $153.3 million for the year ended December 31, 1999 from $90.3 million in 1998 primarily due to an increase in net revenues. Gross profit as a percentage of net revenues was 32% in 1999 compared to 35% in 1998. The lower gross profit percentage in 1999 is primarily the result of the effects caused by lower sales at certain business units that have relatively fixed production costs.

      Selling, general and administrative expenses increased $64.6 million to $115.8 million in 1999 from $51.2 million in 1998. Approximately $42.3 million was due to selling, general and administrative expenses of acquired companies. The remaining increase was due to personnel, systems and other corporate overhead expenses associated with managing a larger consolidated organization. Selling, general and administrative expenses as a percentage of net revenues were 24% in 1999 versus 20% in 1998.

      Amortization of intangibles increased $9.9 million to $15.5 million for the year ended December 31, 1999 from $5.6 million in 1998. The increase is due to acquisitions completed in 1999, of which amortization related to the M-R merger accounted for approximately $2.2 million during the second half of 1999. In addition, approximately $1.2 million of the amortization increase was due to recording the aggregate additional purchase price resulting from acquired businesses achieving their targeted operating income or other measure during the year.

      On June 30, 1999, the Company completed its merger with M-R Group plc (“M-R”), a leading document and data management company headquartered in the United Kingdom. In connection with the M-R merger, the Company recorded a $7.8 million pre tax restructuring charge during the second quarter of 1999 for costs associated with discontinued leases, the consolidation of facilities, severance and other related expenses for Lason facilities which were to be closed or consolidated with M-R facilities. For businesses that have had facilities closed or consolidated with other facilities, the tangible assets to be disposed of have been written down to their estimated fair value, less cost of disposal. In addition, as a result of the consolidation of approximately 21 facilities, approximately 423 employees have been separated from the Company as of December 31, 1999.

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      In the fourth quarter of 1999, management completed a thorough review of its operations and approved a restructuring plan to make the Company more efficient and to lower overall costs. These decisions resulted in the Company recording a one-time pre tax charge to operations of $14.9 million in the fourth quarter of 1999. The charge consisted of severance costs ($1.7 million), facility closure and exit costs related primarily to discontinued leases ($11.6 million) and equipment write-downs ($1.6 million). The restructuring plan calls for the consolidation of facilities and operations, the closure of facilities, and the streamlining of the administrative support functions.

      In December 1999, Lason announced its intention to discontinue, by sale or exit from the market, its activities providing traditional litigation support, software development and other analog services. Those services are no longer consistent with Lason’s long-term growth strategy as they are largely analog and are expected to have slow long-term growth. The businesses to be discontinued consist of nine litigation copy businesses, an offset print business, a digital graphics business and the software development business that was acquired as part of the M-R acquisition in 1999. The results of operations of these businesses have been classified as discontinued operations in the Company’s consolidated financial statements. Combined, these businesses had net revenue of approximately $33.0 million for the year ended December 31, 1999 compared to approximately $21.0 million in 1998. The discontinued operations reported a net loss of approximately $4.3 million in 1999 and net income of $191,000 in 1998. The significant decrease in net income for these businesses in 1999 primarily relates to operating losses sustained by the offset print business and the operating loss of the software development business acquired as part of the M-R transaction. The net assets of the discontinued businesses primarily consist of accounts receivable and goodwill, and have been segregated as net assets of discontinued operations, net of allowance for estimated loss on disposal, in the Company’s consolidated balance sheet as of December 31, 1999. The Company has engaged brokers and is actively marketing these businesses. Management estimates that the Company will incur a net loss of approximately $21.1 million, including an estimated tax benefit of $11.3 million, on the disposal of these businesses. The estimated loss on disposal includes the write down of goodwill totaling approximately $34.1 million. Management anticipates that the sale or exit from these businesses will be completed during 2000.

      Net interest expense was $11.1 million in 1999 versus $3.4 million in 1998. The increase primarily is due to higher average debt balances outstanding resulting from significant business acquisitions partially offset by the effects of lower average borrowing rates during 1999.

      The majority of the Company’s goodwill amortization expense is not deductible for federal income tax purposes. As a result, the Company has recorded an income tax benefit of $1.0 million on a loss of $11.9 million from continuing operations in 1999.

Results of Operations — Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

      Consolidated net revenues increased 131% to $258.8 million for the year ended December 31, 1998 from $112.1 million in 1997. Approximately $128.2 million of the increase was due to acquisitions and approximately $18.5 million was due to growth in the Company’s existing businesses excluding the results of discontinued operations. The majority of the internal growth came from the image and data capture and data management business, and was partially offset by the effects of certain discontinued services.

      Gross profit increased to $90.3 million for the year ended December 31, 1998 from $36.2 million in 1997 primarily due to an increase in net revenues. Gross profit as a percentage of net revenues was 35% for the year ended December 31, 1998 compared to 32% in 1997.

      Selling, general and administrative expenses increased $31.6 million to $51.2 million for the year ended December 31, 1998 from $19.6 million in 1997. Approximately $22.8 million of the increase was selling, general and administrative expenses of acquired companies. The remaining increase was primarily due to personnel, systems and other corporate overhead expenses associated with managing a larger consolidated organization. Selling, general and administrative expenses as a percentage of net revenues were 20% in 1998 versus 18% in 1997.

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      Amortization of intangibles increased to $5.6 million for the year ended December 31, 1998 from $2.3 million in 1997 primarily due to an increase in goodwill related to business acquisitions completed in 1998.

      Net interest expense was $3.4 million for the year ended December 31, 1998 compared to $869,000 in 1997. The increase is primarily due to higher average borrowing balances resulting from borrowings used to fund business acquisitions in 1998.

      Revenue from discontinued operations was $21.0 million in 1998 compared to $8.2 million in 1997. Approximately $6.0 million of the increase was due to businesses acquired in 1998. The remaining increase was due to higher net revenue from the discontinued offset business, not acquired until the fourth quarter of 1997. Net income of discontinued operations was $191,000 in 1998 compared to $643,000 in 1997.

Liquidity and Capital Resources

      The Company has funded its operations and acquisitions through a combination of cash from operations, bank borrowings and the issuance of shares of common stock.

      Cash provided by operating activities was $12.7 million for the year ended December 31, 1999 compared to $8.9 million and $3.4 million in 1998 and 1997, respectively. The year over year increase is largely due to higher net income before non-cash charges and faster accounts receivable turnover, partially offset by a decrease in accounts payable and other short-term liabilities.

      Cash used in investing activities totaled $203.2 million, $176.4 million and $68.3 million for the years ended December 31, 1999, 1998 and 1997, respectively, and was primarily used to fund the acquisition of businesses and to invest in capital assets. Cash used for acquisitions totaled $163.4 million in 1999 compared to $149.7 million in 1998 and $57.3 million in 1997. Cash used to invest in capital equipment and software development activities totaled $41.6 million in 1999 compared to $26.3 million and $11.8 million in 1998 and 1997, respectively. During 1999, 1998 and 1997, the Company invested approximately $7.0 million, $4.6 million and $1.4 million, respectively, in the development and implementation of computer software primarily to support the Company’s global information processing needs. The increase in 1999 is largely attributed to costs associated with the Company’s Y2K compliance program, development of a virtual private network and installation and implementation of new company-wide accounting and human resources information management systems during the year.

      Cash provided by financing activities was $198.7 million in 1999 compared to $165.8 million in 1998 and $67.7 million in 1997. In 1999, cash was provided primarily by borrowings from the Company’s revolving credit line and term loan which were used to fund business acquisitions and for general working capital purposes. Also during 1999 the Company repaid $18.6 million of short-term promissory notes relating to certain business acquisitions the Company completed in the fourth quarter of 1998.

Credit Agreement Borrowings

      During 1999, the Company amended and restated its credit agreement with its lenders. The amended credit agreement has a revolving credit facility of $150 million, which the Company may increase up to $250 million, subject to certain limitations. The Company supplemented this credit agreement in December 1999 with a $25 million expansion to the revolving credit facility which expires March 30, 2000. A portion of the revolving credit facility of up to $50 million is available to the Company for borrowings in Euro, British pound sterling, Canadian dollars and other freely traded currencies to be agreed upon with the lenders. The amendment to the credit agreement also added a term loan facility of $150 million. The Company is required to begin quarterly principal and interest payments on the term loan commencing May 31, 2000, with final maturity on both loan portions in 2004. Borrowings under the credit agreement will be used to finance the additional purchase price for certain acquisitions, working capital, capital expenditures and other corporate purposes. Borrowings under the credit agreement are collateralized by guarantees of certain of the Company’s subsidiaries, as well as pledges of the capital stock of certain subsidiaries. Interest on amounts outstanding is calculated based on interest rates determined at the time of borrowing. Borrowings bear interest at rates

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      On March 30, 2000, the Company amended its Credit agreement with its lenders. The amendment increased the revolving credit facility from $150 million to $175 million, which may be further increased up to $185 million. As of March 22, 2000, $317.4 million was borrowed under the credit agreement.

Future Capital Needs

      The Company’s ability to obtain cash adequate to fund its needs depends generally on the results of its operations and the availability of financing. Management believes that cash flow from operations, in conjunction with borrowings from its existing and any future credit agreement, will be sufficient to meet debt services requirements and fund capital expenditures in the future. However, there can be no assurance in this regard or that the terms available for any future financing, if required, would be favorable to the Company.

      In addition to its operational needs, the Company has cash requirements related to additional purchase price payments (the “Payments”) to be made, contingent upon certain targets being achieved, in connection with prior acquisitions. The maximum amount of the Payments, if any, that could be paid over a period of twenty seven months from December 31, 1999 totals approximately $217.7 million. It is anticipated that the actual amount of the Payments will be less than the maximum amount. The ability of the Company to make the Payments is dependent on the availability of financing, and there can be no assurance that future financing will be available or that the terms of any future financing will be favorable to the Company. See Note 5 of the Notes to Consolidated Financial Statements

Year 2000

      Lason has not experienced any significant Year 2000 related disruptions to its operations. The costs of the Company’s Year 2000 program were expensed as incurred except for capitalizable replacement hardware and computer software. Year 2000 program costs incurred in 2000 are not expected to be material.

Inflation

      Certain of the Company’s expenses, such as wages and benefits, occupancy costs, and equipment repair and replacement, are subject to normal inflation. Supplies, such as paper and related products, can be subject to significant price fluctuations. Although the Company has generally been able to substantially offset any such cost increases through increased operating efficiencies, there can be no assurance that the Company will be able to offset any future cost increases through similar efficiencies or increased charges for its products and services.

      Lason has exposure to interest rate risk on its obligations outstanding under the existing credit agreement, which bear interest at a variable rate. Based on the Company’s outstanding balance under the credit agreement on December 31, 1999 of approximately $284.0 million, a one-percent increase or decrease in interest rates would decrease or increase, respectively, the Company’s pre-tax earnings and operating cash flows by approximately $2.8 million on an annualized basis.

      Due to Lason’s operations outside of the United States, the Company experiences foreign currency exchange gains and losses. Fluctuations between the United States dollar and other currencies may adversely affect Lason’s results of operations. While the Company may engage in foreign currency hedging transactions in the future which may moderate the overall effect of such currency rate fluctuations, the Company will be affected by such fluctuations, and there is no assurance that the Company will be successful in any hedging

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

      The financial statements and supplemental financial information included in this report are set forth on the Index to Financial Statements and Financial Statement Schedules included in this report.

      None

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ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

A.  DIRECTORS

      Reported under the caption “Information about Nominees and Incumbent Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 2000 Proxy Statement, herein incorporated by reference.

B.  EXECUTIVE OFFICERS

      Reported in Part 1 pursuant to General Instruction G to Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

      Reported under the caption “Executive Compensation” in the Company’s 2000 Proxy Statement, herein incorporated by reference.

      Reported under the caption “Questions and Answers” and “Security Ownership of Management” in the Company’s 2000 Proxy Statement, herein incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Reported under the caption “Certain Transactions With Management” in the Company’s 2000 Proxy Statement, herein incorporated by reference.

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ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

A.  (1)  Consolidated Financial Statements

      The consolidated financial statements applicable to the Company and its consolidated affiliates filed with this report are set forth on the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules of this report.

    (2) Consolidated Financial Statement Schedules

      The consolidated financial statement schedule and report of independent accountants have been filed as part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules of this report.

    (3) Exhibits

      The following exhibits are filed as part of this report as required by Item 601 of Regulation S-K. The exhibits marked with an asterisk are management contracts and compensatory plans are arrangements required to be filed as exhibits to this report.

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	(1)	Incorporated herein by reference to registrant’s Form S-1 filed on October 7, 1996, Commission File No. 333-09799.
	(2)	Incorporated herein by reference to registrant’s Form 8-K filed on August 4, 1997, Commission File No. 0-21407.
	(3)	Incorporated herein by reference to registrant’s Form 8-K filed on December 10, 1997, Commission File No. 0-21407.

(4)	Incorporated herein by reference to registrant’s Form 8-K filed on March 17, 1998, Commission File No. 0-21407.
(5)	Incorporated herein by reference to registrant’s Form 8-K filed on March 20, 1998, Commission File No. 0-21407.
(6)	Incorporated herein by reference to registrant’s Form S-1 filed on July 30, 1998, Commission File No. 333-60143.
(7)	Incorporated herein by reference to registrant’s Form 10-Q filed on May 15, 1998, Commission File No. 0-21407.
(8)	Incorporated herein by reference to registrant’s 1998 proxy statement, Appendix  A, filed on April 28, 1998, Commission File No. 0-21407.
(9)	Incorporated herein by reference to Registrant’s Form 10-Q filed on May 17, 1999, Commission File No. 0-21407.

(10)	Incorporated herein by reference to Registrant’s Form 10-Q filed on August 16, 1999, Commission File No. 0-21407.

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B.  Reports on Form 8-K

      On January 5, 2000, the Company filed a Form 8-K, disclosing in Item 5 the nature of certain complaints filed against the Company. Such complaints are discussed further in Item 3 of this Form 10-K.

      On January 19, 2000, the Company filed a Form 8-K, disclosing in Item 5 that the Company had taken certain actions which required a change to the purchase method of accounting for the acquisition of M-R Group plc.

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LASON, INC.

All other schedules are omitted as not applicable or the information is included in the consolidated financial statements or notes thereto.

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LASON, INC.

The accompanying Notes are an integral part of the consolidated financial statements.

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LASON, INC.

The accompanying Notes are an integral part of the consolidated financial statements.

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LASON, INC.

The accompanying Notes are an integral part of the consolidated financial statements.

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LASON, INC

The accompanying Notes are an integral part of the consolidated financial statements.

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LASON, INC.

NOTE 1.  ORGANIZATION

      Lason, Inc. (together with its subsidiaries, “Lason” or the “Company”), a Delaware corporation, was incorporated on January 5, 1995. The Company’s initial equity was comprised of $10 million of Class B common stock and approximately $1 million of Class A-1 common stock. The Company contributed the capital to Lason Acquisition Corporation, a non-operating wholly-owned subsidiary. On January 17, 1995, the cash, in addition to $21 million of bank borrowings, was used to acquire the assets and assume certain liabilities of Lason Systems, Inc. (“Predecessor”) and provide working capital. Subsequent to the acquisition, Lason Acquisition Corporation changed its name to Lason Systems, Inc. and continued the business operations of the Predecessor. In October 1996, the Company completed an initial public offering of 3,450,000 shares of common stock for net proceeds of $53.0 million, after deducting underwriting discounts and other offering expenses. The net proceeds were primarily used to repay amounts then outstanding under the Company’s credit agreement and to redeem shares of common stock held by the Company’s largest shareholder.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

      The Company provides integrated information outsourcing for image and data capture, data management and output processing services. These services include high-volume optical and digital printing, facility management operations at customer sites, converting inputs into digital formats, database management, and direct mailing, among others. The Company primarily serves customers in the commercial, healthcare, financial services and professional services industries. No single customer accounts for more than 10% of the total consolidated net revenues in 1999.

Basis of Presentation

      The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Certain amounts in the prior year consolidated financial statements have been reclassified to conform with the current year presentation.

Revenue Recognition

      Revenues are recorded when the services are provided. Revenues are presented in the consolidated statements of income net of postage where the cost of such postage is passed through to the customer.

Cash Equivalents

      The Company classifies as cash and cash equivalents amounts on deposit with banks and cash invested temporarily in various instruments with maturities of three months or less at the time of purchase.

Supplies

      Supplies are valued at cost, which approximates market, with cost determined using the first-in, first-out method.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Property and Equipment

      Property and equipment, including significant improvements, are recorded at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. Adjustments of the asset and related accumulated depreciation accounts are made for retirements of property and equipment with the resulting gain or loss included in operations.

      Assets placed in service prior to January 1, 1996, are depreciated using an accelerated method over the estimated useful lives of the assets which range from 5 to 7 years. Assets placed in service after December 31, 1995, are depreciated using a straight-line method over the estimated lives of the related assets which range from 5 to 15 years.

Intangible Assets

      Goodwill is amortized using a straight-line method over 30 years. Deferred financing costs are amortized using the interest method over the term of the associated credit agreement.

      The Company capitalizes direct internal and external costs associated with the development of technological systems, primarily computer software, to meet the needs of its customers. Such costs, which are included in other intangible assets, are amortized using a straight-line method over the lesser of five years or the economic life of the related services. In addition, the Company capitalizes certain direct internal and external costs associated with upgrading and enhancing its information systems to support its global information processing needs. Capitalization of such costs begins when the preliminary planning stage for each project is completed and management has formally authorized its funding, and ends when the project is substantially complete. These costs are amortized using a straight-line method over five years. Research and development costs and other computer software and hardware maintenance and training costs are charged to expense as incurred.

      Annually, the Company evaluates the carrying value of intangible assets to determine if there has been an impairment in value. The methodology used for this evaluation includes a review of annual operating performance, along with a review of anticipated results for future years. The Company determined that there had been no impairment in the net carrying amount of intangible assets as of December 31, 1999.

Fair Value of Financial Instruments

      Statements of Financial Accounting Standards (“SFAS”) No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosures about the fair value of financial instruments whether or not such instruments are recognized in the balance sheet. Due to the short-term nature of the Company’s financial instruments, other than debt, fair values are not materially different from their carrying values. Based on the borrowing rates available to the Company for similar variable-rate debt, the carrying value of debt approximated fair value as of December 31, 1999 and 1998.

Earnings Per Share

      Basic earnings per share are computed by dividing net income available to common shareholders from continuing operations by the weighted average common shares outstanding.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

      The following table presents a reconciliation of the denominator (weighted average common shares outstanding) for the basic and diluted earnings per share calculations for the years ended December 31, 1999, 1998 and 1997 (in thousands):

      The weighted average common shares and common share equivalents outstanding used to compute the dilutive effect of common stock options outstanding was computed using the treasury stock method prescribed by SFAS No. 128. During the year ended December 31, 1999, the effects of contingently issuable shares of common stock and potential shares of common stock from debentures and stock options outstanding are not included in the denominator for diluted earnings per share, as such effects would be antidilutive.

Foreign Currency Translation

      The assets and liabilities of foreign operations are translated into United States dollars using period-end exchange rates, while statements of operations are translated using average exchange rates during the periods. Differences arising from the translation of assets and liabilities in comparison with the translation of previous periods are included as a separate component of stockholders’ equity.

NOTE 3.  DISCONTINUED OPERATIONS

      In December 1999, Lason announced its intention to discontinue, by sale or exit from the market, its activities providing traditional litigation support, software development and other analog services. Those services are no longer consistent with Lason’s long-term growth strategy as they are largely analog and are expected to have slow long-term growth. The businesses to be discontinued consist of nine litigation copy businesses, an offset print business, a digital graphics business and the software development business that was acquired as part of the M-R acquisition in 1999. The results of operations of these businesses have been classified as discontinued operations in the accompanying consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

      Following is summary financial information for the Company’s discontinued operations (in thousands):

      Net loss from discontinued operations includes interest costs totaling $2.8 million, $1.5 million and $380,000 for the years ended December 31, 1999, 1998 and 1997, respectively, which was allocated based on the ratio of net assets to be discontinued to total consolidated net assets. The net assets of the discontinued businesses primarily consist of accounts receivable and goodwill, and have been segregated as net assets of discontinued operations, net of allowance for estimated loss on disposal, in the accompanying consolidated balance sheet as of December 31, 1999.

      The Company has engaged brokers and is actively marketing these businesses. Management estimates that the Company will incur a net loss of approximately $21.1 million, including an estimated tax benefit of $11.3 million, on the disposal of these businesses. The estimated loss on disposal includes a write down of goodwill totaling $34.1 million.

NOTE 4.  RESTRUCTURING

      On June 30, 1999, the Company completed its merger with M-R Group plc (“M-R”), a leading document and data management company headquartered in the United Kingdom. In connection with the M-R merger, the Company recorded a $7.8 million pre tax restructuring charge during the second quarter of 1999 for costs associated with discontinued leases, the consolidation of facilities, severance and other related expenses for Lason facilities which were to be closed or consolidated with M-R facilities. For businesses that have had facilities closed or consolidated with other facilities, the tangible assets to be disposed of have been written down to their estimated fair value, less cost of disposal. In addition, as a result of the consolidation of approximately 21 facilities, approximately 423 employees have been separated from the Company as of December 31, 1999.

      In the fourth quarter of 1999, management completed a thorough review of its operations and approved a restructuring plan to make the Company more efficient and to lower overall costs. These decisions resulted in the Company recording a one-time pre tax charge to operations of $14.9 million in the fourth quarter of 1999. The charge consists of severance, facility closure and exit costs related primarily to discontinued leases and equipment write downs. The restructuring plan calls for the consolidation of facilities and operations, the closure of facilities, and the streamlining of the administrative support functions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

      A summary of the accrued restructuring expense for the year ended December 31, 1999 follows (in thousands):

NOTE 5.  ACQUISITIONS

      In connection with the M-R merger, the Company issued 3,071,863 new shares of its common stock valued at approximately $152.4 million in exchange for all of the outstanding common stock of M-R, including 47,222 shares issued in connection with the settlement of certain M-R stock options (the “Executive Options”). Pursuant to the merger agreement, M-R shareholders received 5.376 new shares of Lason common stock for every 100 M-R shares held.

      In connection with the Executive Options, M-R previously established a trust that purchased shares of M-R common stock on the open market. Such shares were to be issued to employees upon exercise of their respective individual stock options, and were converted into approximately 112,000 shares of Lason common stock as part of the aforementioned 3,071,863 shares of Lason common stock issued. The June 30, 1999 value of the 112,000 shares of common stock issued is recorded as treasury stock in the Company’s consolidated financial statements.

      Effective with the completion of the transaction, the acquisition of M-R was presented for financial reporting purposes using the pooling of interests method of accounting. However, in December 1999, Lason took certain actions which require the acquisition to be presented in the accompanying consolidated financial statements using the purchase method of accounting.

      From June 1995 through December 31, 1999, the Company, through certain of its subsidiaries, completed the acquisition of either substantially all of the assets or all the stock ownership interest in a substantial number of companies in addition to M-R. Significant acquisitions completed in 1999 included the following:

      In January 1999, the Company acquired 100% of the common stock of Vetri Systems, Inc. and its affiliate Vetri Software India, Ltd. for $21.3 million in cash and 66,698 shares of the Company’s common stock valued at approximately $3.7 million on the date of the transaction. The shares of the common stock are being held in escrow as collateral to indemnify the Company if contingencies set forth in the purchase agreement occur within 24 months from the date of acquisition. Additionally, $750,000 of the aggregate cash will be paid only if certain contingencies are met.

      In April 1999, the Company purchased 100% of the common stock of MSCI, Inc. for $10.8 million in cash, of which $1.0 million will be paid only if certain contingencies are met. Also in April 1999, the Company purchased 100% of the stock of Crest Information Technologies, Inc. for $8.8 million in cash and 68,922 shares of the Company’s common stock valued at approximately $3.0 million. A total of 34,284 shares of common stock valued at $1.5 million are being held in escrow as collateral to indemnify the Company if contingencies set forth in the purchase agreement occur within 24 months from the date of acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

      In May 1999, the Company acquired 100% of the common stock of Marketing Associates, Inc. for $10.4 million in cash and 29,109 shares of the Company’s common stock valued at approximately $1.1 million on the date of the transaction. The shares of the common stock are being held in escrow as collateral to indemnify the Company if contingencies set forth in the purchase agreement occur within 24 months from the date of acquisition.

      In August 1999, the Company acquired 100% of the common stock of Addressing Services, Inc. for $16.6 million in cash and 62,004 shares of the Company’s common stock valued at approximately $2.9 million on the date of the transaction. The shares of the common stock are being held in escrow as collateral to indemnify the Company if contingencies set forth in the purchase agreement occur within 24 months from the date of acquisition.

      In October 1999, the Company acquired 100% of the common stock of ACE Reprographics, Inc. for $10.3 million in cash, of which approximately $1.0 million will be paid only if certain contingencies are met.

      During 1999, the Company acquired either all of the outstanding common stock or substantially all of the assets of several additional entities, the most significant of which were: MSI Digital Imaging Solutions, Inc., Bonner & Moore Computing Company, a division of Bonner & Moore Associates, Inc., the Texas division of Compex Legal Services, Cover-All Computer Holdings Company and its affiliates, and Atlantic Document Centers, Inc.

      Aggregate purchase price for all acquisitions completed in 1999, excluding liabilities assumed, was approximately $299.7 million, consisting of approximately $129.9 million in cash, 3,396,743 shares of the Company’s common stock valued at approximately $167.9 million and debentures convertible into 32,532 shares of the Company’s common stock valued at approximately $1.9 million at the date of acquisition.

      Approximately $1.7 million in cash and 290,242 shares of the Company’s common stock valued at approximately $13.9 million were placed in escrow to indemnify the Company if contingencies set forth in the purchase agreements occur within specified time frames ranging from 12 to 24 months from the date of the respective acquisitions. In addition, $5.9 million of the aggregate cash will be paid only if certain contingencies are met. Finally, certain of the purchase agreements provide for an increase to the purchase price if operating income of the acquired business exceeds targeted levels. The maximum amount of additional purchase price which may be recorded over the next twenty-seven months should such targets be achieved for all acquisitions is approximately $217.7 million of which approximately $124.8 million relates to acquisitions completed in 1999. Purchase price contingencies, if any, will be recorded as an adjustment to the purchase price when the related contingency is resolved.

      With the exception of shares issued for the M-R acquisition, shares of common stock issued or to be issued in connection with the acquisitions are generally subject to lock-up agreements ranging from 12 to 24 months. The lock-up agreements restrict the owners’ ability to sell the shares of common stock.

      Each of the acquisitions was accounted for as a purchase. The results of operations for the year ended December 31, 1999 include the results of operations for each of the acquired companies since the date of their respective acquisition.

      The non-contingent portion of the purchase price was allocated to the assets acquired and liabilities assumed based on the related fair values at the date of acquisition. The excess of the aggregate purchase price over the fair values of assets acquired and liabilities assumed has been allocated to goodwill and is being amortized on a straight-line method over 30 years. The allocation of the excess purchase price is based on preliminary estimates and assumptions, and is subject to revision upon final determination of the fair market value of the net assets acquired. Management does not expect the final allocations to differ materially from the preliminary estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

      In conjunction with acquisitions completed in 1999 and 1998, liabilities assumed and other noncash consideration was as follows (in thousands):

      The following table summarizes pro forma unaudited results of operations as if each of the acquisitions completed during 1999 had occurred at the beginning of each year presented (in thousands, except per share amounts):