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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 000-21407
LASON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3214743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
1305 STEPHENSON HIGHWAY, TROY, MICHIGAN 48083
(Address of principle executive offices) (Zip Code)
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 23, 1999, computed by reference to
the last sale price for such stock on that date as reported on the Nasdaq
National Market System, was $742,042,551.
As of March 23, 1999, 15,501,878 shares of Common Stock , par value $0.01
per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Notice of 1999 Annual Meeting of Shareholders
and Proxy Statement (Part III).
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PART I
ITEM I. BUSINESS
GENERAL
Lason Systems, Inc., a Michigan corporation and the predecessor (the
"Predecessor") to Lason, Inc., (together with its subsidiaries, the "Company"),
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. ("Lason"), and
continued the business operations of the Predecessor.
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.
As a result, the Company believes it has developed a formula for successfully
integrating acquired companies into its financial, purchasing and operating
systems.
The Company's acquisition strategy is to selectively target 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's management team 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.
During the year ended December 31, 1998, the Company acquired several
information management companies, the most significant of which were: Racom
Corporation and its affiliates, API Systems, Inc., J.L. Blodgett Mexico, S. de
R.L. and its United States affiliate, Quality Mailing Services, Inc., Strategy
Manufacturing, Inc., Litigation Reprographics and Support Services, Inc.,
Document Production Services, Inc., Consolidated Reprographics, Boyle
Associates, Inc., Amitech Corporation, Input Services International, Inc., UMC
Imaging Systems, Inc., Datacom Imaging Systems Company and its affiliates,
Lonestar Southwest Mailing Services, Inc., and Digital Imaging & Technologies,
Inc. (the "1998 Acquisitions"). In January 1999, the Company completed the
acquisition of Vetri Systems, Inc. and its affiliate Vetri Software India, Ltd.,
Bonner & Moore Computing Company, a division of Bonner & Moore Associates, Inc.,
the Texas division of Compex Legal services and MSI Digital & Imaging Solutions,
Inc. In March 1999, the Company completed the acquisition of Cover-All Computer
Holdings Company.
On March 25, 1999, the Company reached agreement on the terms of a merger
with M-R Group plc ("M-R Group"). M-R Group is a leading document and data
management company headquartered in the United Kingdom. The merger is expected
to be treated as a "pooling of interests" for accounting purposes and will be
valued at approximately $145.2 million. Completion of the transaction is subject
to M-R Group shareholder, regulatory and certain other approvals. Under terms of
the agreement, M-R Group shareholders will receive 4.877 new shares of the
Company's common stock for every 100 M-R Group shares held.
SEGMENTS
The Company's reportable segments consist of groups 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.
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PRODUCTS AND SERVICES
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 strategy includes being able to offer a broad range of
information management services across a wide variety of media types and
formats, thereby permitting customers to consolidate their information
management outsourcing needs with a single vendor. This broad range of
information services and capabilities enables the Company to provide
integrated solutions to its customers' complex information management
needs.
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 and records 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 applications. The Company's output processing
services include print on demand, business communications and statement
processing services. The Company's output processing services provide
customers with rapid, reliable and cost-effective methods for making
large-scale distributions of statements, reports, proxy solicitations and
letters to consumers and other target audiences by fax, electronic
distribution, print and mail. The Company also provides print and mail
services for over 500 collection agencies located throughout the United
States.
- IMAGE AND DATA CAPTURE
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, on-site facilities
management and digital graphics. 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. Image and data capture represented
approximately 52.4%, 41.4%, and 47.7% of the Company's consolidated net
revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
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 can. The Company's technical support staff
is skilled at assisting customers in developing customized indexing systems
and selecting optimal file formats and naming conventions.
Micrographic Conversion Services. The Company performs traditional
micrographic conversions including the conversion of paper documents into
microfilm images, film processing and computer-based indexing and
formatting of microfilm images. Micrographic services often are selected as
a cost competitive technology compared to paper-based systems 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 reprographic applications.
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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 involving microfiche and engineering
drawings, including conversion services. These capabilities are important
enablers of other services provided by the Company, such as Lason Document
Express (print on demand) services and performing overnight and peak demand
reprographics services for the Company's on-site facilities management
customers.
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, engineering drawing and record retention,
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.
Digital Graphics. A staff of computer graphics design and printing
professionals use advanced computer technology to provide digital graphics
services, including design and printing of high resolution full color
graphics, electronic publishing and production of camera-ready art for
offset printing. Applications range from document covers and graphics to
courtroom exhibits and promotional signage of any size. Digital graphics
services are a component of the Company's single source strategy and are an
important enabler of other services provided by the Company.
- DATA MANAGEMENT
Data management services include electronic document storage and
retrieval, database management and web-based services. Data management
services represented approximately 10.0%, 11.8% and 9.9% of the Company's
consolidated net revenues for the years ended December 31, 1998, 1997 and
1996, respectively.
Electronic Document Storage and Retrieval. The Company has developed a
flexible electronic DSR system, called Visions, which 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 immediately access large volumes of documents 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' databases can be customized and
updated for specific target markets and targeted applications. These
database capabilities save customers money while increasing functionality.
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.
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- OUTPUT PROCESSING
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. Output processing
represented approximately 37.6%, 46.8% and 42.4% of consolidated net
revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
Digital Communication Services. The Company'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(TM). The Company's Priority Gram(TM) is a
nationally recognized product that numerous 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.
- PROXYGRAM(TM). The Company's PROXYGRAM(TM) 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 customers 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. 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 of a document 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.
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INTEGRATED SOLUTIONS
The Company's wide range of image and data capture, data management and
output processing services and its experienced staff of image and information
management professionals enable the Company to provide integrated solutions for
its customers' information management outsourcing needs. The following
situations represent instances in which the Company's various services have been
provided to its customers on an integrated basis.
Many of the litigation support solutions provided by the Company are based
on both its electronic document conversion and its print on demand capabilities.
The rules of discovery permit each party involved in a lawsuit to request
documents gathered in support of the litigation by the other party. A large
manufacturer involved in hundreds of product liability lawsuits concerning the
same product defect engaged the Company when it experienced difficulty in
meeting court established deadlines for production of discovery documents and in
accurately producing the documents requested. In this case, the customer
possessed millions of pages of discoverable documents. The solution provided by
the Company was to convert each of the discovered documents (in paper form) to
digital images which were then indexed and stored on the Document Express
system. When a litigant requests certain discovery documents (in many cases,
hundreds of thousand of pages at a time), the customer uses the Document Express
system to place an on-line order to the Company to print the desired documents
and to distribute them to the requesting litigant. Typically, the Company can
fulfill each order by the next day. The Document Express system not only ensures
that every page is properly printed, but also provides such features as
automatically printing identifying information (such as Bates numbers) on each
page, printing confidential watermarks and automatically shrinking oversized
documents to fit on standard-sized pages.
The Company has used both its electronic document conversion and high
volume, quick-turn printing capabilities to provide solutions for banks engaged
in mortgage lending. When one of the nation's largest mortgage lenders decided
to convert from conventional to electronic storage, it confronted the challenge
of converting approximately 60,000 mortgage files, each containing approximately
20 to 27 documents. The bank engaged the Company to perform this electronic
document conversion project. In ten weeks, the Company converted approximately
60,000 mortgage loan files (or approximately five million pages) to digital
images that were stored on CD-ROM, indexed and formatted for use on the bank's
own DSR system. During the project, the bank sold approximately 20,000 of the
60,000 mortgage loans. The loan files representing the sold loans were randomly
interspersed among the files which had been or were about to be converted by the
Company. To complete the mortgage sales transaction, the bank needed hard copies
of certain of the original mortgage documents for each mortgage sold, typically
five documents per loan file. The Company was able to provide the bank with a
more attractive solution than manually retrieving and copying the necessary
files by using the CD-ROM it had created to identify the required documents, and
retrieve and transfer such documents to a separate CD-ROM for delivery to the
mortgage loan purchaser.
CUSTOMERS
The Company currently has over 4,000 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 Bank of Boston,
Blue Cross/Blue Shield, Cummins Engine Company, Inc., First Chicago NBD
Corporation, Ford Motor Company, General Electric Company, General Motors
Corporation, Nationsbank, Sears Roebuck and Co., Shell Oil Company and Trans
Union.
Historically, a majority of the Company's revenues have come from sales to
the major domestic automobile manufacturers. The three major domestic automobile
manufacturers accounted for approximately 14%, 33%, and 57% of the Company's
consolidated net revenues for the years ended December 31, 1998, 1997 and 1996,
respectively. No single customer accounted for more than 10% of the Company's
total consolidated
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net revenues for the years ended December 31, 1998, 1997 and 1996, except for
General Motors Corporation and Ford Motor Company, as summarized in the
following table:
PERCENT OF
CONSOLIDATED NET REVENUES
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
General Motors Corporation........................... 5% 17% 32%
Ford Motor Company................................... 8 14 19
Chrysler Corporation................................. 1 2 6
-- -- --
Totals.......................................... 14% 33% 57%
== == ==
COMPETITION
The markets in which the Company's businesses compete 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 facility management services; Dataplex Corp., F.Y.I.
Incorporated and IKON Office Solutions, Inc. with respect to its image and data
capture services; and First Financial Management Corp. (First Image), Sun Guard
Mailing Services and Diversified Data & Communications with respect to its
output processing services.
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 relating to
present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on the business, financial condition or
results of operations of the Company.
EMPLOYEES
As of March 22, 1999, the Company had approximately 8,000 employees,
including approximately 2,900 in foreign countries. Approximately 1,235 people
were employed primarily in management and administration functions. Included in
the total number of employees are approximately 682 part-time employees. No
domestic employees of the Company are represented by a labor union, however,
some foreign employees are represented by local labor unions. 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 22, 1999:
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
Gary L. Monroe......................... 44 Chairman of the Board and Chief Executive 1995
Officer, Director
William J. Rauwerdink.................. 49 Executive Vice President, Chief Financial 1995
Officer, Treasurer and Secretary
John R. Messinger...................... 41 President and Chief Operating Officer 1998
Brian E. Jablonski..................... 43 Executive Vice President of Strategic 1996
Marketing and Sales
Cary W. Newman......................... 38 Executive Vice President -- Business 1998
Development
GARY L. MONROE has served as Chairman of the Board of the Company since
April 1998, as 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. From August 1990 to May 1992,
Mr. Monroe served as Director of Finance and Strategic Planning of the Health
Sciences Division of Eastman Kodak Co. Mr. Monroe is also a director of Esquire
Communication Ltd., a publicly traded company focused on the consolidation of
the court reporting industry. Mr. Monroe holds a B.A. degree from William
Paterson College and an M.B.A. degree from Rutgers University.
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. 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 a director of
Mercy Health Services, Inc., a non-profit multistate health care services
organization. Mr. Rauwerdink holds a B.B.A. degree from the University of
Wisconsin-Madison and an M.B.A. degree from Harvard University.
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 the Company's President and Chief Operating
Officer since January, 1999 and as an officer since he joined the Company in
July 1997. 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. Mr. Messinger attended
Harper College.
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BRIAN E. JABLONSKI has served as Executive Vice President of Strategic
Marketing and Sales since he joined the Company in July 1996. From 1992 until
June 1996, Mr. Jablonski served as Vice President, Sales and Marketing of Kodak
Imaging Services, Inc., a subsidiary of Eastman Kodak Co. From 1979 to 1992, Mr.
Jablonski held various positions at Eastman Kodak Co., including Branch Business
Manager, District Sales Manager and Director -- Markets Development Electronic
Printing and Publishing. Mr. Jablonski attended St. Johns Fisher College.
CARY W. NEWMAN has served as an officer of the Company since he joined the
Company in January 1996 and is currently Executive Vice President of Business
Development. From April 1993 to January 1996, Mr. Newman served as a Vice
President and General Manager of National Reproductions Corp. Mr. Newman
attended the University of Texas-Arlington.
ITEM 2. PROPERTY
The Company has operations in 27 states, Canada, Mexico, India and the
Caribbean. Except for one facility that is 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
Various claims have been made against the Company in the normal course of
business. Management believes that none of these legal proceedings will have a
material adverse effect on the Company's business, financial condition or result
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 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq Stock Market under the
symbol "LSON". As of March 23, 1999, there were approximately 157 holders of
record of the Company's common stock.
The quarterly trading range for shares of the Company's common stock during
1998 and 1997 is presented below:
1998 1997
-------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
QUARTER ENDED:
December 31....................................... $64 5/8 $42 1/4 $30 1/8 $23 1/8
September 30...................................... 58 1/2 39 29 3/8 23 3/8
June 30........................................... 54 1/2 35 1/2 28 1/8 16
March 31.......................................... 38 3/4 25 1/8 25 1/2 17 3/4
The Company intends to retain any earnings to finance operations and
expansion and, therefore does not anticipate paying any cash dividends on the
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 November and December 1998, in connection with the acquisition of the
shares or assets of various companies and as partial payment of the purchase
price, the Company issued 75,284 shares of its common stock valued at
$4,574,583. The shares were issued at prices ranging from $49.94 to $60.60.
In December 1998, the Company issued 4,740 shares of its common stock
valued at approximately $267,000 to shareholders of companies it had previously
acquired as additional consideration.
The issuance of the securities described in the two prior paragraphs was
exempt from registration under the Securities Act of 1993 by virtue of Section
4(2) thereof as transactions not involving a public offering.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and its predecessor. The selected consolidated financial data presented
below for the Company for the years ended December 31, 1998, 1997, 1996 and 1995
and for its predecessor for the year ended December 31, 1994 have been derived
from the Company's and its predecessor's, respectively, consolidated financial
statements which have been audited by PricewaterhouseCoopers, LLP 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.
COMPANY PREDECESSOR
--------------------------------------- -----------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
INCOME STATEMENT DATA
Revenue, net of postage................... $279,756 $120,337 $69,937 $46,605 $41,151
Cost of revenues.......................... 181,149 80,846 47,587 31,227 27,238
-------- -------- ------- ------- -------
Gross profit.............................. 98,607 39,491 22,350 15,378 13,913
Selling, general and administrative
expenses................................ 57,232 21,364 12,699 9,406 8,377
Compensatory stock option expense......... 279 221 936 308 --
Amortization of intangibles............... 6,030 2,477 1,121 817 266
-------- -------- ------- ------- -------
Income from operations.................... 35,066 15,429 7,594 4,847 5,270
Interest expense (net).................... 4,929 1,249 1,760 1,694 164
-------- -------- ------- ------- -------
Income before income taxes................ 30,137 14,180 5,834 3,153 5,106
Provision for income taxes(1)............. 11,902 5,110 2,103 1,139 --
-------- -------- ------- ------- -------
Net income................................ $ 18,235 $ 9,070 $ 3,731 $ 2,014 $ 5,106
======== ======== ======= ======= =======
Earnings per share(2):
Basic................................... $ 1.44 $ 0.93 $ 0.59 $ 0.35 $ --
Diluted................................. $ 1.35 $ 0.90 $ 0.55 $ 0.33 --
ENDING BALANCE SHEET DATA
Working capital........................... $ 47,515 $ 29,839 $16,653 $ 5,141 $ 3,218
Total assets.............................. 431,685 177,899 78,546 37,309 15,692
Long term debt, less current portion...... -- -- -- 11,500 261
Revolving credit line borrowings.......... 59,000 13,550 4,101 7,277 --
Total stockholders' equity(3)............. 284,938 131,545 57,006 9,214 6,623
- -------------------------
(1) From its inception to January 17, 1995, the Company was an S corporation and
accordingly, was not subject to Federal income tax.
(2) Earnings per share amounts for years prior to 1997 have been restated in
accordance with the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. Earnings per share amounts are not
presented for the Predecessor as such information is not representative of
the capital structure of the Company.
(3) Includes the net proceeds from an initial public offering and redemption of
shares of common stock during the fourth quarter of 1996 and the net
proceeds from secondary offerings of shares of common stock in both the
third quarters of 1998 and 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and other related financial
information included in this Annual Report on Form 10-K. The discussion in this
section of the Annual Report on Form 10-K contains 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 statements
include the intent, belief or current expectations of the
10
12
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) integrity and reliability of the Company's
data, (viii) volatility of the Company's stock price, (ix) changes in the
business services outsourcing industry, (x) significance of intangible assets,
(xi) changes related to compensatory stock options, and (xii) other risks
identified from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission. The Company's
actual results could differ materially from those discussed herein.
OVERVIEW
During the year ended December 31, 1998, the Company acquired several
information management companies, the most significant of which were: Racom
Corporation and its affiliates, API Systems, Inc., J.L. Blodgett Mexico S. de
R.L. and its United States Affiliate, Quality Mailing Services, Inc., Strategy
Manufacturing, Inc., Litigation Reprographics and Support Services, Inc.,
Document Production Services, Inc., Consolidated Reprographics, Boyle
Associates, Inc., Amitech Corporation, Input Services International, Inc., UMC
Imaging Systems, Inc., Datacom Imaging Systems Company and its affiliates,
Lonestar Southwest Mailing Services, Inc., and Digital Imaging & Technologies,
Inc. (the "1998 Acquisitions"). In January 1999, the Company completed, the
acquisition of Vetri Systems, Inc. and its affiliate Vetri Software India, Ltd.,
Bonner & Moore Computing Company, a division of Bonner & Moore Associates, Inc.,
the Texas division of Compex Legal Services and MSI Digital & Imaging Solutions,
Inc. In March 1999, the Company completed the acquisition of Cover-All Computer
Holdings Company.
On March 25, 1999, the Company reached agreement on the terms of a merger
with M-R Group plc ("M-R Group"). M-R Group is a leading document and data
management company headquartered in the United Kingdom. The merger is expected
to be treated as a "pooling of interests" for accounting purposes and will be
valued at approximately $145.2 million. Completion of the transaction is subject
to M-R Group shareholder, regulatory and certain other approvals. Under terms of
the agreement, M-R Group shareholders will receive 4.877 new shares of the
Company's common stock for every 100 M-R Group shares held.
Although management anticipates that the Company will continue to acquire
complimentary businesses in the future, there can be no assurance that the
Company will be able to identify and acquire attractive acquisition candidates,
profitably manage such acquired companies or successfully integrate such
acquired companies into the Company without substantial costs, delays or other
problems. In addition, there can be no assurance that any companies acquired in
the future will be profitable at the time of acquisition or will achieve sales
and profitability justifying the Company's investment therein or that the
Company will recognize the synergies expected from such acquisitions.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED
DECEMBER 31, 1997
Consolidated net revenues increased 132% to $279.8 million for the year
ended December 31, 1998 from $120.3 million in 1997. Approximately $137.5
million of the increase was due to acquisitions and approximately $22.0 million
was due to growth in the Company's existing businesses. 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 $98.6 million for the year ended December 31,
1998 from $39.5 million in 1997 primarily due to an increase in net revenues and
the Company's service mix. Gross profit as a percentage of net revenues was 35%
for the year ended December 31, 1998 compared to 33% in 1997.
11
13
Selling, general and administrative expenses increased $35.8 million to
$57.2 million for the year ended December 31, 1998 from $21.4 million in 1997.
Approximately $25.6 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.
Amortization of intangibles increased to $6.0 million for the year ended
December 31, 1998 from $2.5 million in 1997 primarily due to an increase in
goodwill related to business acquisitions completed in 1998.
Net interest expense was $4.9 million for the year ended December 31, 1998
compared to $1.2 million in 1997. The increase is primarily due to larger
average borrowing balances resulting from borrowings used to fund business
acquisitions in 1998.
Provision for income taxes as a percentage of pre-tax income was 39% for
the year ended December 31, 1998 compared to 36% in 1997 primarily due to a
substantial portion of goodwill amortization expense that is not deductible for
federal income tax purposes.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED
DECEMBER 31, 1996
Consolidated net revenues increased 72% to $120.3 million for the year
ended December 31, 1997 from $69.9 million in 1996. Approximately $39.3 million
of the increase was due to acquisitions and approximately $11.1 million was due
to growth in the Company's existing businesses. The internal growth was
primarily the result of an increase in output processing revenues, Visions COLD
services and Lason Document Express revenues. Those increases were partially
offset by lower revenue related to the effects of certain discontinued services.
Gross profit increased to $39.5 million for the year ended December 31,
1997 from $22.4 million in 1996 primarily due to an increase in consolidated net
revenues and the Company's service mix. Gross profit as a percentage of net
revenues was 33% for the year ended December 31, 1997 compared to 32% in 1996.
Selling, general and administrative expenses increased $8.7 million to
$21.4 million for the year ended December 31, 1997 compared to $12.7 million in
1996. The increase was primarily due to expenses incurred by acquired companies.
Selling, general and administrative expenses as a percentage of net revenues
were 18% in both 1997 and 1996.
Compensatory stock option expense decreased to $221,000 in 1997 from
$936,000 in 1996. The provisions of certain stock option agreements included the
immediate vesting of those options on the effective date of the Company's
initial public offering. Accordingly, the Company recorded a non-cash expense of
$653,000 during the fourth quarter of 1996 to record the compensation associated
with the immediate vesting of those stock options.
Amortization of intangibles increased to $2.5 million for the year ended
December 31, 1997 from $1.1 million in 1996 primarily due to the increase in
goodwill related to business acquisitions.
Interest expense was $1.2 million for the year ended December 31, 1997
compared to $1.8 million in 1996 primarily due to lower average borrowings in
1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through a
combination of cash flow from operations, bank borrowings and the issuance of
shares of common stock.
Cash provided by operating activities was $8.9 million for the year ended
December 31, 1998 compared to $3.4 million for the year ended December 31, 1997
and cash used in operating activities of $2.1 million in
12
14
1996. The increase in operating cash flow in 1998 versus 1997 is primarily due
to higher consolidated net income and higher current liabilities, partially
offset by the effects of higher accounts receivable balances.
Cash used in investing activities totaled $176.4 million, $68.3 million and
$21.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively, and has primarily been used to fund the acquisition of businesses
and to invest in capital assets. Cash used for acquisitions totaled $149.7
million in 1998 compared to $57.3 million in 1997 and $17.1 million in 1996.
Cash used to invest in capital equipment and software development activities
totaled $26.3 million, $11.8 million and $4.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively. During 1998 and 1997 the Company
invested approximately $4.6 million and $1.4 million, respectively, in the
development and implementation of computer software primarily to support the
Company's national information processing needs. These projects and related
costs will continue as the Company pursues its acquisition strategy. The 1997
and 1996 investments in capital equipment included the purchase for
approximately $3.5 million and $1.3 million, respectively, of previously leased
equipment.
Cash provided by financing activities was $165.8 million in 1998 compared
to $67.7 million in 1997 and $23.8 million in 1996. In August 1998, the Company
sold 2,925,000 shares of its common stock for net proceeds of approximately
$129.9 million , after deducting underwriting discounts and other offering
expenses. In August 1997, the Company sold 2,457,620 shares of its common stock
for net proceeds of approximately $58.0 million, after deducting underwriting
discounts and other offering expenses. The net proceeds from each of these
offerings were used to repay debt then outstanding under the Company's credit
agreement, which was primarily incurred to fund business acquisitions, and for
general corporate purposes. 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. During the first quarter of 1998, the Company
repaid $6.2 million of short-term promissory notes relating to certain business
acquisitions the Company completed in the fourth quarter of 1997.
CREDIT AGREEMENT BORROWINGS
The Company has a credit agreement with a bank group providing for
revolving credit loans of up to $200 million. Borrowings are expected to be used
to finance additional acquisitions of businesses, working capital, capital
expenditures and for other corporate purposes. Borrowings under the credit
agreement are collateralized by substantially all of the Company's assets. The
Company is not required to make principal payments prior to 2003. Interest on
amounts outstanding is calculated based on interest rates determined at the time
of borrowing. Borrowings bear interest at either LIBOR plus an applicable margin
(5.98% as of March 22, 1999) or a base percentage rate plus an applicable margin
(7.75% as of March 22, 1999), at the Company's election at the time of
borrowing. The credit agreement contains restrictions on the acquisition of
stock or assets, dispositions of assets, incurrence of other liabilities,
minimum requirements for cash flow and certain financial ratios. As of March 22,
1999, $139.2 million was borrowed under the credit agreement.
FUTURE CAPITAL NEEDS
The Company's liquidity and capital resources have been significantly
affected by acquisitions of businesses and, given the Company's acquisition
strategy, may be significantly affected for the foreseeable future. To date, the
Company has financed its acquisitions with borrowings under the credit
agreement, with shares of its common stock and with cash from operations.
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of operations and the availability of financing.
Management believes that cash flow from operations, in conjunction with
borrowings from its existing and any future credit agreements and possible
issuance of shares of its common stock, will be sufficient to meet debt service
requirements, make additional acquisitions and fund capital expenditures in the
future. However, there can be no assurance in this regard or that the terms
available for any financing, if required, would be favorable to the Company.
13
15
YEAR 2000
The Company uses a significant number of computer software programs and
operating systems in its internal operations. To the extent that these software
applications contain a source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of such source code or program applications will be necessary. In
addition, the Company may experience significant adverse business interruptions
if significant customers and/or suppliers are not prepared for the year 2000.
The Company has a standing committee consisting of key management personnel
to address the year 2000 issue. The Company has surveyed its customers and
suppliers identifying those that are most critical to the operations of the
Company. Currently, meetings are being scheduled between such entities and
Company personnel to gain a clear understanding of year 2000 readiness and any
potential impact on the Company. Remediation and contingencies are being
developed based upon these meetings, which are expected to be completed by June
30, 1999.
The Company is currently modifying its computer software programs and
operating systems to make each significant system and program "Year 2000
Compliant". As of December 31, 1998, the Company has incurred approximately 1.3
million in connection with its year 2000 compliance program and anticipates that
it will incur an additional estimated 1.7 million to complete the program.
Although the Company has not yet completed its year 2000 remediation, it
does not anticipate a material year 2000 business interruption due to the nature
of its operating systems, and the customers and suppliers with which it
transacts business. However, there can be no assurance that the Company will not
incur unanticipated costs or systems interruptions, which could have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, there can be no assurance that failure of the Company's
critical customers or suppliers to be year 2000 compliant will not have a
material adverse effect on the Company's business, financial condition or
results of operations. In addition, there can be no assurance that businesses
acquired in the future will not incur unanticipated costs or systems
interruption, which could have an adverse effect on the Company's business,
financial condition or results of operations.
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 to date has 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Item 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by Item 7A. of Form 10-K and
Item 305 of Regulation S-K do not require additional disclosure by the Company
because of the short-term nature of its financial instruments and its minimal
foreign currency exchange exposure in 1998. Accordingly, such disclosures have
been omitted from this Form 10-K. See "Credit Agreement Borrowings."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The consolidated financial statements and consolidated supplemental
financial information included in this report are set forth on the Index to
Consolidated Financial Statements and Consolidated Financial Statement Schedules
included in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
A. DIRECTORS
Reported under the caption "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 1999 Proxy
Statement, herein incorporated by reference.
B. EXECUTIVE OFFICERS
Reported in Part I pursuant to General Instruction G to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Reported under the caption "Executive Compensation" in the Company's 1999
Proxy Statement, herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reported under the captions "Record Date and Outstanding Shares" and
"Security Ownership of Management" in the Company's 1999 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 1999 Proxy Statement, herein incorporated by reference.
15
17
PART IV
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 exhibits filed with this report are listed on the Exhibit Index on
pages E-1 through E-2.
B. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the quarter ended
December 31, 1998.
16
18
LASON, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-1
Consolidated Statements of Income for each of the years
ended December 31, 1998, 1997 and 1996.................... F-2
Consolidated Statements of Stockholders' Equity for each of
the years ended December 31, 1998, 1997 and 1996.......... F-3
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996.................... F-4
Notes to consolidated financial statements.................. F-5 to F-17
OTHER FINANCIAL INFORMATION:
Report of independent accountants........................... F-18
FINANCIAL STATEMENT SCHEDULE:
I. Condensed financial information of registrant............ S-1 to S-3
All other schedules are omitted as not applicable or the information is included
in the consolidated financial statements or notes thereto.
19
LASON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
DECEMBER 31,
--------------------
1998 1997
---- ----
ASSETS
Cash and cash equivalents................................... $ 1,315 $ 2,925
Accounts receivable (net)................................... 86,073 43,815
Supplies.................................................... 10,144 3,964
Prepaid expense and other................................... 16,383 7,448
-------- --------
Total current assets...................................... 113,915 58,152
Computer equipment and software............................. 14,890 5,489
Production and office equipment............................. 48,855 18,171
Leasehold improvements...................................... 6,333 2,460
Other....................................................... 1,352 902
-------- --------
71,430 27,022
Less: accumulated depreciation............................ (9,765) (4,447)
-------- --------
Net property and equipment................................ 61,665 22,575
Deferred income taxes....................................... -- 1,034
Goodwill (net of accumulated amortization of $9,235 and
$3,660)................................................... 241,710 89,895
Other intangibles (net of accumulated amortization of $1,005
and $573)................................................. 10,690 4,745
Employee loans receivable................................... 1,698 --
Other....................................................... 2,007 1,498
-------- --------
TOTAL ASSETS.............................................. $431,685 $177,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses............................................ $ 14,819 $ 6,984
Accounts payable............................................ 17,332 6,590
Notes payable............................................... 18,906 6,462
Customer deposits........................................... 6,015 2,810
Deferred income taxes....................................... 918 1,753
Other....................................................... 8,410 3,714
-------- --------
Total current liabilities................................. 66,400 28,313
Revolving credit line borrowings............................ 59,000 13,550
Deferred income taxes....................................... 2,101 --
Convertible debentures...................................... 1,169 --
Other....................................................... 18,077 3,431
-------- --------
TOTAL LIABILITIES......................................... 146,747 45,294
-------- --------
Common stock with a put option.............................. -- 1,060
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 20,000,000 shares authorized,
15,378,375 and 11,637,640 shares issued and outstanding,
686,865 and 86,691 shares held in escrow.................. 146 115
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding................... -- --
Additional paid-in capital.................................. 252,479 117,352
Retained earnings........................................... 32,313 14,078
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................ 284,938 131,545
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $431,685 $177,899
======== ========
The accompanying Notes are an integral part of the consolidated financial
statements.
F-1
20
LASON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
---- ---- ----
Revenue, net of postage of $59,820, $42,444 and $29,672 for
the year ended December 31, 1998, 1997 and 1996,
respectively.............................................. $279,756 $120,337 $69,937
Cost of revenues............................................ 181,149 80,846 47,587
-------- -------- -------
Gross profit.............................................. 98,607 39,491 22,350
Selling, general and administrative expenses................ 57,232 21,364 12,699
Compensatory stock option expense........................... 279 221 936
Amortization of intangibles................................. 6,030 2,477 1,121
-------- -------- -------
Income from operations.................................... 35,066 15,429 7,594
Net interest expense........................................ 4,929 1,249 1,760
-------- -------- -------
Income before income taxes................................ 30,137 14,180 5,834
Provision for income taxes.................................. 11,902 5,110 2,103
-------- -------- -------
Net income................................................ $ 18,235 $ 9,070 3,731
======== ======== =======
Basic earnings per share.................................... $ 1.44 $ 0.93 $ 0.59
======== ======== =======
Diluted earnings per share.................................. $ 1.35 $ 0.90 $ 0.55
======== ======== =======
The accompanying Notes are an integral part of the consolidated financial
statements.
F-2
21
LASON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT FOR SHARES)
COMMON STOCK ADDITIONAL
------------------- PAID-IN LOANS TO RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
------ ------ ---------- ------------ -------- -----
Balances at January 1, 1996............ 5,692,040 $ 57 $ 8,443 $(1,256) $ 1,970 $ 9,214
Net income............................. -- -- -- -- 3,731 3,731
Issuance of shares of common stock..... 3,450,000 35 52,979 -- -- 53,014
Redemption of shares of common stock... (692,047) (7) (11,758) -- -- (11,765)
Issuance of shares of common stock for
acquisitions......................... 136,465 1 1,260 -- -- 1,261
Employee stock options exercised....... 23,788 -- 52 -- -- 52
Increase in stockholder loans.......... -- -- -- (65) -- (65)
Compensatory stock option expense...... -- -- 936 -- -- 936
Repayment of stockholder loans......... -- -- -- 628 -- 628
Forgiveness of stockholder loans....... -- -- -- 693 (693) --
---------- ---- -------- ------- ------- --------
Balances at December 31, 1996.......... 8,610,246 86 51,912 -- 5,008 57,006
Net income............................. -- -- -- -- 9,070 9,070
Issuance of shares of common stock..... 2,457,620 25 58,044 -- -- 58,069
Compensatory stock option expense...... -- -- 221 -- -- 221
Issuance of shares of common stock for
acquisitions......................... 338,250 2 6,046 -- -- 6,048
Employee stock options exercised....... 231,524 2 1,129 -- -- 1,131
---------- ---- -------- ------- ------- --------
Balances at December 31, 1997.......... 11,637,640 115 117,352 -- 14,078 131,545
Net income............................. -- -- -- -- 18,235 18,235
Issuance of shares of common stock..... 2,925,000 29 129,829 -- -- 129,858
Compensatory stock option expense...... -- -- 279 -- -- 279
Issuance of shares of common stock for
acquisitions......................... 696,453 1 2,815 -- -- 2,816
Employee stock options exercised....... 119,282 1 2,204 -- -- 2,205
---------- ---- -------- ------- ------- --------
Balances at December 31, 1998.......... 15,378,375 $146 $252,479 $ -- $32,313 $284,938
========== ==== ======== ======= ======= ========
The accompanying Notes are an integral part of the consolidated financial
statements.
F-3
22
LASON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
---- ---- ----
Net income................................................. $ 18,235 $ 9,070 $ 3,731
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 12,415 4,941 2,327
Compensatory stock option expense........................ 279 221 936
Loss (gain) on disposal of fixed assets.................. 152 (256) (20)
Deferred income taxes.................................... 1,233 1,761 1,119
Changes in operating assets and liabilities net of effects
from acquisitions:
Accounts receivable...................................... (21,181) (7,120) (9,282)
Supplies................................................. (776) (1,119) (562)
Prepaid expenses and other............................... (2,905) (3,571) (3,019)
Accounts payable......................................... 920 (1,073) (174)
Customer deposits........................................ 649 (896) 2,792
Accrued expenses and other liabilities................... (100) 1,478 69
--------- --------- ---------
Cash flows provided (used) by operating activities......... 8,921 3,436 (2,083)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of cash
acquired................................................. (149,711) (57,274) (17,137)
Additions to fixed assets and software development costs... (26,325) (11,799) (4,611)
Proceeds from sales of fixed assets........................ 173 820 54
Other, net................................................. (509) -- --
--------- --------- ---------
Net cash used in investing activities.................... (176,372) (68,253) (21,694)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit..................... 483,951 137,793 112,199
Repayments on revolving line of credit..................... (438,500) (128,344) (115,375)
Net proceeds from issuance of shares of common stock....... 129,858 58,069 53,014
Repayments of notes payable................................ (6,478) -- --
Proceeds from exercise of employee stock options........... 572 145 --
Borrowings on acquisition credit facility.................. -- -- 17,312
Repayments on acquisition credit facility.................. -- -- (17,312)
Principal payments on long-term debt....................... -- -- (13,500)
Redemption of shares of common stock....................... -- -- (11,765)
Proceeds from settlement of shareholder loans.............. -- -- 628
Principal payments on lease liabilities and other debt..... (2,366) -- (1,448)
Other, net................................................. (1,196) -- --
--------- --------- ---------
Net cash provided by financing activities................ 165,841 67,663 23,753
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents....... (1,610) 2,846 (24)
Cash and cash equivalents at beginning of year............. 2,925 79 103
--------- --------- ---------
Cash and cash equivalents at end of year................... $ 1,315 $ 2,925 $ 79
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest.............................................. $ 5,117 $ 1,139 $ 2,141
Income taxes.......................................... 10,190 3,693 1,617
The accompanying Notes are an integral part of the consolidated financial
statements.
F-4
23
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND CAPITALIZATION
Lason, Inc. (together with its subsidiaries, 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. ("Lason")
and continued the business operations of the Predecessor. Prior to the
acquisition, three shareholders collectively acquired 93.8 percent of the Class
A-1 common stock which represented a 46.9 percent aggregate interest of all
outstanding classes of common stock in Lason at the time. The continued
shareholders' residual interest in the Company was recorded at historical cost
resulting in an $8.6 million reduction in goodwill and stockholders' equity.
In the fourth quarter of 1996, the Company completed an initial public
offering ("IPO") of 3,450,000 shares of common stock, for net proceeds of
approximately $53.0 million, after deducting underwriting discounts and other
offering expenses. Approximately $41.2 million of the net proceeds was used to
repay outstanding debt under the Company's credit agreement and approximately
$11.8 million was used to redeem 692,047 shares of common stock held by the
Company's largest shareholder. In August 1998 and 1997, the Company completed
secondary offerings of shares of common stock. See Note 5.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND CUSTOMER CONCENTRATION
The Company provides integrated outsourcing services for image and data
capture, data management and output processing. 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, financial services, healthcare and professional services industries.
Transactions with various divisions of one domestic automotive manufacturer
accounted for approximately 5 percent, 17 percent and 32 percent of the
Company's consolidated net revenues for the 3 years ended December 31, 1998,
1997 and 1996, respectively. Receivables from that customer were approximately
$2.1 million, and $2.6 million as of December 31, 1998 and 1997, respectively.
Transactions with various divisions of another domestic automotive manufacturer
totaled approximately 8 percent, 14 percent and 19 percent of the Company's
consolidated net revenues for the years ended December 31, 1998, 1997 and 1996,
respectively. In addition, the Company had receivables outstanding from this
second customer of approximately $6.7 million and $7.1 million as of December
31, 1998 and 1997, respectively.
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.
F-5
24
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
REVENUE RECOGNITION
Revenues are recorded when the services are provided. Revenues are
presented in the consolidated statements of income net of postage because 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.
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.
Covenants-not-to-compete are amortized using a straight-line method over the
term of the agreement, generally 4 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 asset. In addition, the Company capitalizes
certain direct internal and external costs associated with upgrading and
enhancing its information systems to support its national 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, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement 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
F-6
25
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
instruments, other than debt, fair values are not materially different from
their carrying values. Based on the borrowing rates available to the Company,
the carrying value of debt approximated fair value as of December 31, 1998 and
1997.
EARNINGS PER SHARE
SFAS No. 128, Earnings Per Share, was issued in March 1997 and is effective
for financial statements issued after December 15, 1997. The Statement
established standards for computing and presenting earnings per share ("EPS")
and superseded Accounting Principles Board Opinion No. 15 and its related
interpretations. The Statement replaced the presentation of primary EPS with a
presentation of basic EPS. Basic EPS excludes dilution, whereas diluted EPS
includes the potential dilution that could occur if securities or other
contracts to issue shares of common stock were to be exercised or converted into
shares of common stock. All prior period EPS amounts have been restated to
reflect the provisions of SFAS No. 128.
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. The 1996
basic earnings per share amounts are based on the weighted average number of
common shares outstanding, retroactively adjusted for the effect of a 2.5 for 1
common stock split effective October 15, 1996.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic and diluted earnings per share calculations
for the years ended December 31, 1998, 1997 and 1996 (in thousands, except per
share amounts).
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996
------------------------ ----------------------- -----------------------
NET PER NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ ----- ------ ------ -----
BASIC EPS...................... $18,235 12,704 $1.44 $9,070 9,704 $0.93 $3,731 6,361 $0.59
EFFECT OF DILUTIVE SECURITIES
Contingently issuable shares of
common stock................. -- 447 -- -- 24 -- -- -- --
Potential shares of common
stock from options
outstanding.................. -- 390 -- -- 307 -- -- 403 --
------- ------ ------ ------ ------ -----
DILUTED EPS.................... $18,235 13,541 $1.35 $9,070 10,035 $0.90 $3,731 6,764 $0.55
======= ====== ====== ====== ====== =====
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. The 1996
EPS calculations include, as outstanding to the date of redemption (October 15,
1996), 692,047 shares of common stock which would have been sold at the initial
offering price of $17.00 per share to fund redemption of such common stock owned
by the former Class B shareholders.
NOTE 3. ACQUISITIONS
From June 1995 through December 31, 1998, the Company, through certain of
its subsidiaries, completed the acquisition of either substantially all of the
assets or a controlling stock ownership interest in a substantial number of
companies. Significant acquisitions completed in 1998 included the following:
In February 1998, the Company acquired Racom Corporation and its affiliates
by acquiring 100% of the outstanding common stock of its parent, Southern
Microfilm Associates, Inc. ("Racom") for $20.9 million in cash and 188,382
shares of the Company's common stock valued at approximately $5.1 million. The
shares of
F-7
26
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
common stock are being held in escrow as collateral to indemnify the Company if
contingencies set forth in the purchase agreement occur within 12 months from
the date of acquisition.
In March 1998, the Company acquired substantially all of the assets of API
Systems, Inc. ("API") for $21.5 million in cash and 117,702 shares of the
Company's common stock valued at approximately $3.8 million. Substantially all
of the shares of common stock are being held in escrow as collateral to
indemnify the Company if contingencies set forth in the purchase agreement occur
within 12 months from the date of acquisition.
In July 1998, the Company purchased 100% of the outstanding common stock of
Consolidated Reprographics for $35.5 million in cash and 112,044 shares of the
Company's common stock valued at approximately $6.2 million. All of the shares
of common stock issued in connection with the acquisition of Consolidated
Reprographics, are being held in escrow to indemnify the Company if
contingencies set forth in the purchase agreement occur within 18 months from
the date of acquisition.
In November 1998, the Company purchased 100% of the common stock of Datacom
Imaging Systems Company and its affiliates ("Datacom") for $7.8 million in cash
and convertible debentures valued at approximately $1.2 million. The debentures
are convertible into 22,535 shares of the Company's common stock at the election
of the holders any time after October 29, 1999. The debentures will
automatically convert into shares of the Company's common stock if the holders
do not elect to convert them prior to October 29, 2000.
Also in November 1998, the Company purchased 100% of the common stock of
Lonestar Southwest Mailing Services, Inc. ("Lonestar") for $5.6 million in cash
and 25,437 shares of the Company's common stock valued at approximately $1.4
million at the date of the acquisition. All of the shares of common stock issued
in connection with the acquisition of Lonestar are being held in escrow to
indemnify the Company if contingencies set forth in the purchase agreement occur
within 24 months from the date of acquisition.
Also in November 1998, the Company purchased 100% of the common stock of
Digital Imaging & Technologies, Inc. ("DIT") for $2.2 million in cash, 37,500
shares of the Company's common stock valued at approximately $2.0 million and
promissory notes payable to the selling shareholders totaling approximately $8.0
million. The promissory notes are non-interest bearing and are due January 5,
1999.
In December 1998, the Company purchased 100% of the outstanding common
stock of City Microfilm, Inc. and its affiliate CPSI (together "CPSI") for a
$10.0 million promissory note due January 4, 1999 and 27,198 shares of the
Company's common stock valued at approximately $1.9 million. All of the shares
of common stock issued in connection with the acquisition of CPSI are being held
in escrow to indemnify the Company if contingencies set forth in the purchase
agreement occur within 24 months from the date of acquisition.
Also during 1998, through certain of its subsidiaries, the Company acquired
either all of the outstanding common stock or substantially all of the assets of
J.L. Blodgett Mexico, S. de R.L. and its United States affiliate, Quality
Mailing Services, Inc., Strategy Manufacturing, Inc., Litigation Reprographics &
Support Services, Inc., Document Production Services, Inc., Input Services
International, Inc., Boyle Associates, Inc., Amitech Corporation, UMC Imaging
Systems, Inc., for an aggregate purchase price of approximately $34.8 million,
consisting of approximately $31.1 million in cash and 89,627 shares of the
Company's common stock valued at approximately $3.7 million. Of the total shares
of common stock issued in connection with these acquisitions, 64,590 shares
valued at approximately $2.7 million are being held in escrow to indemnify the
Company for certain contingencies set forth in the various purchase agreements.
Cash and shares of common stock issued in connection with purchase price
contingencies, if any, will be recorded as an adjustment of the purchase price
when the related contingency is resolved. In addition, certain of the purchase
agreements provide for increased purchase price if operating income exceeds a
targeted level.
F-8
27
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
For the 1998 acquisitions listed above, the maximum amount of additional
purchase price which may be recorded, over a period of twelve to twenty-four
months, should such targets be achieved is approximately $114.6 million.
Generally, shares of common stock issued or to be issued in connection with
the acquisitions are 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, 1998 include the results of
operations for each of the acquired companies since the date of their respective
acquisition.
The aggregate purchase price for the acquisitions completed for the year
ended December 31, 1998, excluding liabilities assumed and including common
stock and cash held in escrow, was approximately $159.4 million. 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.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows (in thousands):
Fair value of assets acquired............................... $ 65,670
Goodwill.................................................... 140,399
Cash and common stock held in escrow........................ 25,499
Cash paid in consideration for companies acquired........... (139,383)
Common stock issued in consideration for companies
acquired.................................................. (25,672)
Promissory notes issued in consideration for companies
acquired.................................................. (18,643)
Convertible debentures issued in consideration for company
acquired.................................................. (1,169)
---------
Liabilities assumed......................................... $ 46,701
=========
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed during 1998 had occurred at the beginning
of each year presented (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---- ----
(UNAUDITED)
Revenues............................................. $379,309 $251,382
Income before income taxes........................... 32,254 15,759
Net income........................................... 19,457 10,128
Basic earnings per share............................. $ 1.53 $ 1.03
Diluted earnings per share........................... 1.41 0.93
NOTE 4. LONG-TERM DEBT
Lason has a credit agreement with a bank group providing for revolving
credit loans of up to $200 million. Borrowings are expected to be used to
finance additional acquisitions of businesses, working capital, capital
expenditures and for other corporate purposes. Borrowings under the credit
agreement are collateralized by substantially all of the Company's assets. Lason
is not required to make principal payments prior to 2003. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at either LIBOR plus an applicable margin
(6.32% as of December 31, 1998) or a base percentage rate plus an applicable
margin (7.75% as of December 31, 1998) at the Company's election at
F-9
28
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the time of borrowing. The credit agreement contains covenants which, among
other things, place restrictions on the acquisition and disposal of assets,
payment of dividends and incurrence of liabilities and sets minimum requirements
for cash flow and certain financial ratios. As of December 31, 1998, the credit
agreement prohibits Lason from advancing funds or paying dividends to the
Company. Borrowings outstanding under the credit agreement totaled $59.0 million
and $13.6 million as of December 31, 1998 and 1997, respectively.
NOTE 5. STOCKHOLDERS' EQUITY
In August 1998, the Company sold 2,925,000 shares of its common stock for
net proceeds of approximately $129.9 million, after deducting underwriting
discounts and other offering expenses. In August 1997, the Company sold
2,457,620 shares of its common stock for net proceeds of approximately $58.0
million, after deducting underwriting discounts and other offering expenses. The
net proceeds from each of these offerings were used to repay debt then
outstanding under the Company's credit agreement, which was primarily incurred
to fund business acquisitions, and for general corporate purposes. 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.
In connection with the transaction described in Note 1, the Company loaned
certain shareholders who were also shareholders in the Predecessor,
approximately $1.3 million in 1995 which was used to pay their tax liability
resulting from the sale of the assets of the Predecessor. In conjunction with
the completion of the IPO in 1996, 50 percent of the then outstanding amounts of
the shareholder loans were forgiven by the Company and charged to retained
earnings. At the same time, the remaining 50 percent of shareholder loans
outstanding were repaid to the Company, along with the related accrued interest
to the date of settlement.
NOTE 6. INCOME TAXES
The Company and its qualifying subsidiaries file a consolidated federal
income tax return. The federal income tax provision is computed on the
consolidated taxable income of the Company and those subsidiaries.
The components of the consolidated income tax provision are as follows (in
thousands):
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---- ---- ----
Current provision
Federal....................................... $ 9,697 $3,011 $ 972
State......................................... 624 338 12
Foreign....................................... 348 -- --
------- ------ ------
Total current provision......................... $10,669 $3,349 $ 984
------- ------ ------
Deferred provision
Federal....................................... $ 1,112 $1,684 $1,092
State......................................... 121 77 27
Foreign....................................... -- -- --
------- ------ ------
Total deferred provision........................ $ 1,233 $1,761 $1,119
------- ------ ------
Total income tax provision...................... $11,902 $5,110 $2,103
======= ====== ======
F-10
29
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred income taxes represent the net tax effects of temporary
differences between the carrying value amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax return
purposes. Significant components of the Company's deferred federal income tax
assets and liabilities are as follows (in thousands):
DECEMBER 31,
-------------------
1998 1997
---- ----
Deferred tax assets related to:
Goodwill................................................. $2,775 $2,317
Compensatory stock option expense........................ 461 361
Allowance for doubtful accounts.......................... 2,654 146
Covenant-not-to-compete amortization..................... 70 43
Other.................................................... 8 7
------ ------
Total deferred tax assets.................................. $5,968 $2,874
------ ------
Deferred tax liabilities related to:
Prepaid expenses......................................... $3,360 $1,059
Goodwill................................................. 2,460 965
Supplies................................................. 835 840
Depreciation............................................. 1,541 418
Capitalized software development costs................... 554 284
Other.................................................... 237 27
------ ------
Total deferred tax liabilities............................. $8,987 $3,593
====== ======
The difference between the Company's statutory federal income tax rate and
its effective federal income tax rate of 39.5 percent, 35.7 percent and 35.6
percent for the years ended December 31, 1998, 1997 and 1996, respectively,
results primarily from travel and entertainment expenses and certain goodwill
amortization that is not deductible for federal income tax purposes.
NOTE 7. STOCK OPTION PLANS
SFAS No. 123, Accounting for Stock Based Compensation, was issued in
October 1995 and was effective for fiscal years beginning after December 15,
1995. That standard requires significant disclosures regarding employee stock
options and encourages companies to recognize compensation expense for
stock-based awards based on the fair value of such awards on the date of grant.
Alternatively, companies may continue to account for such transactions under
Accounting Principles Board ("APB") No. 25, Accounting for Stock Issued to
Employees, provided that disclosures are made regarding the net income and
earnings per share impact as if the value recognition and measurement criteria
of SFAS No. 123 had been adopted. The Company has elected to continue to account
for employee stock options under APB No. 25.
The Company's 1998 Equity Participation Plan (the "1998 Plan") was adopted
by the Board of Directors and approved by the Company's shareholders in May
1998. A committee composed of non-employee members of the Board of Directors
determines the participants who receive option grants and administers the 1998
Plan. Officers, consultants, employees and non-employee directors are eligible
to participate in the 1998 Plan. Under the 1998 Plan, the Company may grant
options to purchase up to 900,000 shares of common stock.
The Company's 1995 Stock Option Plan (the "1995 Plan") was adopted by the
Board of Directors and approved by the Company's shareholders in January 1995. A
committee composed of non-employee members of the Board of Directors determines
which key employees will participate in the 1995 Plan. Under the 1995 Plan, the
Company may grant up to 1,000,000 shares of common stock.
F-11
30
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
For certain options granted during 1996 and 1995, the exercise price was
less than the fair value of the Company's common stock on the date of grant and,
accordingly, compensation expense is recognized over the vesting period of such
difference. For certain options granted in 1998, 1997 and 1996, the exercise
price equaled the market price on the date of grant and, therefore, no
compensation expense was recognized.
Options generally vest over a period which ranges from three to five years
from the date of grant. Each option's maximum term is generally 10 years from
the grant date for options granted under the 1998 Plan and 7 years from the
grant date for options granted under the 1995 Plan.
The provisions for certain stock option agreements provided for immediate
vesting of those options on the effective date of the IPO. Accordingly, the
Company recorded a non-cash expense of $653,000 during the fourth quarter of
1996 to recognize the compensation associated with the immediate vesting of
those stock options. Total compensation expense recorded for the years ended
December 31, 1998, 1997 and 1996 was approximately $279,000, $221,000 and
$936,000, respectively.
Had compensation expense for the Company's stock option plans been
determined based on the fair value at the grant dates for awards, consistent
with the provisions of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts as follows (in thousands,
except per share amounts):
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
---- ---- ----
Net income
As reported........................................ $18,235 $9,070 $3,731
Pro forma.......................................... 14,839 8,159 3,582
Basic earnings per share
As reported........................................ $ 1.44 $ 0.93 $ 0.59
Pro forma.......................................... 1.17 0.84 0.56
Diluted earnings per share
As reported........................................ $ 1.35 $ 0.90 $ 0.55
Pro forma.......................................... 1.10 0.81 0.53
For purposes of computing the pro forma amounts above, the fair value of
each option granted was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1998, 1997
and 1996, respectively: dividend yield of 0.0 percent for all three years;
expected volatility of 54 percent, 59 percent and 74 percent, respectively; risk
free interest rates of 5.55 percent, 6.12 percent and 5.98 percent,
respectively; and expected lives of 3.75 years, 4.17 years and 4.02 years,
respectively.
F-12
31
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of the status of the Company's stock option plans is as follows
for each of the years ended December 31:
1998 1997 1996
---------------------------- --------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
Outstanding at
beginning of
year............... 663,318 $11.14 755,243 $ 5.33 419,326 $ 0.40
Granted
Price = fair
value........... 802,450 40.08 167,996 23.66 210,500 16.75
Price < fair
value........... -- -- -- -- 166,250 2.40
Exercised............ (119,282) 4.79 (231,524) 0.66 (23,788) 0.40
Cancelled............ (20,800) 21.90 (28,397) 16.90 (17,045) 0.40
--------- -------- -------
Outstanding at end of
year............... 1,325,686 $29.00 663,318 $11.14 755,243 $ 5.33
========= ======== =======
Options exercisable
at end of year..... 258,947 262,413 388,765
Weighted-average fair
value of options... $18.02 $12.00 $8.95
The following table summarizes information about stock options outstanding
as of December 31, 1998:
NUMBER WEIGHTED-AVERAGE NUMBER
RANGES OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
-------------- ----------- ---------------- ---------------- ----------- ----------------
$ 0.40 - $16.75 392,140 4.60 $ 8.06 231,008 $ 4.94
16.76 - 40.50 213,596 6.02 27.46 27,939 23.58
40.51 - 40.55 677,850 7.42 40.50 -- --
40.56 - 54.25 42,100 7.61 46.91 -- --
--------- -------
1,325,686 6.36 $29.00 258,947 $ 6.95
========= ==== ====== ======= ======
NOTE 8. EMPLOYEE BENEFIT PLAN
The Company has a 401 (k) profit-sharing plan and trust (the "Plan"). Each
employee who is 21 years of age or older who has worked for the Company for
twelve months and performed 1,000 hours of service or, has an adjusted service
date with the equivalent or greater term of service, is eligible to participate
in the Plan. Eligible participants may contribute not less than 2 percent and up
to 15 percent of their pretax compensation to the Plan. The Plan is contributory
and the Company, at its discretion, can match up to 33 percent of eligible
participant contributions not to exceed 9 percent of the participant's earnings.
The Company's match contribution for the years ended December 31, 1998, 1997 and
1996 totaled approximately $459,000, $337,000 and $201,000, respectively.
F-13
32
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9. LEASE COMMITMENTS
The Company has various operating lease agreements related primarily to
equipment and buildings. As of December 31, 1998, future minimum rental payments
required under noncancelable operating leases with initial or remaining lease
terms in excess of one year are as follows (in thousands):
1999........................................................ $12,869
2000........................................................ 11,012
2001........................................................ 8,949
2002........................................................ 6,599
2003........................................................ 4,076
-------
Total....................................................... $43,505
=======
In addition, the Company has a number of equipment leases that are on a
month-to-month basis.
Total rent expense for the years ended December 31, 1998, 1997 and 1996 was
approximately $12.4 million, $9.2 million and $6.4 million, respectively.
NOTE 10. SEGMENT AND RELATED INFORMATION
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, was issued in June 1997 and is effective for financial statements
issued after December 15, 1998. The statement requires the Company to report
certain information about its operating segments.
For years prior to 1998, the Company was managed as one operating segment.
Beginning in 1998, the Company's reportable segments consist of groups of
business units that are organized geographically. Each of the Company's six
geographic regions in the United States has a separate management team and
infrastructure and offers different combinations of the Company's services.
The accounting policies of the reportable segments are the same as those
described in Note 2 of Notes to Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on income before
income taxes, interest income and interest expense. Intersegment sales and
transfers are not significant.
F-14
33
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table presents summarized financial information for the
Company's reportable segments. The "Other" column includes corporate related
items, results of insignificant operations and, as it relates to segment profit
(loss), income and expenses not allocated to reportable segments.
MIDWEST CENTRAL NORTHEAST SOUTHEAST SOUTHWEST WEST OTHER TOTAL
------- ------- --------- --------- --------- ---- ----- -----
1998
Revenues.................. $12,857 $91,348 $56,753 $26,691 $38,227 $49,620 $ 4,260 $279,756
Segment profit (loss)..... 3,070 9,988 10,502 3,221 8,068 10,589 (15,301) 30,137
Total assets.............. 56,459 74,561 70,911 26,317 55,589 90,790 57,058 431,685
Capital expenditures...... 1,356 12,723 1,330 959 1,579 3,636 -- 21,583
Depreciation and
amortization............ 369 3,606 1,739 1,188 1,036 2,080 2,397 12,415
1997
Revenues.................. $ 4,407 $83,452 $16,114 $13,577 $ -- $ 3,272 $ (485) $120,337
Segment profit (loss)..... 1,553 18,306 2,476 1,421 -- 914 (10,490) 14,180
Total assets.............. 28,089 57,607 16,720 18,181 -- 20,107 37,195 177,899
Capital expenditures...... -- 10,178 71 318 -- -- (168) 10,399
Depreciation and
amortization............ 119 2,244 499 649 -- 108 1,322 4,941
1996
Revenues.................. $ -- $65,821 $ 3,285 $ 831 $ -- $ -- $ -- $ 69,937
Segment profit (loss)..... -- 15,776 314 (296) -- -- (9,960) 5,834
Total assets.............. -- 45,159 3,608 6,283 -- -- 23,496 78,546
Capital expenditures...... -- 4,402 138 138 -- -- (67) 4,611
Depreciation and
amortization............ -- 1,292 76 110 -- -- 849 2,327
The following table presents the details of "Other" segment profit (loss):
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
---- ---- ----
Net interest expense........................................ $ (4,600) $ (1,195) $(1,717)
Corporate expenses not allocated to operating segments...... (10,203) (8,358) (6,663)
Amortization of intangibles not allocated to operating
segments.................................................. (1,047) (716) (644)
Compensatory stock option expense........................... (279) (221) (936)
Other....................................................... 828 -- --
-------- -------- -------
TOTAL.................................................. $(15,301) $(10,490) $(9,960)
======== ======== =======
The following table presents the details of "Other" total assets:
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
---- ---- ----
Net goodwill not allocated to operating segments............ $26,304 $16,117 $16,668
Net other intangible assets not allocated to operating
segments.................................................. 7,458 4,449 1,354
Other corporate assets not allocated to operating
segments.................................................. 23,296 16,629 5,474
------- ------- -------
TOTAL.................................................. $57,058 $37,195 $23,496
======= ======= =======
In 1998, the Company had operations in Canada, Mexico and the Caribbean in
addition to its domestic operations. Revenues generated from those foreign
operations were not significant for the year ended December 31, 1998. The
Company did not have any foreign operations in 1997 or 1996. As of December 31,
F-15
34
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1998, the Company had fixed assets totaling $57.1 million and $4.6 million in
the United States and all foreign countries combined, respectively.
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. Image and data capture represented
approximately 52.4%, 41.4% and 47.7% of the Company's consolidated net revenues
for the years ended December 31, 1998, 1997 and 1996, respectively.
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 Internet-based services include, Corporate ID, a
proprietary software application that allows corporate customers to manage the
procurement of corporate identification materials. Data management services
represented approximately 10.0%, 11.8% and 9.9% of the Company's consolidated
net revenues for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company's output processing services include print on demand, business
communications and statement processing services. The Company's output
processing services provide customers with rapid, reliable and cost-effective
methods for making large-scale distributions of statements, reports, proxy
solicitations and letters to consumers and other target audiences by fax,
electronic distribution, print and mail. The Company also provides customized
processing services for collection agencies located throughout the United
States. Output processing represented approximately 37.6%, 46.8% and 42.4% of
the Company's consolidated net revenues for the years ended December 31, 1998,
1997 and 1996, respectively.
NOTE 11. RELATED PARTY TRANSACTIONS
Certain members of management are indebted to the Company pursuant to the
terms of ten-year secured promissory notes dated June 5, 1998, which provide for
extensions of credit up to a maximum aggregate principal amount of $6.6 million.
The terms of the notes provide that funds may be advanced to these employees on
the date of execution of the notes and on each of the three anniversary dates
thereafter and/or on other defined dates. Generally, the notes are secured by
each employee's unexercised stock options granted on May 29, 1998, and any of
the Company's common stock acquired upon exercise of such options. All advances
under a note will be forgiven in the event of a change in control of the
Company. Interest accrues under each note at the applicable federal rate. As of
December 31, 1998, $1.7 million was due pursuant to these notes.
The Company purchases printing services from a company owned by the wife of
a Director of the Company. For the years ended December 31, 1998, 1997 and 1996,
the Company paid approximately $2.7 million, $1.7 million and $1.4 million,
respectively, for such printing services. In December 1997, the Company sold
certain assets to this company and recognized a gain on the sale of
approximately $183,000.
The Company leases property and a building from a general partnership in
which one of the Company's Directors is the managing partner and a 33.33 percent
owner. Another Director of the Company owns 33.33 percent of such partnership
and is one of its partners. The Company paid $163,800, $150,150 and $191,100 in
rent to that partnership for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company leases certain equipment from a company in which a Director is
a 50 percent owner and its president. For the years ended December 31, 1998,
1997 and 1996, the Company paid $120,300, $116,500 and $184,390, respectively,
in rent for such operating leases.
F-16
35
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
The Company contracts temporary employment services from a company which is
owned by the wife of a senior member of management. The Company paid $173,648,
$797,000 and $735,670 for the years ended December 31, 1998, 1997 and 1996,
respectively, for such services.
The Company believes that all the above transactions were on terms that
were reasonable and competitive. Additional transactions of the nature described
may take place in the ordinary course of business in the future.
NOTE 12. COMMITMENT AND CONTINGENCIES
Various claims have been made against the Company in the normal course of
business. Management believes that none of these legal proceedings will have a
material adverse effect on the Company's business, financial condition or
results of operations.
NOTE 13. SUBSEQUENT EVENTS
In January 1999, the Company completed the acquisition of Vetri Systems,
Inc. and its affiliate Vetri Software India, Ltd., Bonner & Moore Computing
Company, a division of Bonner & Moore Associates, Inc., the Texas division of
Compex Legal Services and MSI Digital & Imaging Solutions, Inc., for aggregate
consideration of approximately $39.3 million, consisting of approximately $34.4
million in cash, funded by bank borrowings, and 86,902 shares of the Company's
common stock valued at approximately $4.9 million.
In March 1999, the Company completed the acquisition of Cover-All Computer
Holdings Company and its affiliates for aggregate consideration of approximately
$9.9 million, consisting of approximately $8.0 million in cash, funded by bank
borrowings, and debentures convertible into 32,532 shares of the Company's
common stock valued at approximately $1.9 million at the date of acquisition.
On March 25, 1999, the Company reached agreement on the terms of a merger
with M-R Group plc ("M-R Group"). M-R Group is a leading document and data
management company headquartered in the United Kingdom. The merger is expected
to be treated as a "pooling of interests" for accounting purposes and will be
valued at approximately $145.2 million. Completion of the transaction is subject
to M-R Group shareholder approval, Hart-Scott-Rodino regulatory review and
certain other approvals. Under terms of the agreement, M-R Group shareholders
will receive 4.877 new shares of the Company's common stock for every 100 M-R
Group shares held.
F-17
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lason, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Lason, Inc. (the "Company") and subsidiaries listed in
Item 14(A) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these 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 Lason, Inc.
and subsidiaries as of December 31, 1998 and 1997 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 31, 1999
F-18
37
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31,
--------------------
1998 1997
---- ----
ASSETS
Investment in subsidiaries.................................. $282,701 $131,184
Deferred tax asset.......................................... 459 361
Other....................................................... 1,632 --
-------- --------
Total assets........................................... $284,792 $131,545
======== ========
LIABILITIES
Total liabilities........................................... -- --
STOCKHOLDERS' EQUITY
Common stock................................................ $ 146 $ 115
Additional paid in capital.................................. 252,479 117,498
Retained earnings........................................... 32,167 13,932
-------- --------
Total stockholders' equity............................. 284,792 131,545
-------- --------
Total liabilities and stockholders' equity............. $284,792 $131,545
======== ========
S-1
38
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENTS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
---- ---- ----
REVENUE..................................................... $ -- $ -- $ --
OPERATING EXPENSES
Compensatory stock option expense........................... 279 221 936
------- ------ ------
Operating loss.............................................. (279) (221) (936)
Equity in net income of subsidiaries........................ 18,416 9,219 4,339
------- ------ ------
Income before taxes......................................... 18,137 8,998 3,403
Income tax benefit.......................................... (98) (72) (328)
------- ------ ------
Net Income............................................. $18,235 $9,070 $3,731
======= ====== ======
S-2
39
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---- ---- ----
NET CASH USED IN OPERATING ACTIVITIES....................... $ -- $ -- $ --
CASH FLOWS FROM INVESTMENT ACTIVITIES
Investment in subsidiary.................................... (130,430) (65,248) (41,236)
--------- -------- --------
Net cash used in investing activities....................... (130,430) (65,248) (41,236)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares of common stock.......................... 129,858 65,103 53,001
Redemption of shares of common stock........................ -- -- (11,765)
Proceeds from exercise of employee stock options............ 572 145 --
--------- -------- --------
Net cash provided by financing activities................... 130,430 65,248 41,236
Change in cash.............................................. -- -- --
Cash at beginning of year................................... -- -- --
Cash at end of year......................................... $ -- $ -- $ --
========= ======== ========
S-3
40
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.
Lason, Inc.
By: /s/ WILLIAM J. RAUWERDINK
------------------------------------
William J. Rauwerdink
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GARY L. MONROE Chief Executive Officer, Chairman of March 31, 1999
- ------------------------------------------ the Board, (Principal Executive
Gary L. Monroe Officer) and Director
/s/ WILLIAM J. RAUWERDINK Executive Vice President, Chief March 31, 1999
- ------------------------------------------ Financial Officer, Treasurer and
William J. Rauwerdink Secretary (Principal Financial and
Accounting Officer)
* President and Chief Operating March 31, 1999
- ------------------------------------------ Officer
John R. Messinger
* Director March 31, 1999
- ------------------------------------------
Fariborz Ghadar
* Director March 31, 1999
- ------------------------------------------
Donald M. Gleklen
* Director March 31, 1999
- ------------------------------------------
Joseph R. Nolan
* Director March 31, 1999
- ------------------------------------------
Bruce V. Rauner
* Director March 31, 1999
- ------------------------------------------
Robert A. Yanover
*By: /s/ WILLIAM J. RAUWERDINK
------------------------------------
William J. Rauwerdink
Attorney-in-Fact
41
EXHIBIT INDEX
2.3 Asset Purchase Agreement dated February 1, 1996 between Lason and
Diversified Support Services, Inc.(1)
2.4 Agreement of Purchase and Sale of Stock dated March 25, 1996 between
Lason and Delaware Legal Copy, Inc. (as defined therein).(1)
2.5 Agreement of Purchase and Sale of Stock dated July 17, 1996 between
Lason and Information & Image Technology of America, Inc.(1)
2.6 Agreement of Purchase and Sale of Stock dated July 17, 1996 between
Lason and Great Lakes Micrographics.(1)
2.7 Stock Purchase Agreement dated July 24, 1996 between Lason and
Micro-Pro, Inc. and MP Services, Inc.(1)
2.8 Stock Purchase Agreement dated August 6, 1996 between Lason and
National Reproductions.(1)
2.9 Agreement of Purchase and Sale of Stock dated July 17, 1997 between
Lason and Image Conversion Systems, Inc.(2)
2.10 Asset Purchase Agreement dated November 25, 1997 between Lason and VIP
Imaging, Inc.(3)
2.11 Stock Purchase Agreement dated February 12, 1998 between Lason and with
respect to the Racom Acquisition.(4)
2.12 Asset Purchase Agreement dated March 5, 1998 between Lason and API
Acquisition.(5)
2.13 Agreement for the Purchase and Sale of Stock dated July 24, 1998
between Lason and Consolidated Reprographics.(6)
2.14 Agreement of Purchase and Sale of Stock dated January 31, 1997 between
Lason and Churchill Communications.(7)
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.(1)
3.2 Form of Revised Amended and Restated By-Laws.(8)
4.1 Form of certificate representing Common Stock of the Company.(1)
4.2 Second Amended and Restated Credit Agreement dated as of June 29, 1998
among the Company, the Lenders named therein (the "Lenders"), First
Union National Bank , as Agent, Comerica Bank and NBD Bank, as
Co-Agents.(6)
4.3 Second Amended and Restated Pledge Agreement dated as of June 29, 1998
by the Company in Favor of First Union National bank, as agent for the
Lenders.(6)
4.4 Second Amended and Restated Pledge and Security Agreement dated as of
June 29, 1998 by certain subsidiaries of the Company in favor of First
Union National Bank.(6)
4.5 Second Amended and Restated Subsidiary Guaranty Agreement dated June
29, 1998 by certain subsidiaries of the Company in favor of the Lenders
and First Union National Bank, as agent.(6)
10.5 Registration Agreement dated January 17, 1995 by and among the Company
and the 1995 Stockholders.(1)
10.8 Employment Agreement between Lason Systems, Inc. and Gary Monroe.(1)
10.9 Offer of employment dated April 30, 1996 from Lason Systems, Inc. To
Mr. Rauwerdink.(1)
10.10 Offer of employment dated June 12, 1996 from Lason Systems, Inc. To Mr.
Jablonski.(1)
10.11 1995 Stock Option Plan of the Company.(1)
E-1
42
10.14 Stock Option Agreement dated August 7, 1995 by and between the Company
and Mr. Gleklen.(1)
10.17 1996 Lason Management Bonus Plan.(1)
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.19 Amendments to Lason Systems, Inc. 401(k) Profit Sharing Plan &
Trust.(1)
10.20 Lease Agreement dated as of September 3, 1985 by and between Lason
Systems, Inc. and Mart Associates as amended.(1)
10.21 Lease Agreement dated August 3, 1995 by and between Lason Systems, Inc.
and Kensington Center, Inc.(1)
10.22 Lease Agreement by and between Lason Systems, Inc. and The Prudential
Insurance Company of America.(1)
10.23 First Amendment to Lease dated as of July 26, 1996, by and between
Kensington Center, Inc. and Lason Systems, Inc. (1)
10.27 Amendment to Employee Stock Option Agreement by and between the Company
and Mr. Gleklen.(1)
10.35 Employment Agreement between Image Conversion Systems and John R.
Messinger dated July 29, 1997.(8)
10.39 Form of Secured Promissory Note dated June 5, 1998 issued by each of
Messrs. Monroe, Rauwerdink, Messinger, Newman and Jablonski in favor of
the Company.(6)
10.40 Form of Pledge and Security Agreement dated June 5, 1998 between the
Company and each of Messrs. Monroe, Rauwerdink, Messinger, Newman and
Jablonski for the Secured Promissory Notes described in Exhibit
10.39.(6)
10.41 Letter Agreement between Gary L. Monroe and the Company dated July 29,
1998 amending and extending Employment Agreement.(6)
10.42 1998 Equity Participation Plan of Lason, Inc.(9)
21.1 Subsidiaries of the Company.+
23.1 Consent of PricewaterhouseCoopers LLP+
24.1 Powers of Attorney.+
27.1 Financial Data Schedule.+
- -----------------------------
+ filed herewith
(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. 0-21047.
(4) Incorporated herein by reference to registrant's Form 8-K filed March
17, 1998, Commission File No. 0-21047.
(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 8-K filed on
February 18, 1997, Commission File No. 0-21407.
(8) Incorporated herein by reference to registrant's Form 10-Q filed on May
15, 1998, Commission File No. 0-21407.
(9) Incorporated herein by reference to registrant's 1998 proxy statement,
Appendix A, filed on April 28, 1998, Commission File No. 0-21407.
E-2