<PAGE> 1
As filed with the Securities and Exchange Commission on August 30, 1996
Registration No. 333-09799
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LASON, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction of
incorporation or organization)
7398
(Primary Standard Industrial
Classification Code Number)
38-3214743
(I.R.S. Employer
Identification Number)
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (810) 597-5800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
GARY L. MONROE, CHIEF EXECUTIVE OFFICER
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (810) 597-5800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
H. KURT VON MOLTKE
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
LAURENCE B. DEITCH
SEYBURN, KAHN, GINN,
BESS, DEITCH & SERLIN
2000 TOWN CENTER, SUITE 1500
SOUTHFIELD, MICHIGAN 48075
LELAND E. HUTCHINSON
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock, par value $0.01 per share..... $51,232,500 $17,667
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) $16,854 of the Registration Fee was paid with the initial filing.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
LASON, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF
FORM S-1.
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REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
---------------------------------------------- ----------------------------------------
<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........ Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front Cover Page; Outside Back
Cover Page
3 Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................... Prospectus Summary; Risk Factors
4 Use of Proceeds............................... Use of Proceeds
5 Determination of Offering Price............... Underwriting
6 Dilution...................................... Dilution
7 Selling Security Holders...................... Inapplicable
8 Plan of Distribution.......................... Outside Front Cover Page; Underwriting
9 Description of Securities to be Registered.... Description of Capital Stock
10 Interests of Named Experts and Counsel........ Inapplicable
11 Information with Respect to the Registrant.... Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company;
Recent Acquisitions; Use of Proceeds;
Dividend Policy; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Relationships and Related
Transactions; Principal Stockholders;
Description of Credit Agreement;
Description of Capital Stock; Shares
Eligible for Future Sale; Validity of
Common Stock; Experts; Unaudited Pro
Forma Condensed Consolidated Financial
Information, Financial Statements, and
Consolidated Financial Statements
12 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Inapplicable
</TABLE>
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1996
LASON LOGO
2,700,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Lason,
Inc. ("Lason" or the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $14.50 and $16.50 per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price. Application has been made to list the Common
Stock on the NASDAQ National Market under the symbol "LSON."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share....................... $ $ $
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Total(3)........................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 405,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and
$ , respectively.
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The Common Stock is offered by the Underwriters, as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY WILLIAM BLAIR & COMPANY
The date of this Prospectus is , 1996
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LASON LOGO
"THE IMAGING COMPANY"
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RECORDS MANAGEMENT
- ----------------------------------------------- [PICTURE OF SEVERAL OF THE
- ELECTRONIC DOCUMENT CONVERSIONS COMPANY'S EMPLOYEES AT
- MICROGRAPHIC DOCUMENT CONVERSIONS COMPUTER WORKSTATIONS]
- ELECTRONIC DOCUMENT STORAGE AND RETRIEVAL
------------------------------------------
- ----------------------------------------------- ------------------------------------------
DOCUMENT MANAGEMENT
- ----------------------------------------------- [PICTURES OF COMPACT DISKS AND OF
- ON-SITE FACILITIES MANAGEMENT COMPUTER CONTROL PANEL OF
- HIGH VOLUME REPROGRAPHICS HIGH SPEED COPIER/PRINTER]
- LASON DOCUMENT EXPRESS(TM) PRINT ON DEMAND
- DIGITAL GRAPHICS ------------------------------------------
- ----------------------------------------------- ------------------------------------------
BUSINESS COMMUNICATIONS
- ----------------------------------------------- [PICTURE OF MULTIPLE
- COLLECTION LETTER PROCESSING COMPUTER TERMINALS]
- EVENT-DRIVEN DIRECT MAIL
- DATABASE MANAGEMENT ------------------------------------------
- CO-MINGLING OF MAIL
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
The Company........................................................................... 15
Recent Acquisitions................................................................... 16
Use of Proceeds....................................................................... 18
Dividend Policy....................................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Consolidated Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 30
Management............................................................................ 43
Certain Relationships and Related Transactions........................................ 51
Principal Stockholders................................................................ 55
Description of Credit Agreement....................................................... 56
Description of Capital Stock.......................................................... 58
Shares Eligible for Future Sale....................................................... 61
Underwriting.......................................................................... 63
Validity of Common Stock.............................................................. 64
Experts............................................................................... 64
Additional Information................................................................ 64
Index to Unaudited Pro Forma Condensed Consolidated Financial Information, Financial
Statements and Consolidated Financial Statements.................................... F-1
</TABLE>
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The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited consolidated
financial statements for each of the first three quarters of each fiscal year.
Lason Document Express(TM) is a trademark of the Company.
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information, including "Risk Factors" and the consolidated financial statements
of the Company and notes thereto (the "Consolidated Financial Statements"), the
unaudited pro forma condensed consolidated financial information of the Company
and the notes thereto (the "Pro Forma Financial Information"), the financial
statements of the Company's predecessor and the notes thereto, and the financial
statements of certain companies acquired by the Company and the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussions and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Prospectus. Except as otherwise indicated, all information contained in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) assumes all of the Acquisitions (as defined in "Recent
Acquisitions") have been completed and (iii) has been adjusted to give effect to
the Recapitalization (as defined in "Description of Capital Stock -- The
Recapitalization") and a 2.5 for one stock split. See "Description of Capital
Stock -- The Recapitalization." As used in this Prospectus, unless the context
otherwise requires, the terms "Lason" and the "Company" refer to Lason, Inc. and
include Lason, Inc. and all of its subsidiaries and its and their respective
predecessors and subsidiaries.
THE COMPANY
Lason is a leading provider of integrated outsourcing services for records
management, document management and business communications. 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 to
meet the growing and increasingly complex document management requirements of
its customers. The Company primarily serves customers in the manufacturing,
healthcare, financial services and professional services industries. The
Company's core competencies in input processing, data management and output
processing enable it to provide a broad range of services across a wide range of
media types and allow customers to fulfill their document management outsourcing
needs with a single vendor. The Company has increased its annual net revenues
from approximately $1 million at the time of its founding in 1985 to $46.6
million for the year ended December 31, 1995. On a pro forma basis, the Company
had net revenues of approximately $75.0 million and approximately $41.7 million
for the year ended December 31, 1995 and for the six months ended June 30, 1996,
respectively. See "Selected Consolidated Financial Data." Today, the Company
employs over 1,150 people, has operations in eight states and provides services
to over 2,200 customers at 15 multi-functional imaging centers and at 40
facility management sites located on customers' premises. The Company has
accomplished such expansion through internal growth by offering a wide range of
services to its customers and by using technology to expand its service
offerings and through selected acquisitions.
The document management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. For
example, a 1994 Association for Information and Image Management ("AIIM
International") survey identified approximately 2,000 firms providing
information and image management services. Of the over 600 firms responding to
the survey, over 85% of such firms reported revenues for 1993 of less than $10
million. Therefore, an important element of the Company's growth strategy is to
make selected acquisitions of companies with complementary technologies or
customer bases to consolidate its position as a provider of complete document
management services. Since June 1995, the Company has acquired eight companies.
These eight companies had aggregate net revenues exceeding $28.4 million for the
year ended December 31, 1995. The Company will continue to seek and evaluate
additional acquisition opportunities.
Lason's service offerings generally can be divided into the areas of
records management, document management and business communications. The
Company's records management services include the scanning and converting of
documents from a variety of input media to a digital format.
4
<PAGE> 7
The Company also provides traditional microfilm and microfiche services. The
Company's newest records management offering, Visions computer output to laser
disk ("COLD") service, provides laser disk storage and retrieval of records. The
Company's document management services include high-volume, quick turn-around
optical and digital printing, as well as facility management operations at
customer sites. The Company's newest document management service offering, Lason
Document Express (print on demand), allows documents to be stored digitally,
accessed on-line and printed and distributed locally or centrally, depending on
end-user requirements. The Company's business communications services provide
customers with rapid, reliable and cost-effective methods for making large-scale
distributions of statements, reports and letters to consumers and other target
audiences in response to specific events. The Company is also a leader in
providing customized processing services for over 400 collection agencies
located throughout the United States.
Recent studies have indicated that U.S. companies spend from $94 to $120
billion per year to distribute, store and process paper forms, that there are
over 300 billion pages of paper documents on file with over 90 billion new pages
added each year, and that 90% of all communications continue to exist on paper.
A significant portion of the storage, processing and management of these
documents is outsourced to document management services businesses such as the
Company. According to the AIIM International survey, the information and image
management market was approximately $4.6 billion for the year 1993. Electronic
information management products and services accounted for 57% of the total
information and image management market. While the overall market for
information and image management had a compounded annual growth rate of 8.3%
from 1990 to 1993, the electronic information management segment had a
compounded annual growth rate of 14.1% for the same period. While the document
management services industry is highly fragmented and generally composed of
small companies, the Company believes that the users of a majority of these
outsourced services are larger companies with complex document management needs
for whom it is more efficient and cost-effective to outsource.
Lason believes that companies will continue to increase their use of
outsourced document management services. To efficiently manage complex or large
volumes of documents, a customer would be required to make a significant
investment in equipment, process and technology which may only be fully utilized
occasionally by a single user. Through outsourcing, companies can avoid this
capital investment, as well as the risks of obsolescence that arise from rapid
changes in document management technology. As companies seek to focus on their
core competencies and maximize asset utilization, they are increasingly turning
to outside parties who have the technological expertise, service focus, rapid
turn-around capacity and full range of capabilities necessary to manage
efficiently complex or large volumes of documents. In addition, the Company
believes that customers will seek a single vendor capable of furnishing all or
many of their document management needs rather than relying on multiple vendors
with varying areas of expertise.
The Company intends to take advantage of the trend toward increased
outsourcing of document management and the highly fragmented nature of the
document management services industry by pursuing the following business
strategy:
- Provide a broad range of services that will allow both existing and new
customers to secure all of their needed document management services from
one source;
- Implement a comprehensive marketing program to facilitate the
cross-selling of additional services to customers who are now purchasing
only a limited number of services and to develop national brand
recognition of the quality of Lason's services;
- Make selective acquisitions to further broaden its geographic reach,
customer base and technological capabilities and to attain economies of
scale in purchasing, facility utilization and management;
- Develop additional high value-added applications, such as Lason Document
Express (print on demand), digital imaging services and COLD, within its
core service offerings; and
5
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- Develop scalable applications utilizing an open architecture and modular
approach that will enable the Company to service the unique needs of
various customers across a broad range of volume requirements.
THE OFFERING
Common Stock offered by the
Company............................. 2,700,000 shares
Common Stock outstanding after the
Offering(1)....................... 7,862,462 shares
Use of proceeds..................... To repay indebtedness under the
Company's credit agreement, to redeem a
portion of its capital stock and for
general corporate purposes, including
working capital and financing of
possible acquisitions. See "Use of
Proceeds."
Proposed NASDAQ National Market
Symbol.............................. LSON
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(1) Includes 81,290 shares and 68,387 shares of Common Stock issuable in
connection with the acquisition of Information & Image Technology of
America, Inc. and Great Lakes Micrographics Corporation, respectively,
assuming an initial public offering price of $15.50 per share (see "Recent
Acquisitions") and excludes 555,740 shares of Common Stock issuable upon
exercise of stock options outstanding after the Offering, 405,000 shares of
Common Stock issuable upon exercise of the Underwriters' over-allotment
option and, assuming an initial public offering price of $15.50 per share,
25,806 shares of Common Stock issuable upon conversion of a convertible
promissory note in the amount of $400,000 issued by the Company in
connection with the acquisition of National Reproductions Corp. (see
"Recent Acquisitions") and 755,933 shares of Common Stock to be redeemed
upon consummation of the Offering using a portion of the net proceeds from
the Offering (see "Use of Proceeds" and "Description of Capital
Stock -- The Recapitalization").
6
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts)
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PREDECESSOR COMPANY
------------------------------------ ------------------------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- ----------------------------
PRO FORMA PRO FORMA
HISTORICAL AS HISTORICAL AS
---------------------------------------------- ADJUSTED ----------------- ADJUSTED
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------ ------- ------- ------- ------- --------- ------- ------- ---------
(UNAUDITED)
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STATEMENT OF INCOME DATA:
Revenues, net of postage...... $9,909 $18,852 $31,151 $41,151 $46,605 $75,052 $23,695 $27,089 $41,677
Cost of revenues.............. 6,484 13,176 20,684 27,238 31,227 53,314 15,484 17,696 28,895
------ ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 3,425 5,676 10,467 13,913 15,378 21,738 8,211 9,393 12,782
Selling, general and
administrative expenses..... 2,207 3,139 6,980 8,377 9,406 14,260 4,563 5,273 7,579
Compensatory option expense... -- -- -- -- 308 976 32 167 131
Amortization of intangibles... -- 87 163 266 817 1,396 465 379 669
------ ------- ------- ------- ------- ------- ------- ------- -------
Income from operations........ 1,218 2,450 3,324 5,270 4,847 5,106 3,151 3,574 4,403
Interest expense.............. 54 83 126 185 1,760 1,043 764 885 511
Other (income) expense, net... (23) 93 (21) (21) (66) (107) (78) (25) (145)
------ ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.... 1,187 2,274 3,219 5,106 3,153 4,170 2,465 2,714 4,037
Provision for income taxes.... -- -- -- -- 1,139 1,571 890 992 1,459
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income.................... $1,187 $ 2,274 $ 3,219 $ 5,106 $ 2,014 2,599 1,575 1,722 2,578
====== ======= ======= ======= ======= ======= ======= ======= =======
Primary and fully diluted
earnings per share(2)....... $ .32 $ .31 $ .25 $ .28 $ .31
======= ======= ======= ======= =======
Pro forma compensatory option
expense(3).................. -- -- -- -- 441 -- 142 422 --
Pro forma provision for income
taxes(4).................... 429 821 1,162 1,843 -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income.......... $ 758 $ 1,453 $ 2,057 $ 3,263 $ 1,573 2,599 1,433 1,300 2,578
====== ======= ======= ======= ======= ======= ======= ======= =======
Pro forma primary and fully
diluted earnings per
share....................... $ .25 $ .31 $ .23 $ .21 $ .31
======= ======= ======= ======= =======
Weighted average number of
common and common equivalent
shares
outstanding................. 6,248 8,344 6,248 6,244 8,340
------- ------- ------- ------- -------
</TABLE>
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PREDECESSOR COMPANY
----------- ---------------------------------------------
DECEMBER 31,
----------------------
JUNE 30, 1996
HISTORICAL ----------------------------------
---------------------- PRO AS
1994 1995 ACTUAL FORMA(5) ADJUSTED(6)
----------- ------- ------- -------- -----------
(UNAUDITED)
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BALANCE SHEET DATA:
Working capital.................................... $ 3,218 $ 4,911 $ 5,791 $ 5,336 $ 7,964
Total assets....................................... 15,692 37,309 40,684 65,612 65,871
Long-term obligations, less current portion........ 261 18,547 19,146 35,921 11,616
Total stockholders' equity......................... 6,623 9,214 11,108 12,368 38,936
</TABLE>
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(1) Gives effect to the Acquisitions, the sale of 2,700,000 shares of Common
Stock offered by the Company hereby (the "Offering") and the application of
the net proceeds from the Offering as if each had occurred as of January 1,
1995. See "Use of Proceeds" and Pro Forma Financial Information.
(2) Historical earnings per share are not presented for the Predecessor (as
defined in "The Company") as such information is not representative of the
capital structure of the Company.
(3) Gives effect to a noncash expense, net of tax, related to the accelerated
vesting of compensatory stock options granted to certain officers and
directors. See "Risk Factors -- Charges Relating to Compensatory Stock
Options," "Management -- Stock Options" and Note 13 to the Notes to the
Consolidated Financial Statements.
(4) From its inception to January 17, 1995, the Company was an S corporation
and, accordingly, was not subject to federal and state income taxes. The pro
forma provision for income taxes has been computed as if the Company was
subject to federal and state corporate income taxes for the periods
presented and based on the statutory tax rates then in effect. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 to the Notes to the Consolidated Financial
Statements.
(5) Gives effect to the Acquisitions as if each had occurred as of June 30,
1996. See Pro Forma Financial Information.
(6) Gives effect to the Acquisitions, the Offering and the application of the
net proceeds from the Offering as if each had occurred as of June 30, 1996.
See "Use of Proceeds" and Pro Forma Financial Information.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
RELIANCE ON MAJOR CUSTOMERS
On a pro forma basis, for the year ended December 31, 1995, and the six
months ended June 30, 1996, General Motors Corporation accounted for
approximately 30.7% and 27.2%, respectively, Ford Motor Company accounted for
approximately 13.5% and 13.6%, respectively, and Chrysler Corporation accounted
for approximately 3.0% and 2.8%, respectively, of the Company's net revenues.
See "Selected Consolidated Financial Data." On an historical basis, for the
years ended December 31, 1993, 1994 and 1995 and for the six months ended June
30, 1996, General Motors Corporation accounted for approximately 57.4%, 54.9%,
48.6% and 41.8%, respectively, Ford Motor Company accounted for 14.5%, 12.2%,
11.8% and 12.9%, respectively, and Chrysler Corporation accounted for 4.5%,
4.0%, 4.6% and 4.3%, respectively, of the Company's net revenues. General
declines in the automotive industry could cause a material reduction in demand
by such customers for the Company's products and services, and any such
reduction in demand or loss of or material decrease in the business from these
customers could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Customers."
The collective bargaining agreements of the United Automobile, Aerospace
and Agricultural Implement Workers of America (the "UAW") and General Motors
Corporation, Ford Motor Company and Chrysler Corporation are scheduled to expire
in September 1996. The failure of any such company or companies to reach
agreement with the UAW relating to the terms of a labor contract could result in
either a work stoppage or strike at any or all of their production facilities,
which could have a material adverse effect on the Company's business, financial
condition or results of operations.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
One of the Company's principal strategies is to increase its revenues and
the markets it serves through the acquisition of complementary businesses. 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 companies acquired in the future will be profitable at the time
of acquisition or will achieve sales and profitability justifying the Company's
investment. Acquisitions may involve a number of special risks, including, but
not limited to, adverse short-term effects on the Company's reported financial
condition or results of operations, diversion of management's attention,
dependence on retention, hiring and training of key personnel, risks associated
with unanticipated problems or liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's business, financial condition or results of operations. See
"Recent Acquisitions" and "Business -- Acquisition Strategy."
NEED FOR ADDITIONAL FINANCING TO CONTINUE ACQUISITION STRATEGY
The Company currently finances acquisitions, and intends to finance future
acquisitions, by using cash from operations, by issuing shares of Common Stock
and through borrowings under the Company's then existing credit facilities. The
Company will need additional debt or equity financing to continue its
acquisition strategy. There can be no assurance that the Company will be able to
obtain such financing if and when it is needed or that, if available, such
financing will be available on terms the Company deems acceptable. If the
Company does not have sufficient cash resources or availability under its then
existing credit facilities, or if the Common Stock does not maintain sufficient
value or potential acquisition candidates are unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company will
be unable to continue its acquisition strategy. Promptly
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after consummation of the Offering, the Company plans to file a registration
statement covering up to 2.5 million shares of Common Stock for use as
consideration in future acquisitions. The issuance of Common Stock in connection
with any such acquisition may be dilutive to the holders of the Common Stock.
See "Dilution" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
COMPETITION
The Company's businesses are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
customer base. There can be no assurance that these businesses will outsource
more of their document management, records management and business communication
services needs or that such businesses will not bring in-house services that
they currently outsource. In addition, with respect to those services that are
outsourced, the Company competes with a variety of competitors, including large
national or multinational companies, which have greater financial resources than
the Company, and smaller regional or local companies. The Company's major
competitors, in addition to various regional competitors, include ALCO Standard
Corp., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney Bowes,
Inc.) and Xerox Business Services with respect to its document management
services; Dataplex Corp., F.Y.I. Inc. and ALCO Standard Corp. with respect to
its records management services; and First Financial Management Corp. (First
Image), Sun Guard Mailing Services and Diversified Data & Communications with
respect to its business communications services. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition or results of operations.
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and in the future may experience, significant
quarter to quarter fluctuations in its results of operations. Quarterly results
of operations may fluctuate as a result of a variety of factors, including, but
not limited to, the size and timing of customer contracts, changes in customer
budgets, variations in the cost of paper, the size and timing of acquisitions,
the integration of acquired businesses into the Company's operations, the number
and timing of new hires, the demand for the Company's services, the timing of
introduction of new services and service enhancements by the Company or its
competitors, the market acceptance of new services, competitive conditions in
the industry and general economic conditions. The Company's businesses are also
typically seasonal as sales and profitability are typically lower during the
third and fourth quarters of the year resulting primarily from the shut-downs in
the automotive industry in July and December. In addition, the Company has
experienced substantial growth in recent periods and there can be no assurance
that such rate of growth in revenues and profits can be maintained in the
future.
As a result, the Company believes that period to period comparisons of
results of operations are not necessarily meaningful and not necessarily
indicative of the results that the Company may achieve in any subsequent quarter
or a full year. Such fluctuations may result in volatility in the price of the
Common Stock, and it is possible that in future quarters the Company's results
of operations could be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the market
price of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly
Information."
FLUCTUATIONS IN PAPER PRICES
The price of paper increased significantly during 1995 and early 1996, and
may increase in the future. The Company generally has not been able to change
its prices to customers to include increases in paper prices. There can be no
assurance that the price of paper will not change in the future. Any significant
increase in the price of paper that cannot be passed on to customers could have
a material
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adverse effect on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RAPID TECHNOLOGICAL CHANGE
The document management, records management and business communications
services industry is characterized by rapid technological change, evolving
customer needs and emerging technical standards. The introduction of competing
services incorporating new technologies and the emergence of new technical
standards could render some or all of the Company's services unmarketable. The
Company believes that its future success depends on its ability to enhance its
current services and develop new products and services that address the
increasingly sophisticated needs of its customers. The failure of the Company to
develop and introduce enhancements and new services in a timely and
cost-effective manner in response to changing technologies or customer
requirements could have a material adverse effect on the Company's business,
financial condition or results of operations.
POTENTIAL LIABILITY FOR BREACH OF CONFIDENTIALITY
A substantial portion of the Company's business involves the handling of
documents containing confidential and other sensitive information. Although the
Company has established procedures intended to eliminate any unauthorized
disclosure of confidential information and, in some cases, has contractually
limited its potential liability for unauthorized disclosure of such information,
there can be no assurance that unauthorized disclosures will not result in
liability to the Company. It is possible that such liabilities could have a
material adverse effect on the Company's business, financial condition or
results of operations.
BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN SERVICES
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient services to its customers. Certain of the Company's
operations are performed at a single location and are dependent on continuous
computer, electrical and telephone service. As a result, any disruption of the
Company's day-to-day operations could have a material adverse effect upon the
Company. There can be no assurance that a fire, flood, earthquake, power loss,
phone service loss or other disaster affecting one or more of the Company's
facilities would not disable these functions. Any significant damage to any such
facility or other failure that causes significant interruptions in the Company's
operations may not be covered by insurance and could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Facilities."
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of the Offering, certain of the Company's officers and
employees, and persons affiliated with them (the "Executive Group"), and Golder,
Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR Fund IV" and, together with the
Executive Group, the "Existing Stockholders"), will own or control an aggregate
of approximately 59.8% of the outstanding shares of Common Stock (or
approximately 56.9% if the Underwriters' over-allotment option is exercised in
full). These stockholders are likely to continue to exercise substantial control
over the affairs of the Company and acting together would likely be able to
elect a sufficient number of directors to control the Company's Board of
Directors (the "Board") and to approve or to disapprove any matter submitted to
a vote of the stockholders. See "Principal Stockholders."
In addition, the Existing Stockholders are parties to a Voting Agreement
(the "Voting Agreement"), providing for, among other things, the designation of
and the voting with respect to the election of directors of the Board by the
Existing Stockholders. Under the Voting Agreement, the Existing Stockholders
agree to vote their shares in favor of the director nominees designated by
certain of the Existing Stockholders. The Existing Stockholders may not vote to
remove a director nominated
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pursuant to the Voting Agreement and, conversely, must vote to remove a director
nominated pursuant to the Voting Agreement if directed to do so by the Existing
Stockholder who designated such director. The voting provisions of the Voting
Agreement terminate when either GTCR Fund IV or the Executive Group holds in the
aggregate less than 10% of the Common Stock on a fully diluted basis. Upon
consummation of the Offering, the Existing Stockholders will hold, in the
aggregate, a majority of the voting power of the Common Stock and will be able
to elect all members of the Board. The Voting Agreement may render more
difficult or tend to discourage mergers, acquisitions, tender offers, proxy
contests or assumptions of control and changes of incumbent management, even
when stockholders other than the Existing Stockholders consider such a
transaction to be in their best interest. See "Certain Relationships and Related
Transactions -- Voting Agreement."
CHARGES RELATING TO COMPENSATORY STOCK OPTIONS
The Company expects to record a significant noncash expense of
approximately $639,000 in the second half of 1996 in connection with the
accelerated vesting of compensatory stock options granted to certain of its
executive officers as a result of the consummation of the Offering. This expense
is not included in the Company's historical consolidated financial statements
for the year ended December 31, 1995, or the six months ended June 30, 1996. The
market price of the Common Stock could be adversely affected when the Company
reports such expenses, if any. See "Management -- Stock Options," Pro Forma
Financial Information and Note 13 to the Notes to the Consolidated Financial
Statements.
In addition, the Company will incur similar noncash expenses from time to
time through December 31, 2001, in an aggregate amount of approximately $343,000
in connection with the scheduled vesting of compensatory stock options
previously granted to certain of its officers and employees. Similar expenses
are included in the Company's consolidated financial statements for the year
ended December 31, 1995, and for the six months ended June 30, 1996. The market
price of the Common Stock could be adversely affected when the Company reports
such expenses, if any. See "Management -- Stock Options," Pro Forma Financial
Information and Note 13 to the Notes to the Consolidated Financial Statements.
BENEFITS TO EXISTING STOCKHOLDER
Approximately $11.7 million of the net proceeds from the sale by the
Company of the Common Stock offered hereby will be used to redeem a portion of
the Common Stock owned by GTCR Fund IV. See "Certain Relationships and Related
Transactions -- The Recapitalization" and "Description of Capital Stock -- The
Recapitalization."
REGULATION; LITIGATION
Certain of the Company's customers, and certain of the Company's services
as used by those customers, such as collection letter processing, are subject to
various consumer protection laws, including the Fair Debt Collection Practices
Act. The format and wording of many of the collection letters distributed by the
Company, including its Priority Gram, are developed by the Company. From time to
time, certain of the Company's customers are subject to claims or are parties to
litigation under such laws involving services supplied by the Company to such
customers, such as collection letter processing. These actions sometimes relate
to the form and content of the collection letters distributed by the Company.
There can be no assurance that the Company will not be determined to be liable
under such laws, be made a party to any such litigation or be asked to indemnify
such customers for losses such customers incur in connection with any such
violation, claim or litigation. Any such occurrence could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Regulation" and "-- Litigation."
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DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
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
proprietary rights. 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. There can be no assurance that the
obligations to maintain the confidentiality of the Company's proprietary
information will effectively prevent disclosure or provide meaningful protection
or that the Company's proprietary information will not be independently
developed by the Company's competitors. Litigation may be necessary for the
Company to protect its proprietary information and could result in substantial
cost to, and diversion of efforts by, the Company. There can be no assurance
that the Company would prevail in any such litigation. If the Company is unable
to protect its proprietary rights, it 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 third parties will not assert
claims against the Company alleging that the Company's proprietary rights
infringe on their proprietary rights. Any infringement claims, whether with or
without merit, can be time consuming and expensive to defend or may require the
Company to enter into royalty or licensing agreements or cease the infringing
activities. The failure to obtain such royalty agreements, if required, and the
Company's involvement in such litigation could have a material adverse effect on
the Company's business, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend largely on the efforts and
abilities of its executive officers and certain other key employees.
Furthermore, the Company will likely be dependent on the senior management and
key employees of companies that may be acquired in the future. The failure of
any of these people to continue in their present roles, or the failure of the
Company to attract and retain other skilled employees, could have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company currently does not have employment agreements providing
for a definite term of employment with any of its executive officers or key
employees (other than its Chief Executive Officer) and does not intend to obtain
key man life insurance covering any of its executive officers or key employees.
See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or availability of such shares for future sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely effect prevailing market prices for the Common Stock.
Upon consummation of the Offering, 7,862,462 shares of Common Stock will be
outstanding (8,267,462 if the Underwriters' over-allotment option is exercised
in full). The 2,700,000 shares of Common Stock sold in the Offering (plus up to
405,000 additional shares of Common Stock if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act, unless such shares are held by an
"affiliate" of the Company as that term is defined under Rule 144 under the
Securities Act ("Rule 144"). Other than the shares of Common Stock being offered
hereby, the currently outstanding shares of Common Stock have not been
registered under the Securities Act and may not be sold unless such shares are
registered or unless an exemption from registration, such as the exemption
provided by Rule 144, is available. 4,999,997 of such unregistered shares would,
but for the lockup arrangements described below, be eligible for sale not
earlier than January 17, 1997, subject to certain volume and other limitations
under Rule 144.
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The Company and certain of its stockholders, which as of the consummation
of the Offering will hold an aggregate of 4,703,265 shares of Common Stock, have
agreed, for a period beginning from the date of the effectiveness of the
Registration Statement of which this Prospectus is a part and continuing to and
including the date 180 days after the date of the effectiveness of the
Registration Statement (the "Lockup Period"), not sell or otherwise dispose of,
and the Company has agreed not to register, any shares of Common Stock or any
securities of the Company which are substantially similar to the shares of
Common Stock, including, but not limited to, any securities that are convertible
into or exchangeable for, or represent the right to receive, Common Stock or any
such substantially similar securities (other than the grant of options with
respect to, and the issuance and registration of up to 1.0 million shares of
Common Stock by the Company in connection with, the Company's 1995 Stock Option
Plan and the issuance and registration of up to 2.5 million shares of Common
Stock by the Company for use as consideration in future acquisitions), without
the prior written consent of Robertson, Stephens & Company, except for the
shares of Common Stock offered in connection with the Offering. Upon the
expiration of such Lockup Period, such shares will be freely tradeable subject
to the holding period, volume and other limitations of Rule 144.
In connection with the formation of the Company, the Company and certain of
its stockholders, including GTCR Fund IV, certain members of the Company's
management, and persons affiliated with them, entered into a Registration
Agreement, dated as of January 17, 1995 (the "Registration Agreement"). Pursuant
to the Registration Agreement, such stockholders and their transferees, who hold
in the aggregate 4,999,997 shares of Common Stock, are entitled to certain
demand and piggy-back registration rights with respect to such shares of Common
Stock which may be exercised after the expiration of the Lockup Period. Such
rights could be used to force the Company to file a registration statement with
respect to the Common Stock owned by such persons. The existence of the
Registration Agreement and the perception that such sales of Common Stock could
occur thereunder could adversely effect the prevailing market price of the
Common Stock and could impair the Company's future ability to raise capital
through the sale of its equity securities. See "Certain Relationships and
Related Transactions -- Registration Agreement" and "Shares Eligible for Future
Sale."
Promptly after consummation of the Offering, the Company expects to file a
registration statement on Form S-8 covering up to 1.0 million shares of Common
Stock in connection with its 1995 Stock Option Plan and a registration statement
covering up to 2.5 million shares of Common Stock for use as consideration in
future acquisitions. Such shares, when issued and registered, will be freely
tradeable without restriction or further registration under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock, and no assurances can be given as to the effect, if any, that public
market sales of shares of Common Stock or the availability of such shares for
sale will have on the trading price prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale."
CERTAIN CHARTER, BY-LAWS AND STATUTORY ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and By-Laws
to be effective upon consummation of the Offering provide for a classified board
of directors, restrict the ability of stockholders to call special meetings or
take stockholder action by written consent, contain advance notice requirements
for stockholder proposals and nominations and special voting requirements for
the amendment of the Company's Amended and Restated Certificate of Incorporation
and By-Laws. These provisions could delay or hinder the removal of incumbent
directors and could discourage or make more difficult a proposed merger, tender
offer or proxy contest involving the Company or may otherwise have an adverse
effect on the market price of the Common Stock. The Company also will be subject
to provisions of the Delaware General Corporation Law that will restrict the
Company from
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engaging in certain business combinations with a person who, together with
affiliates and associates, owns 15% or more of the Common Stock (an "Interested
Stockholder") for three years after the person becomes an Interested
Stockholder, unless certain conditions are met or the business combination is
approved by the Board and/or the Company's stockholders in a prescribed manner.
These provisions also could render more difficult or discourage a merger, tender
offer or other similar transaction. The Board intends to adopt a resolution
approving any acquisition of shares of Common Stock by GTCR Fund IV and its
affiliates that would otherwise result in GTCR Fund IV and its affiliates
becoming an Interested Stockholder. See "Description of Capital Stock -- Certain
Provisions of the Amended and Restated Certificate of Incorporation and By-Laws
and Statutory Provisions."
Pursuant to the Amended and Restated Certificate of Incorporation, shares
of preferred stock may be issued in the future by the Company without
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board may determine in the exercise of its
business judgment. The rights of the holders of Common Stock will be subject to,
and may be adversely effected by, any preferred stock that may be issued in the
future. The issuance of preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest or the assumption of control
by a holder of a large block of the Company's securities or the incumbent
management. See "Description of Capital Stock -- Preferred Stock."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance given as to the liquidity of the trading
market for the Common Stock, that an active public market will develop for the
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offering at or above the initial public offering price. If an active
public market for the Common Stock does not develop, the market price and
liquidity of the Common Stock may be materially adversely affected. The initial
public offering price of the Common Stock offered hereby will be determined
through negotiations among the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriting." The trading price of the Common Stock could be subject to wide
fluctuations in response to variations in the Company's quarterly operating
results, changes in earnings estimates by analysts, conditions in the Company's
businesses, general market or economic conditions or other factors. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. These fluctuations have had a substantial effect on the market
prices for many emerging growth companies, often unrelated to the operating
performance of the specific companies. Such market fluctuations could have a
material adverse effect on the market price of the Common Stock.
DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value. See "Dilution."
To the extent outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Management -- Stock Options."
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THE COMPANY
Lason Systems, Inc., a Michigan corporation and the predecessor to the
Company (the "Predecessor"), was formed in 1985 as a result of a management
buyout of the direct mail division of McKesson Corporation's 3PM subsidiary. The
founders and principal stockholders of the Predecessor were Allen J. Nesbitt,
the current President of the Company and the then Vice President of 3PM, and
Robert A. Yanover, the current Chairman of the Board of the Company and the
founder of 3PM. Annual revenues at the time of the buyout were approximately $1
million, primarily from small, direct mail projects.
Today, the Company employs over 1,150 people, has operations in eight
states and provides services to over 2,200 customers at 15 multi-functional
imaging centers and at 40 facility management sites located on customers'
premises. For the year ended December 31, 1995, the Company had net revenues of
$46.6 million. On a pro forma basis, the Company had net revenues of
approximately $75.1 million and approximately $41.7 million for the year ended
December 31, 1995 and for the six months ended June 30, 1996, respectively. See
"Selected Consolidated Financial Data." The Company has accomplished such
expansion through internal growth by offering a wide range of services to its
customers and by using technology to expand its service offerings and through
selected acquisitions.
In January 1995, the founders recapitalized the Predecessor (the
"Recapitalization") by selling substantially all of its assets to Lason
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Lason, Inc., which was then named Lason Holdings, Inc. In August 1996, Lason
Holdings, Inc. changed its name to Lason, Inc. After the acquisition, Lason
Acquisition Corp. changed its name to Lason Systems, Inc. and continued the
business operation of the Predecessor. Shortly thereafter, the Company appointed
Gary L. Monroe, the former President of Kodak Imaging Services, Inc., a leading
international imaging business, as Chief Executive Officer of the Company. As
part of the recapitalization, GTCR Fund IV became the majority stockholder of
the Company. Messrs. Yanover and Nesbitt retained a major stock ownership
interest in the Company and continue to be active in its management. In
connection with the Offering, the Company's capital stock will be reclassified.
See "Description of Capital Stock -- The Recapitalization."
Since June 1995, the Company has completed the acquisition of eight
companies. These eight companies had aggregate net revenues exceeding $28.4
million for the year ended December 31, 1995. These acquisitions include the
acquisition of Adcom Mailers, Inc. and an affiliated company in June 1995,
Mail-Away Corporation in January 1996, Diversified Support Services, Inc. in
February 1996, Delaware Legal Copy, Inc. in April 1996, Information & Image
Technology of America, Inc., Micro-Pro, Inc. and MP Services, Inc. (two
affiliated companies) and Great Lakes Micrographics Corporation in July 1996 and
National Reproductions Corp. in August 1996. See "Recent Acquisitions."
Lason, Inc. was incorporated in Delaware in January 1995. The Company's
principal executive office is located at 1305 Stephenson Highway, Troy, Michigan
48083, and its telephone number is (810) 597-5800.
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RECENT ACQUISITIONS
Since June 1995, the Company has completed acquisitions of either
substantially all of the assets or a controlling stock ownership interest in
eight companies (the "Acquired Companies"), which complement the Company's core
competencies. These acquisitions (the "Acquisitions") involve: (i) Adcom
Mailers, Inc. and an affiliated company (collectively, "Adcom"), specializing in
the sorting of mass mailings through electronic devices, in June 1995; (ii)
Mail-Away Corporation ("Mail-Away"), specializing in overnight and priority mail
creation and distribution services, in January 1996; (iii) Diversified Support
Services, Inc. ("Diversified"), involved in reprographics facilities management
in the Chicago, Illinois and Cleveland, Ohio regional markets, in February 1996;
(iv) Delaware Legal Copy, Inc. ("Delaware Legal"), an imaging company and leader
in the litigation support services business in Wilmington, Delaware, in April
1996; (v) Information & Image Technology of America, Inc. ("IITA"), involved in
providing records management services, traditional micrographic and scanning and
conversion services to the healthcare and financial services industries, with
facilities in Jacksonville, Florida, in July 1996; (vi) Micro-Pro, Inc. and MP
Services, Inc., two affiliated companies that the Company intends to merge
(collectively, "Micro-Pro"), involved in providing records management services,
principally in traditional micrographic services, with facilities in the
Rochester, Buffalo and Albany, New York areas, in July 1996; (vii) Great Lakes
Micrographics Corporation ("Great Lakes"), a leader in item processing and item
research services (check processing, storage and archiving) for the financial
services industry with facilities in Chicago, Illinois, Indianapolis, Indiana
and Grand Rapids, Kalamazoo and Livonia, Michigan, in July 1996; and (viii)
National Reproductions Corp. ("NRC"), involved in providing imaging,
reprographics and facilities management services with facilities in Madison
Heights, Detroit and Southfield, Michigan, in August 1996.
The stock purchase agreement with respect to the acquisition of Micro-Pro
(the "Micro-Pro Stock Purchase Agreement") provides that the selling
stockholders (the "Micro-Pro Stockholders") retain 20% of the capital stock of
Micro-Pro. The Micro-Pro Stock Purchase Agreement also provides that at any time
subsequent to the 18 month anniversary of the closing of the acquisition, the
Company may purchase the remaining 20% of the capital stock of Micro-Pro from
the Micro-Pro Stockholders at a formula price based on Micro-Pro's financial
performance for the 12-month period prior to such purchase. If the Company does
not exercise its right to purchase the remaining 20% of the capital stock of
Micro-Pro, at any time after the 30 month anniversary of the closing of the
acquisition, the Micro-Pro Stockholders have the right to cause the Company to
purchase such shares at a lower formula price which is also based on Micro-Pro's
financial performance for the 12-month period prior to such purchase.
The stock purchase agreement with respect to the acquisition of Delaware
Legal (the "Delaware Legal Stock Purchase Agreement") provides that one of the
selling stockholders (the "Delaware Legal Stockholder") retains 35% of the
capital stock of Delaware Legal. The Delaware Legal Stock Purchase Agreement
also provides that at any time subsequent to the 18 month anniversary of the
closing of the acquisition, the Company may purchase the remaining 35% of the
capital stock of Delaware Legal at a formula price based on Delaware Legal's
financial performance for the 12-month period prior to such purchase. If the
Company does not exercise its right to purchase the remaining 35% of the capital
stock of Delaware Legal, at any time after the 30 month anniversary of the
closing of the acquisition, the Delaware Legal Stockholder holding the remaining
35% of the capital stock of Delaware Legal has the right to cause the Company to
purchase such shares at a lower formula price also based on Delaware Legal's
financial performance for the 12-month period prior to such purchase.
The stock purchase agreement with respect to the acquisition of IITA (the
"IITA Stock Purchase Agreement") provides for a purchase price adjustment based
on IITA's financial performance for the period from March 1, 1996 through
February 28, 1997. If IITA's performance exceeds a specified target, the
purchase price will be increased by a percentage equal to the percentage by
which IITA's actual performance exceeded the target, but not more than $945,000,
or will be decreased by a percentage equal to the percentage by which IITA's
actual performance was below the target, but not more than $472,500. In
addition, $1.26 million of the consideration to be paid by the Company to the
selling
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stockholders (the "IITA Stockholders") is to be in the form of Common Stock
valued at the initial public offering price. Assuming an initial public offering
price of $15.50 per share, the Company will issue 81,290 shares of Common Stock
to the IITA Stockholders. The IITA Stock Purchase Agreement also provides that
for a period of three years from the date work is first performed for a
specified customer by IITA, provided that a binding letter of intent with such
customer is executed within 12 months of the closing, 50% of the net earnings
recognized by IITA from such customer shall be paid to the IITA Stockholders.
The stock purchase agreement with respect to the acquisition of Great Lakes
(the "Great Lakes Stock Purchase Agreement") provides that $530,000 of the
consideration to be paid by the Company to each of the two selling stockholders
(the "Great Lakes Stockholders") is to be in the form of Common Stock valued at
the initial public offering price. Assuming an initial public offering price of
$15.50 per share, the Company will issue 68,387 shares of Common Stock to the
Great Lakes Stockholders. The Great Lakes Stock Purchase Agreement also provides
that each of the Great Lakes Stockholders have the right, beginning six months
after the closing of the acquisition and for the next 30 months thereafter, to
require the Company to purchase all of the Common Stock issued to such Great
Lakes Stockholder in connection with the acquisition then held by such Great
Lakes Stockholder at a price equal to $530,000 minus the amount of consideration
received in connection with any prior sales of such Common Stock by such Great
Lakes Stockholder.
The stock purchase agreement with respect to the acquisition of NRC (the
"NRC Stock Purchase Agreement") provides that $400,000 of the consideration to
be paid by the Company to one of the selling stockholders (the "NRC
Stockholders") is to be in the form of a promissory note issued by the Company
and due on the earlier of the first anniversary of the Company's initial public
offering and October 1, 1997. The promissory note does not bear interest, but is
convertible at any time into Common Stock at a price equal to the initial public
offering price. Assuming an initial public offering price of $15.50 per share,
the promissory note is convertible into 25,806 shares of Common Stock. The NRC
Stock Purchase Agreement also provides that in the event NRC is awarded a
contract for work from a specified customer within six months after the closing
date of the acquisition, the NRC Stockholders will be paid an additional amount
equal to 5% of the gross revenues recognized by NRC from such contract for a
period of three years from and after the commencement of such contract.
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds from the sale by the Company of the 2,700,000 shares of
Common Stock offered hereby will be approximately $38.0 million ($43.8 million
if the Underwriters' over-allotment option granted by the Company is exercised
in full), based upon an assumed initial public offering price of $15.50 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company intends to use
approximately $26.5 million of such net proceeds to repay a portion of its
indebtedness under the Company's Loan Agreement, dated January 17, 1995, as
amended, with First Union National Bank of North Carolina (the "Credit
Agreement") and approximately $11.7 million to redeem a portion of the Common
Stock owned by GTCR Fund IV. The Company also expects to terminate the Credit
Agreement and to enter into a credit facility with First Union National Bank of
North Carolina (the "New Credit Agreement") in the aggregate amount of $30
million to be used to repay the remaining portion of the indebtedness
outstanding under the Credit Agreement and to finance additional acquisitions,
working capital, capital expenditures and other general corporate purposes.
There can be no assurance that the Company will enter into the New Credit
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Credit Agreement and
Borrowings," "Certain Relationships and Related Transactions -- The
Recapitalization," "Description of Credit Agreement" and "Description of Capital
Stock -- The Recapitalization."
The Credit Agreement provides for an aggregate of up to $15 million of term
loans payable in 26 quarterly installments ending June 30, 2001, a $13 million
revolving credit facility, subject to a borrowing base limitation, expiring on
June 30, 2001, an additional $10 million acquisition credit facility expiring on
the earlier of June 30, 2001 or an initial public offering of the Company, and
an interim term loan of $8.2 million payable upon the earlier of March 31, 1997
or an initial public offering by the Company. As of July 31, 1996, there was
approximately $12.5 million, $6.9 million and $9.0 million outstanding under the
term loans, the revolving credit facility and the acquisition credit facility,
respectively, with a weighted average annual interest rate of 8.18%, 8.23% and
8.16%, respectively, and no amounts were outstanding under the interim term
loan. In August 1996, the Company borrowed approximately $8.2 million under the
interim term loan in connection with the acquisition of NRC. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Credit Agreement and Borrowings" and
"Description of Credit Agreement."
DIVIDEND POLICY
The Company currently 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. Future cash dividends, if any, will
be determined by the Board and will be based upon the Company's earnings,
capital requirements, financial condition and other factors deemed relevant by
the Board. The Credit Agreement does not permit the payment of dividends without
the consent of the lenders. See "Description of Credit Agreement." Except for
the payment of certain constructive dividends in connection with the Offering,
the Company has not paid any cash or other dividends on its capital stock.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, (i) giving effect to the Reclassification and the Stock Split as
discussed in "Description of Capital Stock -- The Recapitalization" ("Actual"),
(ii) pro forma to give effect to each of the Acquisitions not closed by June 30,
1996, as if each had occurred as of June 30, 1996 ("Pro Forma") and (iii) as
adjusted to give effect to the sale by the Company of the 2,700,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$15.50 per share and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds" ("As Adjusted"). This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Pro Forma Financial Information and the Consolidated
Financial Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt......... $ 2,000 $ 3,225 $ 1,225
======== ======== ========
Long-term debt, less current portion.......................... $19,146 $35,921 $11,616
Common stock with a put option................................ 1,060 1,060
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding............. -- -- --
Common Stock, $0.01 par value; 20,000,000 shares authorized,
5,012,785, 5,162,462 and 7,862,462 shares issued and
outstanding (Actual, Pro Forma and As Adjusted,
respectively)............................................ 50 51 78
Additional paid-in capital.................................. 8,622 9,881 36,163
Loans to stockholders....................................... (628) (628) --
Retained earnings........................................... 3,064 3,064 2,695
-------- -------- --------
Total stockholders' equity............................... 11,108 12,368 38,936
-------- -------- --------
Total capitalization................................... $32,254 $52,574 $52,837
======== ======== ========
</TABLE>
19
<PAGE> 22
DILUTION
The net tangible book value (deficit) of the Company as of June 30, 1996,
was approximately $(24.5 million), or $(4.15) per share of Common Stock. Net
tangible book value (deficit) per share is equal to the Company's total tangible
assets less its total liabilities, divided by the number of shares of Common
Stock outstanding not giving effect to the redemption of 755,933 shares of
Common Stock upon consummation of the Offering. After giving effect to the sale
by the Company of 2,700,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $15.50 per share and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds," the pro
forma net tangible book value of the Company at June 30, 1996, would have been
approximately $2.6 million, or approximately $.30 per share. This represents an
immediate increase of $4.45 per share in the net tangible book value to existing
stockholders and an immediate dilution of $15.20 per share in the net tangible
book value to new investors purchasing Common Stock in the Offering. The
following table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $15.50
Net tangible book value (deficit) per share before
the Offering............................................ (4.15)
Increase per share attributable to new investors........... $ 4.45
-------
Pro forma net tangible book value per share after the
Offering................................................... .30
-------
Dilution per share to new investors.......................... $15.20
=======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and new investors, adjusted to give effect to the sale of 2,700,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $15.50 per share, and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............. 5,918,395 69% $13,325,115 24% $ 2.25
New investors........................ 2,700,000 31 41,850,000 76 15.50
---------- ---- ----------- -----
Total(1)........................... 8,618,395 100% $55,175,115 100%
========== ==== =========== =====
</TABLE>
- ------------
(1) Does not give effect to the redemption of 755,933 shares of Common Stock
upon consummation of Offering. See "Description of Capital Stock -- The
Recapitalization."
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and financial data of its Predecessor. The selected consolidated data
for the Company as of and for the year ended December 31, 1995, and selected
financial data for the Predecessor as of and for the years ended December 31,
1993 and 1994, has been derived from the consolidated financial statements of
the Company and the financial statements of the Predecessor, respectively,
included elsewhere in this Prospectus and which have been audited by Coopers &
Lybrand LLP, independent public accountants, as indicated in their reports
included elsewhere in this Prospectus. The selected financial data for the
Predecessor as of and for the years ended December 31, 1991 and 1992, has been
derived from financial statements of the Predecessor audited by other
independent accountants and not included in this Prospectus. The selected
consolidated financial data for the Company for the six months ended June 30,
1995 and 1996, has been derived from unaudited consolidated financial
statements, included elsewhere in this Prospectus, that include, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary to fairly present the data for such periods. Data for the six months
ended June 30, 1996, is not necessarily indicative of future results. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Pro Forma Financial
Information, the consolidated financial statements of the Company and the
financial statements of the Predecessor and related notes to each, and the other
financial information included elsewhere in this Prospectus.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------ -------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA
AS ADJUSTED
1995(1)
HISTORICAL -----------
------------------------------------------------------
1991 1992 1993 1994 1995
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of postage............................. $9,909 $18,852 $31,151 $41,151 $46,605 $75,052
Cost of revenues..................................... 6,484 13,176 20,684 27,238 31,227 53,314
Gross profit......................................... 3,425 5,676 10,467 13,913 15,378 21,738
Selling, general and administrative expenses......... 2,207 3,139 6,980 8,377 9,406 14,260
Compensatory option expense.......................... -- -- -- -- 308 976
Amortization of intangibles.......................... -- 87 163 266 817 1,396
------ -------- -------- -------- -------- --------
Income from operations............................... 1,218 2,450 3,324 5,270 4,847 5,106
Interest expense..................................... 54 83 126 185 1,760 1,043
Other (income) expense, net.......................... (23) 93 (21) (21) (66) (107)
------ -------- -------- -------- -------- --------
Income before taxes.................................. 1,187 2,274 3,219 5,106 3,153 4,170
Provision for income taxes........................... -- -- -- -- 1,139 1,571
------ -------- -------- -------- -------- --------
Net income........................................... $1,187 $ 2,274 $ 3,219 $ 5,106 $ 2,014 $ 2,599
====== ======== ======== ======== ======== ========
Primary and fully diluted earnings per share(2)...... $ .32 $ .31
======== ========
Pro forma compensatory option expense(3)............. -- -- -- -- 441 --
Pro forma provision for income taxes(4).............. 429 821 1,162 1,843 -- --
------ -------- -------- -------- -------- --------
Pro forma net income................................. $ 758 $ 1,453 $ 2,057 $ 3,263 $ 1,573 $ 2,599
====== ======== ======== ======== ======== ========
Pro forma primary and fully diluted earnings per
share............................................... $ .25 $ .31
Weighted average number of common and common
equivalent shares outstanding....................... 6,248 8,344
-------- --------
<CAPTION>
COMPANY
-------------------------------------
SIX MONTH ENDED JUNE 30,
-------------------------------------
HISTORICAL PRO FORMA
------------------- AS ADJUSTED
1995 1996 1996(1)
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of postage............................. $23,695 $27,089 $41,677
Cost of revenues..................................... 15,484 17,696 28,895
Gross profit......................................... 8,211 9,393 12,782
Selling, general and administrative expenses......... 4,563 5,273 7,579
Compensatory option expense.......................... 32 167 131
Amortization of intangibles.......................... 465 379 669
-------- -------- --------
Income from operations............................... 3,151 3,574 4,403
Interest expense..................................... 764 885 511
Other (income) expense, net.......................... (78) (25) (145)
-------- -------- --------
Income before taxes.................................. 2,465 2,714 4,037
Provision for income taxes........................... 890 992 1,459
-------- -------- --------
Net income........................................... $ 1,575 $ 1,722 $ 2,578
======== ======== ========
Primary and fully diluted earnings per share(2)...... $ .25 $ .28 $ .31
======== ======== ========
Pro forma compensatory option expense(3)............. 142 422 --
Pro forma provision for income taxes(4).............. -- -- --
-------- -------- --------
Pro forma net income................................. $ 1,433 $ 1,300 $ 2,578
======== ======== ========
Pro forma primary and fully diluted earnings per
share............................................... $ .23 $ .21 $ .31
Weighted average number of common and common
equivalent shares outstanding....................... 6,248 6,244 8,340
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------ -------
DECEMBER 31,
------------------------------------------------------
HISTORICAL
------------------------------------------------------
1991 1992 1993 1994 1995
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $2,098 $ 2,444 $ 3,307 $ 3,218 $ 4,911
Total assets.................................................. 4,671 10,814 13,877 15,692 37,309
Long-term obligations, less current portion................... 159 65 320 261 18,547
Total stockholders' equity.................................... 3,163 4,934 6,567 6,623 9,214
<CAPTION>
COMPANY
-----------------------------------------
JUNE 30, 1996
-----------------------------------------
PRO
ACTUAL FORMA(5) AS ADJUSTED(6)
------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $ 5,791 $ 5,336 $ 7,964
Total assets.................................................. 40,684 65,612 65,871
Long-term obligations, less current portion................... 19,146 35,921 11,616
Total stockholders' equity.................................... 11,108 12,368 38,936
</TABLE>
- ------------
(1) Gives effect to the Acquisitions, the Offering and the application of the
net proceeds from the Offering as if each had occurred as of January 1,
1995. See "Use of Proceeds" and Pro Forma Financial Information.
(2) Historical earnings per share are not presented for the Predecessor as such
information is not representative of the capital structure of the Company.
(3) Gives effect to a noncash expense, net of tax, related to the accelerated
vesting of compensatory stock options granted to certain officers and
directors. See "Risk Factors -- Charges Relating to Compensatory Stock
Options," "Management -- Stock Options" and Note 13 to the Notes to the
Consolidated Financial Statements.
(4) From its inception to January 17, 1995, the Company was an S corporation
and, accordingly, was not subject to federal and state income taxes. The pro
forma provision for income taxes has been computed as if the Company was
subject to federal and state corporate income taxes for the periods
presented and based on the statutory tax rates then in effect. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 to the Notes to the Consolidated Financial
Statements.
(5) Gives effect to the Acquisitions as if each had occurred as of June 30,
1996. See Pro Forma Financial Information.
(6) Gives effect to the Acquisitions, the Offering and the application of the
net proceeds from the Offering as if each had occurred as of June 30, 1996.
See "Use of Proceeds" and Pro Forma Financial Information.
21
<PAGE> 24
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 the related notes, the Pro
Forma Financial Information of the Company and the related notes, and the other
related financial information included elsewhere in this Prospectus. The
discussion in this section of the Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors" and "Business," as well as those discussed elsewhere in this section
and elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of integrated outsourcing services for
records management, document management and business communications. The
Company's records management services include specialized solutions relating to
the process of scanning and converting documents and other inputs to a variety
of digital formats and micrographic services. The Company's document management
services include high-volume, quick turn-around optical and digital printing and
fulfillment, as well as facility management operations at customer sites. The
Company's business communications services provide customers with a reliable and
cost-effective method of distributing statements, reports and letters to
consumers and other target audiences. See "Business."
The Company has increased its annual net revenues from approximately $1
million at the time of its founding in 1985 to $46.6 million for the year ended
December 31, 1995. On a pro forma basis, the Company had net revenues of
approximately $75.0 million and approximately $41.7 million for the year ended
December 31, 1995 and for the six months ended June 30, 1996, respectively. See
"Selected Consolidated Financial Data." The Company has accomplished such
expansion through internal growth by offering a wide range of services to its
customers and by using technology to expand its service offerings and through
selected acquisitions.
Prior to 1992, the Company's growth was principally the result of internal
expansion of its direct mail operations. The Company began offering facility
management services in 1992, which during the period from 1992 through 1994,
provided a substantial component of the Company's growth. Since 1994, increases
in the Company's collection letter operations and scanning and conversion
services, which became practicable as a result of advances in digital
technology, have been significant components of the Company's growth. Since June
1995, the Company has acquired eight companies. These eight companies had
aggregate net revenues exceeding $28.4 million for the year ended December 31,
1995. The Company believes it has developed an infrastructure and strategy to
successfully integrate acquired companies into its financial, purchasing and
operating systems. The Company believes that it can serve as a consolidator of
the highly fragmented document management services industry and that it can
achieve economies of scale through volume purchasing, enhanced facilities
utilization and consolidation of support staff and infrastructure. The Company's
objective is to cross-sell its full range of services to its existing customer
base and to the customer base of acquired companies. See "Recent Acquisitions"
and "Business -- Acquisition Strategy."
The Company's revenues are generally recorded when it provides the goods or
services specified by a customer. Revenues are presented net of postage since
postage and similar delivery costs are generally passed through for
reimbursement directly from the customer. Costs of revenues consist principally
of wages and related benefits associated with providing the Company's services,
paper products and related supplies, and building and equipment expenses. The
price of paper increased significantly during 1995 and early 1996, and the
Company generally has not been able to change its prices to customers to include
increases in paper prices. Selling, general and administrative expenses include
wages and related benefits associated with the Company's executive and middle
management, marketing and selling activities (principally wages and related
costs), and financial and other administrative expenses.
22
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data of the Company as a percentage of net revenues:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------- -----------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -----------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1993 1994 1995 1995 1995 1996 1996
----- ----- ----- ----------- ----- ----- -----------
(UNAUDITED)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 66.4 66.2 67.0 71.0 65.3 65.3 69.3
Gross profit........................ 33.6 33.8 33.0 29.0 34.7 34.7 30.7
Selling, general
and administrative expenses....... 22.4 20.4 20.2 19.3 19.3 19.5 18.3
Income from operations.............. 10.7 12.9 10.4 6.6 13.3 13.2 10.5
Net income.......................... 10.3 12.4 4.3 2.9 6.6 6.4 6.0
</TABLE>
PRO FORMA SIX MONTHS ENDED JUNE 30, 1996
Pro forma net revenues were approximately $41.7 million for the six months
ended June 30, 1996, including consolidated revenues of the Company and the
Acquisitions.
The pro forma gross profit for the six months ended June 30, 1996 was
approximately $12.8 million, or 30.7% of pro forma net revenues, which is lower
than actual gross profit percentage primarily due to the sales mix and lower
economies of scale of the Acquired Companies.
Selling, general and administrative expenses on a pro forma basis were
approximately $7.6 million, or 18.3% of pro forma net revenues for the six
months ended June 30, 1996. This amount includes a reduction in compensation
expenses of $366,000 for the six months ended June 30, 1996 related to the
Acquisitions. The reduction is a result of the renegotiation of compensation
arrangements with the former owners prior to, or in connection with, the
closings of the Acquisitions.
Amortization of approximately $669,000 includes $284,000 related to
amortized pro forma goodwill and covenants not to compete resulting from the
Acquisitions.
Interest expense was $885,000 before the pro forma adjustment for the six
months ended June 30, 1996. This expense includes interest on borrowings of the
Company and borrowings to finance the Acquisitions closed before June 30, 1996.
The pro forma adjustment to decrease interest expense assumes that a portion of
the proceeds of the Offering will be used to repay a portion of the Company's
outstanding indebtedness. See "Use of Proceeds."
Pro forma income tax expense has been estimated at $1.4 million for the six
months ended June 30, 1996. This amount represents an effective tax rate of
36.2%, which includes applicable anticipated federal and state tax expenses (net
of federal income tax benefit) of the Acquisitions. For future periods, the
Company anticipates filing as a consolidated group, including the Acquisitions,
for federal income tax purposes.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Net Revenues. Net revenues increased 14.3% from approximately $23.7 million
in the six months ended June 30, 1996 to approximately $27.1 million in the
comparable 1996 period. The approximate $3.4 million increase resulted
principally from growth in the Company's event-driven direct mail, collection
letter processing, and document conversion revenues. In addition, the areas
showing the
23
<PAGE> 26
largest percentage period over period growth were digital imaging, digital
graphics and collection letter processing.
Gross Profit. Gross profit increased from approximately $8.2 million in the
six months ended June 30, 1995 to approximately $9.4 million in the comparable
1996 period primarily as a result of increased net revenues. Gross profit as a
percentage of net revenues was 34.7% for both periods.
Selling, General and Administrative. Selling, general and administrative
expenses increased from approximately $4.6 million for the six months ended June
30, 1995 to approximately $5.2 million in the comparable 1996 period. As a
percentage of net revenues, selling, general and administrative expenses
increased from 19.3% in the six months ended June 30, 1995 to 19.5% for the
comparable 1996 period. The increase in selling, general and administrative
expenses as a percentage of net revenues, primarily resulted from the hiring of
several key executives in late 1995 and in the six months ended June 30, 1996,
including Messrs. Monroe and Rauwerdink, and a vice president of operations.
Amortization. Amortization of intangibles expense decreased from
approximately $465,000 in the six months ended June 30, 1995 to approximately
$379,000 in the comparable 1996 period. The decrease primarily resulted from
completion in 1995 of the amortization of purchase price allocated to a three
year supply agreement.
Interest. Interest expense increased from approximately $764,000 in the six
months ended June 30, 1995 to approximately $885,000 in the comparable 1996
period. The increase primarily resulted from an increase in average borrowings
related to the Company's growth and the Acquisitions.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net Revenues. From 1994 to 1995, net revenues increased from approximately
$41.2 million to approximately $46.6 million, an increase of approximately $5.4
million or 13.1%. The $5.4 million increase resulted principally from growth in
the Company's collection letter processing and document conversion revenues. In
addition, the areas showing the largest percentage period over period growth
were collection letter processing, digital imaging and micrographics.
Gross Profit. From 1994 to 1995, gross profit increased from approximately
$14.0 million to approximately $15.4 million, an increase of approximately $1.4
million or 10.0%. Gross profit as a percentage of net revenues decreased from
33.8% in 1994 to 33.0% in 1995. The decrease in gross profit as a percentage of
net revenues primarily resulted from an increase of approximately $1.0 million
in the cost of paper and related products, partially offset by increased
operating efficiencies.
Selling, General and Administrative. From 1994 to 1995, selling, general
and administrative expenses increased from approximately $8.4 million to
approximately $9.4 million, an increase of approximately $1.0 million or 11.9%.
In connection with the 1995 Recapitalization, the Company recorded approximately
$275,000 in non-recurring professional services and other expenses. Also in
1995, several key executives were hired, including Mr. Monroe and a vice
president of operations. As a percentage of net revenues, selling, general and
administrative expenses decreased from 20.4% in 1994 to 20.2% in 1995. The
decrease in selling, general and administrative expenses as a percentage of net
revenues primarily resulted from increased revenues without a proportionate
increase in expenses.
Amortization. From 1994 to 1995, amortization of intangible assets
increased from approximately $266,000 to $817,000. The increase primarily
resulted from the amortization of intangibles created as a result of the GTCR
Fund IV investment and the 1995 Recapitalization. See "The Company" and "Certain
Relationships and Related Transactions."
Interest. From 1994 to 1995, interest expense increased from $185,000 to
approximately $1.8 million. The increase in interest expense primarily resulted
from borrowings incurred as part of the 1995 Recapitalization and growth in the
Company's business. See "The Company" and "Certain Relationships and Related
Transactions."
24
<PAGE> 27
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net Revenues. From 1993 to 1994, net revenues increased from approximately
$31.2 million to approximately $41.2 million, an increase of approximately $10
million or 32.1%. The $10 million increase resulted principally from growth in
the Company's event-driven direct mail, collection letter processing and
facilities management revenues. In addition, the areas showing the largest
percentage period over period growth were collection letter processing,
event-driven direct mail and micrographics.
Gross Profit. From 1993 to 1994, gross profit increased from approximately
$10.4 million to approximately $14.0 million, an increase of approximately $3.6
million or 34.6%. Gross profit as a percentage of net revenues increased from
33.6% in 1993 to 33.8% in 1994. The increase in gross profit as a percentage of
net revenues primarily resulted from increases in facilities management and
collection letter margins.
Selling, General and Administrative. From 1993 to 1994, selling, general
and administrative expenses increased from approximately $7.0 million to
approximately $8.4 million, an increase of approximately $1.4 million or 20.0%.
As a percentage of net revenues, selling, general and administrative expenses
decreased from 22.4% in 1993 to 20.4% in 1994. The decrease in selling, general
and administrative expenses as a percentage of net revenues primarily resulted
from increased revenues without a proportionate increase in expenses.
Amortization. From 1993 to 1994, amortization of intangible assets
increased from approximately $163,000 to approximately $266,000. The increase
primarily resulted from increased amortization of intangibles related to
acquired businesses.
Interest. From 1993 to 1994, interest expense increased from approximately
$126,000 to approximately $185,000. The increase primarily resulted from
increased borrowings related to growth of the Company's business.
SELECTED QUARTERLY INFORMATION
The following tables set forth certain unaudited quarterly financial data
of the Company for each of the four fiscal quarters in 1994 and 1995, and the
first and second fiscal quarters in 1996. The information for each of these
quarters is prepared on the same basis as the consolidated financial statements
of the Company and the financial statements of the Predecessor and related notes
included elsewhere in this Prospectus and include, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to fairly
present the data for such periods. The information in the following tables is
not necessarily indicative of future results. See "Risk Factors -- Potential for
Significant Fluctuations in Quarterly Operating Results." The tables should be
read in conjunction with "Selected Consolidated Financial Data," the
consolidated financial statements of the Company
25
<PAGE> 28
and the financial statements of the Predecessor and related notes, and the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
(UNAUDITED, IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY
------------------------------------------ ----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Net revenues..... $10,241 $10,203 $ 9,992 $10,715 $11,764 $11,931 $11,525 $11,385 $13,005 $14,084
Cost of
revenues....... 6,540 6,935 6,742 7,021 7,588 7,729 7,927 7,983 8,659 9,037
Gross profit..... 3,701 3,268 3,250 3,694 4,176 4,202 3,598 3,402 4,346 5,047
Selling, general
and
administrative
expenses....... 2,151 1,987 2,004 2,235 2,375 2,220 2,205 2,606 2,491 2,782
Income from
operations..... 1,542 1,272 1,239 1,217 1,597 1,779 1,189 282 1,597 1,977
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
(UNAUDITED)
--------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY
------------------------------------------ ----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA AS
A PERCENTAGE OF
NET REVENUES:
Net revenues..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of
revenues....... 63.9 68.0 67.5 65.5 64.5 64.8 68.8 70.1 66.6 64.2
Gross profit..... 36.1 32.0 32.5 34.5 35.5 35.2 31.2 29.9 33.4 35.8
Selling, general
and
administrative
expenses....... 21.0 19.5 20.1 20.9 20.2 18.6 19.1 22.9 19.2 19.8
Income from
operations..... 15.1 12.5 12.4 11.4 13.6 14.9 10.3 2.5 12.3 14.0
</TABLE>
- ------------
Revenues from the Company's services are subject to quarterly variations.
Net revenues can vary from period to period due to the effect of the timing of
specific projects. Quarterly results may also vary as a result of the timing of
acquisitions, if any, and the timing and magnitude of costs related to such
acquisitions. See "Risk Factors -- Potential for Significant Fluctuations in
Quarterly Operating Results" and "-- Fluctuations in Paper Prices."
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.
WORKING CAPITAL
At December 31, 1995 and June 30, 1996, the Company's working capital was
approximately $4.9 million and $5.8 million, respectively. At such dates, the
Company had approximately $103,000 and $720,000, respectively, in cash. On a pro
forma basis, after giving effect to the Acquisitions as if they had occurred on
June 30, 1996, the Offering and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds," the Company's working capital
would have been approximately $8.0 million.
26
<PAGE> 29
Trade receivables at June 30, 1996 increased approximately $1.4 million as
compared to December 31, 1995 principally as a result of the acquisition of
Delaware Legal effective April 1, 1996 and the Company's increased net revenues.
SOURCES (USES) OF FUNDS
During the years ended December 31, 1993, 1994, and 1995, and the six
months ended June 30, 1996, the Company generated cash flows from operations of
$2.9 million, $5.7 million, $1.3 million and $2.4 million, respectively. Net
cash flows provided by (used in) financing activities were $(1.1) million,
$(3.9) million, $(224,000) and $974,000 for the years ended December 31, 1993,
1994 and 1995, and the six months ended June 30, 1996, respectively.
Substantially all such funding for the years ended December 31, 1995, and the
six months ended June 30, 1996 was provided under the Credit Agreement.
CREDIT AGREEMENT AND BORROWINGS
On January 17, 1995, the Company and First Union National Bank of North
Carolina (the "Bank") entered into a Credit Agreement, pursuant to which the
Bank provided for an aggregate of $15 million of term loans payable in 26
quarterly installments ending June 30, 2001 and a $10 million revolving credit
facility, subject to a borrowing base limitation, expiring on June 30, 2001. The
Company had unused and available revolving credit of approximately $3.0 million
and approximately $697,000, at December 31, 1995 and June 30, 1996,
respectively. In July 1996, the Credit Agreement was amended to include an
additional $10 million acquisition credit facility, expiring on the earlier of
June 30, 2001 or an initial public offering by the Company. To finance the
Acquisitions closed after June 30, 1996 other than NRC, the Company borrowed an
additional $7.5 million under the acquisition credit facility and, at July 31,
1996, had unused and available revolving credit of approximately $2.4 million.
In addition, in August 1996, the Company amended the Credit Agreement to provide
for an additional $8.2 million of interim term loans, payable upon the earlier
of March 31, 1997 or an initial public offering by the Company, and borrowed
approximately $8.2 million under the interim term loan facility in connection
with the acquisition of NRC. In August 1996, the Company also amended the Credit
Agreement to increase the existing $10 million revolving credit facility to $13
million. See "Description of Credit Agreement," Pro Forma Financial Information
and Note 6 to the Notes to the Consolidated Financial Statements. Borrowings
under such facilities are secured by all of the assets of the Company.
Upon consummation of the Offering, the Company plans to repay a portion of
its outstanding indebtedness under its Credit Agreement using a portion of the
net proceeds from the Offering. The Company also expects to terminate the Credit
Agreement and to enter into the New Credit Agreement with the Bank providing for
a revolving line of credit of up to $30 million to be used to repay the
remaining portion of the indebtedness outstanding under the Credit Agreement and
to finance additional acquisitions, working capital, capital expenditures and
other general corporate purposes. The New Credit Agreement would expire on June
30, 1999. Interest on amounts outstanding, if any, under the New Credit
Agreement will be calculated using rates determined at the time of borrowing.
Borrowings would bear interest at rates ranging from a base percentage rate plus
1.25% (9.5% at June 30, 1996) to a LIBOR plus 1.0% (6.6875% at June 30, 1996),
depending upon the Company's leverage ratio. The Company would pay a monthly fee
at an annual rate of 0.25% of the unused balance on the New Credit Agreement.
The Company would not be required to make principal payments prior to the end of
the term of the proposed loan. Borrowings, if any, under the New Credit
Agreement would be collateralized by substantially all of the Company's assets.
The New Credit Agreement would contain restrictions on the acquisition of stock
or assets, disposal of assets, incurrence of other liabilities, minimum
requirements for cash flow and certain financial ratios. There can be no
assurance, however, that such New Credit Agreement will be obtained or that, if
obtained, it will be on terms that are favorable to the Company or sufficient
for the Company's needs. See "Description of Credit Agreement."
27
<PAGE> 30
The Company expects that amounts available under the expected New Credit
Agreement will be used to implement its acquisition program. However, the
Company expects that additional funds may be required in the future to
successfully continue its acquisition program. Promptly after the consummation
of the Offering, the Company expects to register 2.5 million shares of Common
Stock for use as consideration in future acquisitions.
CAPITAL EXPENDITURES
The Company continues to invest in capital equipment, principally to
improve its reprographic capability and capacity. The Company has expended
approximately $1.1 million, $800,000, $1.1 million and $1.2 million for capital
equipment for the years ended December 31, 1993, 1994 and 1995, and the six
months ended June 30, 1996, respectively. At June 30, 1996, the Company had no
commitments to purchase equipment. The Company expects to make additional
capital expenditures of up to approximately $1.0 million in 1996, none of which
is pursuant to a firm commitment. Capital expenditures will generally be funded
from operations.
RECENT ACQUISITIONS
The Company's liquidity and capital resources have been significantly
affected by acquisitions and, given the Company's acquisition strategy, may be
significantly affected for the foreseeable future. To capitalize on the industry
consolidation opportunity, the Company has adopted a more active acquisition
strategy. See "Recent Acquisitions," "Business -- Acquisition Strategy" and Pro
Forma Financial Information. Since June 1995, the Company has acquired eight
companies. The Company has to date financed its acquisitions with borrowings
under the Credit Agreement, with shares of its capital stock and with cash from
operations. Borrowings for acquisitions during 1995 and the first six months of
1996 totaled $1.4 million and $2.0 million, respectively. In addition, the
Company borrowed approximately $7.5 million in July 1996 to fund certain of the
Acquisitions and approximately $8.2 million in August 1996 to fund the
acquisition of NRC. See "Recent Acquisitions."
As of June 30, 1996, on a pro forma basis, after giving effect to the
Acquisitions, the Recapitalization, the application of the net proceeds from the
Offering and the repayment of 24.3 million of indebtedness using funds from the
New Credit Agreement, the Company would have had an aggregate of $19.4 million
available under its proposed New Credit Agreement. See "Use of Proceeds,"
"-- Credit Agreement and Borrowings" and Pro Forma Financial Information.
FUTURE CAPITAL NEEDS
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
Management believes that cash flow from operations, in conjunction with
borrowings from existing and possible future credit facilities and the net
proceeds from the Offering, will be sufficient at least through the end of 1998
to meet debt service requirements, make possible future acquisitions, and fund
capital expenditures. However, there can be no assurance in this regard or that
the terms available for any future financing, if required, would be favorable to
the Company.
INFLATION
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through increased operating efficiencies, there can be no
assurance that the Company will be able to offset any future inflationary cost
increases through similar efficiencies or increased charges for its products and
services.
28
<PAGE> 31
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Stock-Based Compensation. In October 1995, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
measurement and recognition provisions for non-employee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for the issuance of stock options and other equity instruments. Under
the fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which is
usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged,
but not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," but would be required to disclose in
a note to the financial statements pro forma net income and per share amounts as
if the company had applied the new method of accounting. SFAS No. 123 also
requires increased disclosures for stock-based compensation arrangements
regardless of the method chosen to measure and recognize compensation for
employee stock-based arrangements. The Company has elected to continue to
account for such transactions under APB No. 25 and will disclose the required
pro forma effect on net income and earnings per share.
Long-Lived Assets. SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of" is effective for fiscal
years beginning after December 15, 1995. The statement establishes standards for
measuring impairment losses of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and those to be
disposed of. The Company does not expect the adoption of SFAS No. 121 to have a
material effect on its financial position or results of operations.
29
<PAGE> 32
BUSINESS
The discussion in this section of the Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" and "Management's Discussion of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this section and
in this Prospectus.
OVERVIEW
Lason is a leading provider of integrated outsourcing services for records
management, document management and business communications. 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 to
meet the growing and increasingly complex document management requirements of
its customers. The Company primarily serves customers in the manufacturing,
healthcare, financial services and professional services industries. The
Company's core competencies in input processing, data management and output
processing enable it to provide a broad range of services across a wide range of
media types and allow customers to fulfill their document management outsourcing
needs with a single vendor. The Company has increased its annual net revenues
from approximately $1 million at the time of its founding in 1985 to $46.6
million for the year ended December 31, 1995. On a pro forma basis, the Company
had net revenues of approximately $75.0 million and approximately $41.7 million
for the year ended December 31, 1995 and for the six months ended June 30, 1996,
respectively. See "Selected Consolidated Financial Data." Today, the Company
employs over 1,150 people, has operations in eight states and provides services
to over 2,200 customers at 15 multi-functional imaging centers and at 40
facility management sites located on customers' premises. The Company has
accomplished such expansion through internal growth by offering a wide range of
services to its customers and by using technology to expand its service
offerings and through selected acquisitions.
The document management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. For
example, an AIIM International survey identified approximately 2,000 firms
providing information and image management services. Of the over 600 firms
responding to the survey, over 85% of such firms reported revenues for 1993 of
less than $10 million. Therefore, an important element of the Company's growth
strategy is to make selected acquisitions of companies with complementary
technologies or customer bases to consolidate its position as a provider of
complete document management services. Since June 1995, the Company has acquired
eight companies. These eight companies had aggregate net revenues exceeding
$28.4 million for the year ended December 31, 1995. The Company will continue to
seek and evaluate additional acquisition opportunities. See "Recent
Acquisitions."
Lason's service offerings generally can be divided into the areas of
records management, document management and business communications. The
Company's records management services include the scanning and converting of
documents from a variety of input media to a digital format. The Company also
provides traditional microfilm and microfiche services. The Company's newest
records management offering, Visions computer output to laser disk ("COLD")
service, provides laser disk storage and retrieval of records. The Company's
document management services include high-volume, quick turn-around optical and
digital printing, as well as facility management operations at customer sites.
The Company's newest document management service offering, Lason Document
Express (print on demand), allows documents to be stored digitally, accessed
on-line and printed and distributed locally or centrally, depending on end-user
requirements. The Company's business communications services provide customers
with rapid, reliable and cost-effective methods for making large-scale
distributions of statements, reports and letters to consumers and other target
audiences in response to specific events. The Company is also a leader in
providing customized processing services for over 400 collection agencies
located throughout the United States.
30
<PAGE> 33
Lason believes that companies will continue to increase their use of
outsourced document management services. To efficiently manage complex or large
volumes of documents, a customer would be required to make investments in
equipment and technology which may only be fully utilized occasionally by a
single user. Through outsourcing, companies can avoid this capital investment,
as well as the risks of obsolescence that arise from rapid changes in document
management technology. As companies seek to focus on their core competencies and
maximize asset utilization, they are increasingly turning to outside parties who
have the technological expertise, service focus, rapid turn-around capacity and
full range of capabilities necessary to efficiently manage complex or large
volumes of documents. In addition, the Company believes that customers will seek
a single vendor capable of furnishing all or many of their document management
needs rather than relying on multiple vendors with varying areas of expertise.
MARKET AND INDUSTRY OVERVIEW
Recent studies have indicated that U.S. companies spend from $94 to $120
billion per year to distribute, store and process paper forms, that there are
over 300 billion pages of paper documents on file with over 90 billion new pages
added each year, and that 90% of all communications continue to exist on paper.
A significant portion of the storage, processing and management of these
documents is outsourced to document management services businesses such as the
Company. According to the AIIM International survey, the information and image
management market was approximately $4.6 billion for the year 1993. Electronic
information management products and services accounted for 57% of the total
information and image management market. While the overall market for
information and image management had a compounded annual growth rate of 8.3%
from 1990 to 1993, the electronic information management segment had a
compounded annual growth rate of 14.1% for the same period. While the document
management services industry is highly fragmented and generally composed of
small companies, the Company believes that the users of a majority of these
outsourced services are larger companies with complex document management needs
for whom it is more efficient and cost-effective to outsource.
The Company believes the market for its services is growing due to a
variety of factors including: (i) continuing advancements in computer,
networking, facsimile, printing and other technologies which have greatly
facilitated the production and distribution of documents; (ii) government
regulations that require lengthy document retention periods and rapid
accessibility for many types of records; (iii) increased customer expectations
of low cost access to records on short notice at different locations; and (iv)
an increasingly litigious society, necessitating access to relevant documents
and records for extended periods. In addition, the Company's customer base of
manufacturing firms, healthcare institutions, professional service firms and
financial institutions routinely generate large volumes of documents that
require efficient processing, distribution, storage and retrieval. The Company
believes that these customer segments have increased, and will continue to
increase, their outsourcing of document management services in order to maintain
a focus on core operating competencies and revenue generating activities, reduce
fixed costs, including labor and equipment costs, and gain access to new
technologies without incurring the expense and risk of near-term obsolescence of
such technologies.
The Company also believes that the market for its services will expand as
technology evolves for the scanning and conversion of paper or microfilm
documents into digital formats. Electronic imaging is generally used because of
the storage media's high speed of retrieval, its multiple indexing and text
search formatting capabilities, its ability to be used to distribute electronic
documents to multiple locations and, once input, its lower cost per retrieval.
The Company believes that many of the small businesses with which it
competes lack the capital for expansion; cannot keep abreast of rapidly changing
technologies; lack the ability to manage large, complex projects; lack effective
marketing programs; and are unable to meet the needs of large, geographically
dispersed customers. As a result of these barriers to continued growth, the
Company believes that many owners of such competing firms will be receptive to
being acquired by the
31
<PAGE> 34
Company as a means of providing the owners of such companies with liquidity. In
addition, to the extent the Company finances all or a portion of the purchase
price by issuing shares of Common Stock, the Company will also be providing such
owners with an opportunity to participate in the potential growth of the
Company.
BUSINESS STRATEGY
The Company's goal is to become a national, single source provider of
document management, records management and business communication services for
its customers. To achieve this goal, the Company intends to implement a focused
business strategy based on the following elements:
Provide a broad range of services that will allow both existing and
new customers to secure all of their needed document management services
from one source. The Company's broad range of services and its significant
investment in technology and capacity enables it to compete successfully
for large, complex projects for large customers because it has capabilities
that its competitors lack. The Company intends to focus on obtaining
additional business by offering its full service capabilities to firms now
being serviced by several document management service companies with a
limited range of service offerings and by enabling customers to consolidate
various vendor relationships into a single relationship with the Company.
Implement a comprehensive marketing program to facilitate the
cross-selling of additional services to customers who are now purchasing
only a limited number of services and to develop national brand recognition
of the quality of Lason's services. The Company has leveraged its existing
customer relationships to sell its other document management services. For
example, the Company has been able to expand customer relationships
initially developed through its facilities management services into
providing a full range of document management services. Moreover, the
successful development of a national brand image for Lason will enhance the
sales potential of acquired companies, thus increasing the benefits of
integrating these acquired companies into the Lason system and
strengthening Lason's attractiveness as a potential acquiror.
Make selective acquisitions to further broaden its geographic reach,
customer base and technological capabilities and to attain economies of
scale in purchasing, facilities utilization and management. The Company's
strategy is to serve as a consolidator of the highly fragmented document
management services industry. Since its founding in 1985, the Company has
acquired several companies which have expanded its services offerings and
increased its technological capabilities. Since June 1995, the Company has
acquired eight companies involved in records management, duplication,
conversion services, facilities management, item processing and item
research, micrographics, litigation support document management services,
electronic sorting of mass mailings and mail creation and distribution. The
Company intends to acquire additional companies with attractive,
complementary customer bases or technologies. The Company's goal is to
increase the utilization of its assets and to cross-sell additional
services through acquired companies. See "Risk Factors -- Risks Related to
the Company's Acquisition Strategy" and "-- Need for Additional Financing
to Continue Acquisition Strategy," "Recent Acquisitions" and
"Business -- Acquisition Strategy."
Develop additional high value-added applications, such as Lason
Document Express, digital imaging services and COLD, within its core
services offerings. The Company has developed a variety of technologically
advanced products and services that provide creative solutions to difficult
customer problems. Examples of these high value-added applications are
Lason Document Express, an electronic print-on-demand system that allows
documents to be stored digitally, accessed on-line and printed and
distributed locally or centrally depending on end-user requirements,
Visions computer output to laser disk ("COLD") system, which writes
computer output files to an optical disk; and digital imaging services,
which involves the conversion of paper or film documents to digital
information through optical scanners.
32
<PAGE> 35
Develop scalable applications utilizing an open architecture and
modular approach that will enable the Company to service the unique needs
of various customers across a broad range of volume requirements. To meet
the diverse needs of its current and potential customers, the Company
utilizes an open architecture and modular approach in developing its
applications and incorporates the equipment of a variety of hardware and
software manufacturers. The modular aspects of the Company's technology and
approach enable it to combine different portions of its document management
technologies and capacities in numerous configurations to meet the diverse
and changing document management needs of its customers. In addition, the
scalable aspects of the Company's technology permit the Company to process
both large and small volumes of documents in a cost-effective manner.
Scalability of its applications is also important with respect to acquired
companies. Because Lason's technology is applicable to both large and small
production volumes, acquired companies will be able to apply and benefit
immediately from Lason's technology regardless of their current production
volumes and will be able to benefit in the future as they are able to
obtain customers with diverse volume needs.
ACQUISITION STRATEGY
The Company believes that it can serve as a consolidator of the highly
fragmented document management services industry and that it can achieve
economies of scale through volume purchasing, enhanced facility utilization and
consolidation of support staff and infrastructure. Moreover, the Company
believes that it can enhance revenues by cross-selling its full range of
services to the customer bases of these acquired companies and that it can
expand its geographic presence across the United States by acquiring document
management services providers in new geographic markets. The Company's long-term
strategy is to establish a series of regional hubs each capable of providing the
full range of services now provided by the Company's Detroit area facilities.
The Company was founded in 1985 as a result of a management buyout of the
direct mail division of McKesson Corporation's 3PM subsidiary. Since then, the
Company has acquired several companies which have expanded the Company's service
offerings and increased its technological capabilities. As a result, the Company
believes it has developed a formula for successfully integrating acquired
companies into its financial, purchasing and operating systems. Since June 1995,
the Company has acquired eight companies. See "Recent Acquisitions."
In the future, the Company's acquisition strategy will target companies
that provide the opportunity for continued growth in its core service areas. The
Company's acquisition strategy will focus on companies (i) that have proven
operating track records, solid management teams, and strong customer franchises
that could benefit from Lason's technology and broad product and service
offerings; (ii) that have an existing presence in the Company's core
competencies to build economies of scale through volume purchasing and
facilities utilization; and (iii) that expand the Company's customer base and
thereby increase its cross-selling opportunities. In addition, where
appropriate, the Company intends to transform certain of its acquired facilities
into regional hubs to market the Company's services in various major North
American business markets.
PRODUCTS AND SERVICES
The Company's strategy is to offer a broad range of document management
services across a wide variety of media types and formats, thereby permitting
customers to consolidate their document management needs with a single vendor.
This broad range of document management services and capabilities enables the
Company to provide integrated solutions to its customers' complex document
management needs. Although there is significant overlap, the Company's service
offerings generally can be divided into the areas of records management,
document management and business communications.
33
<PAGE> 36
Records Management
Companies are increasingly utilizing electronic document storage and
retrieval (DSR) systems to manage their business records as the cost of such
technology declines and the benefits become more apparent. The Company provides
electronic document conversion services to convert paper documents to a digital
format both at the time of initial implementation of a DSR program and on an
ongoing basis. The Company possesses the capability to convert documents from a
wide variety of input media or formats to a wide variety of output media or
formats, including traditional micrographic conversion services. Lason also
offers DSR system services that a customer can use as an alternative to
developing and purchasing its own DSR system. The records management area
represented approximately 16.8%, 20.1% and 19.5% of the Company's net revenues
for the years ended December 31, 1993, 1994 and 1995, respectively. Services
generally included in this area are:
- Document Conversion Services.
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, magnetic tape, aperture card and hardcopy, including
engineering drawings.
Electronic Document Conversion. A company implementing a 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 optical character recognition technology, into electronically
recognizable text. Lason's investment in advanced document scanners and
imaging software combined with its experience in scanning and converting
documents typically enables the Company to perform this document conversion
process more efficiently and in significantly less time than a potential
customer. The Company's technical support staff is skilled at assisting
customers in developing customized indexing systems and selecting optimal
file formats and naming conventions.
Micrographic Document Conversions. The Company also 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 to paper based systems in
order to reduce the physical size of stored records, for their long term
(typically over 100 years) archival capabilities, and as an intermediate
step in certain imaging or reprographic applications.
- Electronic Document Storage and Retrieval
The Company has developed a flexible electronic DSR system that
enables Lason's customers to obtain the benefits of electronic document
storage and retrieval without developing and purchasing their own DSR
system. Electronic storage of documents enables customers to 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 DSR system enables it
to store and index a customer's digital documents whether the document was
converted to digital format or was originally produced in digital format.
The system used to index and store documents produced by computers on a
laser disk is commonly referred to as a computer output to laser disk
("COLD") system. A COLD system is particularly useful for companies which
need to rapidly locate documents produced on disparate computer systems and
programs, such as are found in very large companies with multiple
independently functioning departments or companies with a high level of
customer service activity. 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.
For example, one customer utilizes the Company's DSR system to enable its
employees to retrieve particular invoices from the millions of invoices the
customer has stored on the system. Traditionally, such
34
<PAGE> 37
invoices were written to microfilm and stored in file cabinets. Without a
DSR system, accessing and retrieving such invoices was a time consuming
manual operation. An additional key feature of the Lason DSR system is that
it permits total storage capacity to be incrementally increased through the
addition of modular storage units.
The Company's capability to convert documents from a wide variety of input
media or formats to a wide variety of output media or formats and its electronic
document storage and retrieval capabilities position the Company to be a single
source provider of the records management services for potential customers. The
Company plans to continue investing in and developing the capabilities and
flexibility of its DSR system in an effort to make it increasingly attractive to
potential customers to outsource their records management to the Company instead
of developing and purchasing their own DSR system.
Document Management
The Company provides a broad range of services that enable it to meet
customers' document management needs. The Company offers on-site facilities
management services to manage those document management services which are most
efficiently provided at a customer's facility. Higher volume and/or more complex
document management services are performed at the Company's centralized imaging
centers. The document management area represented approximately 40.5%, 38.3% and
36.9% of the Company's net revenues for the years ended December 31, 1993, 1994
and 1995, respectively. Services generally included in this area are:
- On-Site Facilities Management
The Company can equip, staff and manage most aspects of a customer's
document management needs at a customer's facility. In addition to copying
and printing, Lason 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 document management needs both on-site and at the Company's
centralized imaging centers. In one instance, a manufacturing customer
originally engaged the Company solely to provide equipment and personnel to
manage its on-site photocopying needs at one of its facilities. Today, the
Company provides that customer with on-site supply stock, facility mail and
courier services and also provides that customer with electronic document
conversion of invoices, printing of training and product manuals using the
Document Express system, large volume mailings of promotional and product
information to customers, large format color plotting and offset printing
of forms at Lason's imaging centers. The Company established its first
Lason Servicenter in 1992 and currently provides on-site services at 40
facilities in Michigan, Illinois, Ohio and Tennessee.
- High-Volume Reprographics/Distribution
The Company through its imaging centers provides high-volume,
quick-turn reprographics services 24 hours a day, seven days a week. The
Company currently processes an average of six million pages per month. In
addition, the Company possesses the capability to handle reprographic
projects involving microfiche and engineering drawings, including
conversion services. For example, each day the Company receives on average
approximately 2,500 engineering drawings from a manufacturing customer that
the Company reproduces using various large format and small format document
duplicators. The resulting images are then distributed to approximately 50
of the customer's suppliers. These capabilities are important enablers of
other services provided by the Company, such the Lason Document Express
print on demand service and performing overnight and peak demand
reprographics services for the Company's on-site facilities management
customers.
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- Lason Document Express Print On Demand System
The Lason Document Express print on demand system enables customers to
cost-effectively produce and distribute large volumes of a document on 24
hours 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 Lason 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 Lason Document Express system offers an alternative to traditional
printing methods for companies which produce documents that are subject to
frequent revision 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 incurs a high risk that it will find itself with a
costly inventory of outdated and useless documents. In addition, the
flexibility of the Lason Document Express system provides customers 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 and financial and insurance institutions will continue to
increase as technological advances create ever-shorter product life cycles
and ever-increasing product variation.
Customers frequently use the Lason Document Express system to print
and distribute documents such as product manuals, training manuals,
technical documentation and employee benefit books. For example, a customer
which operates computer training centers nationwide uses the Lason Document
Express system to print training manuals for its classes. When a training
class is scheduled, the customer places an order for the manuals to be used
in the class the day before the class begins, thereby ensuring that the
number of manuals printed matches closely the number of students enrolled
in the class. Another customer, which manufactures robotic systems, uses
the Lason Document Express system to produce the customized product manuals
and technical documentation which accompany each of its customized robotics
applications.
- 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
an important component of the Company's single source strategy and are an
important enabler of other services provided by the Company.
The Company's experience in working with customers at their facilities to
manage all aspects of the customers' on-site document management needs and its
capability to fulfill almost any document copying, printing or distribution need
at its imaging centers position the Company to be a single source provider of
document management services for potential customers. The Company's continuing
investment in and development of advanced high-speed document production
hardware and software and three-shift operation of its imaging centers enables
the Company to produce high quality documents while leveraging economies of
scale and 24-hour utilization of equipment. The Company plans to continue to
develop and market products such as the Lason Document Express system which make
it easier for customers to access and use the Company's document printing and
distribution capabilities and the economies of scale the Company possesses at
its imaging centers.
Business Communications
The Company offers a variety of personalized direct response services to
its customers. The direct response services are characterized by quick
turn-around, large volume, and highly personalized business correspondence
written to invoke a response rather than create a sale. The business
communications area represented approximately 42.7%, 41.6% and 43.6% of the
Company's net
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<PAGE> 39
revenues for the years ended December 31, 1993, 1994 and 1995, respectively.
Services generally included in this area are:
- Collection Letter Processing
The Company's Priority Gram collection letter service is a nationally
recognized multi-function program designed to accelerate payment from the
debtor to the creditor. The Company works with 15 leading software
providers to provide credit institutions with an effective system of debt
collection communications. Customers of this service have the flexibility
of using Lason's format or the customer's own letterhead and text in their
collection letters. Over 500 customers utilize the process, and 20 million
collection letters are generated each month.
- Event-Driven Direct Mail
The Company develops customized programs for its customers to support
event-driven response requirements, such as product recall and credit card
solicitation campaigns. For example, the Company currently provides
declination letter and incomplete application letter processing with
respect to credit card applications for a leading credit card company. Such
letters can be generated on a daily basis as the status of the customer's
application file requires.
- Co-Mingling of Mail
By combining volumes of like 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.
Over 95% of Lason's mail is sorted to the lowest postal discount category
available through the United States Postal Service. Each customer enjoys
the maximum postal discounts allowed for First Class Mail regardless of the
volume of mail sent by such customer. The Company can incorporate these
savings in quotes to customers on its services. Furthermore, over 90% of
all mail processed in the Company's mailing centers is directly produced by
Lason.
The Company's experience and capabilities in letter creation and mail
handling position it for continued leadership in business communications, and
the Company plans to continue investing in and developing such capabilities in
the future.
Integrated Solutions
The Company's wide range of document management, conversion and
distribution capabilities and an experienced staff of image and information
management professionals enable it to provide integrated solutions to customers'
complex document management needs.
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 law suit to request
documents gathered in support of the litigation by the other party. A large
manufacturer involved in hundreds of product liability litigations concerning
the same alleged 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 Lason
Document Express system. When a litigant requests certain discovery documents
(in many cases, hundreds of thousands of pages at a time), the customer uses the
Lason 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 Lason
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.
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The Company has used both its electronic document conversion and
high-volume, quick turn-around 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 10 weeks, the Company
converted approximately 60,000 mortgage loan files (or approximately five
million pages) to digital images that were stored on CD-ROM and 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 sale
transaction, the bank needed hardcopies 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. The Company was able to use
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 approximately 2,200 customers primarily in the
manufacturing, 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 customers include
General Motors Corporation, Ford Motor Company, Trans Union Corporation,
Chrysler Corporation, International Business Machines Corp., First Chicago NBD,
Compuware, Colonial National Bank, Oakwood Hospital and Detroit Medical Center.
Historically, a majority of the Company's revenues have been from the major
domestic automobile manufacturers. On a pro forma basis, net revenues from the
three major domestic automobile manufacturers would have accounted for
approximately 47.2% and 43.7% of the Company's net revenues for the year ended
December 31, 1995, and for the six months ended June 30, 1996, respectively. See
"Selected Consolidated Financial Information." The three major domestic
automobile manufacturers accounted for approximately 76.4%, 71.1%, 65.2% and
59.1% of the Company's net revenues for the years ended December 31, 1993, 1994
and 1995, and for the six months ended June 30, 1996, respectively. Other than
General Motors Corporation and Ford Motor Company, which accounted for
approximately 48.6% and 11.8% of the Company's net revenues, respectively, no
customer accounted for more than 10% of the Company's net revenues for the year
ended December 31, 1995. On a pro forma basis, other than General Motors
Corporation and Ford Motor Company, which accounted for approximately 30.7% and
13.5%, respectively, of the Company's net revenues, no customer accounted for
more than 10% of the Company's net revenues for the year ended December 31,
1995. See "Selected Consolidated Financial Information."
SALES AND MARKETING
The Company's sales efforts are handled primarily through its in-house
direct sales staff of 32 located in six states. Twenty-five sales
representatives concentrate on the sales of document and records management
services and seven sales representatives concentrate on sales of business
communications services. In addition to its direct sales force, the Company
markets its products through the efforts of its value-added-resellers, which
include FileNet Corp., Zylab International, Inc., Macro Computer Products Inc.
(MacroSoft) and Unisys Corp., and through certain of its suppliers, including
Canon Inc., Eastman Kodak Co. and Ameritech Corp. The Company also employs full
time customer service representatives to assist customers. Sales representatives
and service representatives are assigned to each major customer project.
Historically, the Company's sales representatives have focused their sales
and marketing efforts on a particular area of the Company's service offerings.
Although the Company intends to maintain sales representatives with application
specific expertise, the Company is in the process of consolidating its
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<PAGE> 41
sales and marketing efforts. The Company has recently hired an executive vice
president of marketing and sales to coordinate the integration of the Company's
sales and marketing efforts across service types and geographic regions. The
Company believes that an integrated sales force will enhance cross selling
opportunities within the Company's customer base. The Company's sales approach
emphasizes a high level of customer services, personal relationship development
and customer solution selling. The Company intends to maintain separate national
account managers for large customers, and sales and service personnel maintain
daily contact with major accounts and interact extensively with customer and
Company operations staff to address customer needs.
COMPETITION
The Company's businesses are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
customer base. In addition, with respect to those services that are outsourced,
the Company competes with a variety of competitors, including large national or
multinational companies, which have greater financial resources than the
Company, and smaller regional or local companies. The Company's major
competitors, in addition to various regional competitors, include ALCO Standard
Corp., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney Bowes,
Inc.) and Xerox Business Services with respect to its document management
services; Dataplex Corp., F.Y.I. Inc. and ALCO Standard Corp. with respect to
its records management services; and First Financial Management Corp. (First
Image), Sun Guard Mailing Services and Diversified Data & Communications with
respect to its business communications services.
The Company believes that the principal competitive factors in document
management services include quality and accuracy, reliability and security of
service, reputation, ease of use, customer support and service, customer segment
specific knowledge, speed, capacity and price.
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
proprietary 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 of efforts by, the Company.
The Company is not aware that any of its proprietary rights infringe the
proprietary rights of third parties. Any infringement claims, whether with or
without merit, can be time consuming and expensive to defend or may require the
Company to enter into royalty or licensing agreements or cease the allegedly
infringing activities. The failure to obtain such royalty agreements, if
required, and the Company's involvement in such litigation could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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FACILITIES
As of August 30, 1996, including the Acquisitions, the Company conducted
operations through 21 leased facilities in seven states containing in the
aggregate approximately 329,860 square feet. The Company's principal facilities
are summarized in the following table:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USE
- ------------------------------------------------- -------------- ----------------------------
<S> <C> <C>
Livonia, MI (Amrhein Street)..................... 72,000 Business communications
Madison Heights, MI.............................. 49,900 Document and records
management
Troy, MI......................................... 47,050 Document and records
management, headquarters
Livonia, MI (Schoolcraft Road)................... 27,460 Business communications
Jacksonville, FL (Bayberry Road)................. 26,505 Document and records
management
Jacksonville, FL (Victor Street)................. 20,000 Document and records
management
Detroit, MI (Larned Street)...................... 20,000 Document and records
management
St. Clair Shores, MI............................. 16,345 Document and records
management
Detroit, MI (Eight Mile Road).................... 10,000 Retail
Rochester, NY.................................... 8,200 Document and records
management
Livonia, MI (Stark Road)......................... 5,700 Item processing and item
research
Chicago, IL...................................... 5,200 Document and records
management
</TABLE>
Leases vary in length remaining from month-to-month to 72 months and, in
some cases, include options to extend the lease term. The Schoolcraft Road
property in Livonia, Michigan is leased from an affiliate of the Company. See
"Certain Relationships and Related Transactions" and Note 8 to the Notes to the
Consolidated Financial Statements. The lease with respect to the Troy, Michigan
facility expires on December 31, 1996. The Company is currently negotiating an
extension of such lease. The Company believes it will be able to renew the
existing lease without incurring significant increases in expenses.
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient services to its customers. Certain of the Company's
operations are performed at a single location and are dependent on continuous
computer, electrical and telephone service. As a result, any disruption of the
Company's day-to-day operations could have a material adverse effect upon the
Company. The Company currently has business interruption insurance intended to
mitigate the impact of floods, fire, power outages or similar disasters. In
addition, the Company has redundant telephone lines and rerouting capabilities
to separate telephone exchanges to guard against the possible temporary loss of
phone service in connection with the servicing of customers. The Company also
has a back-up generator at its Livonia facilities to serve as an alternative
power supply in the event of any power outage.
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Notwithstanding the foregoing, there can be no assurance that a fire, flood,
earthquake, power loss, phone service loss or other disaster affecting one or
more of the Company's facilities would not disable these functions. Any
significant damage to any such facility or other failure that causes significant
interruptions in the Company's operations may not be covered by insurance and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION
The Company's customers involved in debt collection and certain of the
Company's services as used by those customers, such as collection letter
processing, are subject to various consumer protection laws, including the
Federal Fair Debt Collection Practices Act ("FDCPA"). The format and wording of
many of the collection letters distributed by the Company, including its
Priority Gram, are developed by the Company. In 1977, Congress enacted the FDCPA
to curtail abusive, deceptive and unfair debt collection practices committed by
debt collectors. The FDCPA in general prohibits harassment, false
representations and unfair practices, including limitations on the acceptable
format and wording of letters, envelopes and other communications from debt
collectors to debtors. The FDCPA provides for civil liability for the violation
of its provisions. The maximum liability exposure in a class action would be
$1,000 for each named individual and such amount as the court may allow for
other class members, not to exceed the lesser of $500,000 or 1% of the net worth
of the debt collector plus costs and reasonable attorneys' fees. In addition to
the FDCPA, the Company's debt collector customers may be subject to various
state statutes and regulations. Such regulations may afford greater protection
to consumers than the FDCPA.
Although the Company believes that it is not subject to the FDCPA because
it is not a debt collector and although there are no contractual rights to
indemnification from the Company to its debt collection customers with respect
to such actions, a customer of the Company subject to, and in violation of, the
FDCPA or similar laws in connection with services provided by the Company to
such customer may ask the Company for indemnification for any losses the
customer may incur in connection with such violation. If such indemnification is
required or the Company is determined to be liable for any violation of such
laws, it could have a material adverse effect on the Company's business,
financial condition or results of operations.
LITIGATION
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial condition or results of operations.
From time to time, certain of the Company's customers are subject to claims
or are parties to litigation under various consumer protection laws involving
services supplied by the Company for such customers. These actions sometimes
relate to the form and content of collection letters distributed by the Company,
which in many cases are developed by the Company. There can be no assurance that
the Company will not be made a party to any such litigation or that, although
there are no contractual rights to indemnification, the Company will not be
asked to indemnify such customers for losses such customers incur in connection
with any such claim or litigation. Any such occurrence could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "-- Regulation."
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 releases of solid wastes and hazardous substances.
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The Company is not currently 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. However, there can be no assurances that
environmental liabilities in the future will not have a material adverse effect
on the business, financial condition or results of operations of the Company.
EMPLOYEES
As of July 1, 1996, including the Acquisitions, the Company had 969
employees, 67 of which were employed primarily in management and administration.
Included in the total number of employees are 167 part-time and 31 temporary
employees. The Company also uses the services of an additional 205 people under
the terms of a personnel leasing arrangement. No employees of the Company are
represented by a labor union. The Company considers its relations with its
employees to be good.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
Directors and executive officers as of July 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Robert A. Yanover.................. 60 Chairman and Director
Gary L. Monroe..................... 42 Chief Executive Officer and Director
Allen J. Nesbitt................... 49 President and Director
William J. Rauwerdink.............. 46 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Brian E. Jablonski................. 40 Executive Vice President of Marketing and Sales
Donald M. Gleklen.................. 59 Director
Bruce V. Rauner.................... 40 Director
Joseph P. Nolan.................... 31 Director
</TABLE>
Robert A. Yanover has served as Chairman of the Board and as Director of
the Company since its inception. Mr. Yanover also serves as president of
Computer Leasing Company of Michigan, Inc. See "Certain Relationships and
Related Transactions." Mr. Yanover is founder and former president of 3PM, the
predecessor of the Company. See "The Company." Mr. Yanover holds a B.S. degree
in Physics from Harvard College.
Gary L. Monroe has served 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 holds a B.A. degree from William Patterson College and an M.B.A.
degree from Rutgers University.
Allen J. Nesbitt has served as President and as a Director of the Company
since its inception. From 1977 to 1985, Mr. Nesbitt served as Vice President of
3PM, the predecessor of the Company. See "The Company." Mr. Nesbitt holds a B.A.
degree from Central Missouri State 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. He is a
certified public accountant. Mr. Rauwerdink holds a B.B.A. degree from the
University of Wisconsin - Madison and an M.B.A. degree from Harvard University.
See "-- Certain Legal Proceedings."
Brian E. Jablonski has served as Executive Vice President of 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 holds a B.S. degree in Business
Management from St. John Fisher College.
Donald M. Gleklen has served as a Director of the Company since August
1995. Mr. Gleklen has served as the President of Jocard Financial Services, Inc.
since February 1995. From March 1994 to February 1995, Mr. Gleklen served as the
special counsel to Robert J. Brobyn & Associates, Attorneys
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<PAGE> 46
at Law. From September 1984 to March 1994, Mr. Gleklen served as Senior Vice
President -- Corporate Development of Mediq Incorporated, a publicly traded
company in the healthcare industry. Mr. Gleklen is also a director of Gandalf
Technologies, Inc., Nutramax Products, Inc., NewWest Eyeworks, Inc. and
Microleague Multimedia, Inc.
Bruce V. Rauner has served as a Director of the Company since January 1995.
Mr. Rauner is a principal and has been with Golder, Thoma, Cressey, Rauner, Inc.
("GTCR"), an affiliate of GTCR Fund IV, since 1981. Mr. Rauner is also a
director of ERO, Inc., COREStaff, Inc., Coinmach Laundry Corporation and Polymer
Group, Inc.
Joseph P. Nolan has served as a Director of the Company since July 1996.
Mr. Nolan is a principal and has been with GTCR since February 1994. From May
1990 to January 1994, Mr. Nolan was Vice President Corporate Finance at Dean
Witter Reynolds Inc.
The Board currently consists of six directors, divided into three classes.
At each annual meeting of the Company's stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three-year terms or until their successors are duly elected and qualified.
Messrs. Monroe and Rauner are members of the class whose term expires in 1997,
Messrs. Nolan and Nesbitt are members of the class whose term expires in 1998,
and Messrs. Yanover and Gleklen are members of the class whose term expires in
1999. Within 90 days after the after the consummation of the Offering, the
Company expects to appoint an additional director who is not an employee of the
Company or any affiliate of the Company. Such additional director will be a
member of the class of directors whose term expires in 1998. The Board has the
power to appoint the officers of the Company. Each officer will hold office for
such term as may be prescribed by the Board and until such person's successor is
chosen and qualified or until such person's death, resignation or removal. Upon
consummation of the Offering, there will be three committees of the Board: the
Compensation Committee, the Option Committee and the Audit Committee. The
Compensation Committee, which will be composed of Messrs. Gleklen and Rauner,
reviews and makes recommendations to the Board regarding salaries, compensation
and benefits of executive officers and key employees of the Company. The Option
Committee, which currently exists, is composed of Messrs. Gleklen, Rauner and
Nolan. The Option Committee is responsible for administering and granting
options in accordance with the Company's 1995 Stock Option Plan. The Audit
Committee will be composed of Messrs. Gleklen, Yanover and Nolan. Among other
duties, the Audit Committee reviews the internal and external financial
reporting of the Company, reviews the scope of the independent audit, considers
comments by the auditors regarding internal controls and accounting procedures
and provides the management's response to the auditors' comments. The Company
does not have a nominating committee.
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<PAGE> 47
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for the year ended December 31, 1995, for (i) those
persons who served as the chief executive officer of the Company at any time
during 1995 and (ii) those persons who served as executive officers of the
Company as of December 31, 1995 (together, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION COMMON STOCK
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY(2) BONUS OPTIONS COMPENSATION
- ---------------------------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Robert A. Yanover............................. $ 65,000 $ 61,759 -- $ 5,929(3)
Chairman
Gary L. Monroe(4)............................. 46,723 -- $170,452 40,000(5)
Chief Executive Officer
Allen J. Nesbitt.............................. 130,000 116,071 -- 10,562(7)
President(6)
Donald L. Elland.............................. 66,149 113,894 28,410 3,080(8)
Vice President-Operations (Livonia)
Richard C. Kowalski........................... 79,799 69,818 28,410 3,080(8)
Chief Financial Officer(9)
</TABLE>
- ------------
(1) Mr. Rauwerdink became Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company on May 6, 1996 at a base annual
salary of $135,000. Mr. Rauwerdink also received stock options with respect
to 55,000 shares of Common Stock. See "-- Employment Agreements -- Mr.
Rauwerdink" and "-- Stock Options -- Stock Option Agreements -- Mr.
Rauwerdink." Mr. Jablonski became Executive Vice President of Marketing and
Sales of the Company on June 16, 1996 at a base annual salary of $135,000.
Mr. Jablonski also received stock options with respect to 60,000 shares of
Common Stock. See "-- Employment Agreements -- Mr. Jablonski" and "-- Stock
Options -- Stock Option Agreements -- Mr. Jablonski."
(2) Salary includes amounts deferred, if any, pursuant to the Company's 401(k)
plan.
(3) Represents expenses incurred by the Company in connection with operation of
an automobile by Mr. Yanover.
(4) Mr. Monroe began employment with the Company on September 19, 1995. His base
annual compensation is $175,000.
(5) Represents reimbursed relocation expenses paid under terms of Mr. Monroe's
employment agreement.
(6) Mr. Nesbitt served as chief executive officer of the Company until September
19, 1995.
(7) Represents expenses of $7,482 incurred by the Company in connection with
operation of an automobile by Mr. Nesbitt and a contribution of $3,080 by
the Company to Mr. Nesbitt's 401(k) account.
(8) Represents a contribution by the Company to the executive's 401(k) account.
(9) Mr. Kowalski served as Chief Financial Officer of the Company until May 6,
1996.
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<PAGE> 48
Stock Option Information
The following table sets forth certain information regarding the option
grants made pursuant to the Company's 1995 Stock Option Plan during the fiscal
year ended December 31, 1995 to each of the Named Executives:
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM(2)(3)
OPTIONS IN FISCAL EXERCISE EXPIRATION ----------------------------------
NAME GRANTED(1) YEAR 1995 PRICE DATE 0% 5% 10%
- ------------------- ---------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Monroe...... 170,452 40.65% $.40 12/21/2002 $542,037 $762,701 $1,056,277
Donald L. Elland.... 28,410 6.78% $.40 1/17/2002 48,581 68,468 94,605
Richard C. Kowalski. 28,410 6.78% $.40 1/17/2002 48,581 68,468 94,605
</TABLE>
- ------------
(1) All options granted to the Named Executives were granted under the 1995
Stock Option Plan. All such options which have not already become vested and
exercisable will become vested and exercisable upon consummation of this
Offering. See "-- Stock Options."
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the seven-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock.
(3) In calculating the potential realizable value, the Company used an estimated
market price of $2.11 per share as of the grant date for Messrs. Elland and
Kowalski and an estimated market price of $3.58 per share as of the grant
date for Mr. Monroe.
FISCAL YEAR END OPTION VALUE
No options were exercised by the Named Executives during the fiscal year
ended December 31, 1995. The following table sets forth for each of the Named
Executives certain information concerning the value of unexercised options at
the end of fiscal 1995:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING NET VALUES OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(2)
------------------------------- ----------------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary L. Monroe............................. 56,817 113,635 $ 180,678 $ 361,359
Donald L. Elland........................... 0 28,410 0 90,344
Richard C. Kowalski........................ 0 28,410 0 90,344
</TABLE>
- ------------
(1) Exercisable in accordance with the vesting provisions described above in
note (1) to the table entitled "Option Grants in Fiscal 1995."
(2) In calculating the value of in-the-money options, the Company used an
estimated market price of $3.58 per share.
EMPLOYMENT AGREEMENTS
Mr. Monroe. The Company and Mr. Monroe are parties to an employment
agreement dated as of August 7, 1996 (the "Monroe Employment Agreement"), which
has a term of two years. The Monroe Employment Agreement provides that Mr.
Monroe will serve as Chief Executive Officer of the Company at an annual salary
of $175,000 plus a bonus targeted at 50% of his annual salary and will receive
options to purchase 170,452 shares of Common Stock (see "-- Stock Options"). The
Monroe Employment Agreement also provides that if Mr. Monroe's employment is
terminated or his duties
46
<PAGE> 49
materially reduced, he would be entitled to severance payments at an annualized
rate equal to his base salary plus the greater of his actual bonus for the
preceding year or 50% of his base salary. Such severance payments shall be paid
for the greater of one year or the remaining term of the agreement.
Mr. Rauwerdink. On April 30, 1996, Lason made a written offer of employment
to Mr. Rauwerdink, which Mr. Rauwerdink accepted. Pursuant to the offer, Lason
named Mr. Rauwerdink as its Chief Financial Officer, Executive Vice President,
Secretary and Treasurer at an annual salary of $135,000 plus a bonus targeted at
50% of his annual salary, committed to grant him an option to purchase 55,000
shares of its Common Stock (see "-- Stock Options"), and agreed to provide him
severance payments equal to 90 days' salary and bonus if Lason were to terminate
his employment without cause.
Mr. Jablonski. On June 12, 1996, Lason made a written offer of employment
to Mr. Jablonski, which Mr. Jablonski accepted. Pursuant to the offer, Lason
agreed to name Mr. Jablonski as its Vice President of Marketing and Sales at an
annual salary of $135,000 plus a bonus targeted at 50% of his annual salary,
committed to grant him an option to purchase 60,000 shares of its Common Stock
(see "-- Stock Options") and agreed to pay certain of his relocation expenses.
STOCK OPTIONS
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "1995 Stock Option Plan") was
adopted by the Board and approved by the Company's stockholders in 1995. The
1995 Stock Option Plan is administered by a committee (the "Option Committee")
composed of non-management members of the Board who are appointed by the Board.
The Option Committee currently consists of Messrs. Gleklen, Nolan and Rauner.
The Option Committee selects certain key persons, which may include directors of
the Company, to be participants of the Plan (the "Participants") and determines
the terms and conditions of the options. The 1995 Stock Option Plan provides for
the issuance of options to Participants covering 1.0 million shares of Common
Stock, subject to certain adjustments reflecting changes in the Company's
capitalization.
Options granted or to be granted under the 1995 Stock Option Plan may be
either incentive stock options ("ISOs") or such other forms of non-qualified
stock options ("NQOs") as the Option Committee may determine. ISOs are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The exercise price of
the options will be at least 100% of the fair market value of a share of Common
Stock on the date of grant, except that the exercise price of an ISO granted to
an individual who directly (or by attribution under Section 424(d) of the Code)
owns shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company will be at least 110% of the fair market value
of a share of Common Stock on the date of grant.
Options granted or to be granted under the 1995 Stock Option Plan may be
subject to time vesting and certain other restrictions at the Option Committee's
sole discretion. Options to purchase shares of Common Stock shall vest and
become exercisable upon, and as a result of, the consummation of this Offering,
if the grantee is employed by Lason on such date pursuant to certain stock
option agreements pursuant to which options under the 1995 Stock Option Plan
were granted. The Board generally has the power and authority to amend the 1995
Stock Option Plan at any time without the approval of the Company's
stockholders; provided that, without the approval of the Company's stockholders,
the Board shall not amend the 1995 Stock Option Plan to cause any outstanding
ISOs to no longer qualify as ISOs. In addition, the Board shall not amend the
1995 Stock Option Plan to materially and adversely affect the rights of an
option holder under such option without the consent of such option holder.
Stock Option Agreements
Mr. Monroe. The Company and Mr. Monroe entered into an Employee Stock
Option Agreement dated December 21, 1995 (the "Monroe Stock Option Agreement")
pursuant to which the Company
47
<PAGE> 50
granted Mr. Monroe an option to purchase 170,452 shares of the Company's Common
Stock for a price of $.40 per share. Under the Monroe Stock Option Agreement,
one-third of the shares covered by the option granted to Mr. Monroe vested and
became exercisable on September 19, 1995 and one-third of the shares covered by
such option vest and become exercisable on each of the first two anniversaries
of such date if Mr. Monroe is employed by Lason on such dates. Notwithstanding
the foregoing, all unvested options granted to Mr. Monroe under the Monroe Stock
Option Agreement shall vest and become exercisable upon consummation of this
Offering or upon consummation of a sale of the Company, if Mr. Monroe is
employed by Lason on such date. The option granted under the Monroe Stock Option
Agreement expires on December 21, 2002. Under the Monroe Stock Option Agreement,
if the Company issues Common Stock to any person prior to an initial public
offering or a sale of the Company, Mr. Monroe has the right to purchase that
amount of Common Stock which will maintain his percentage ownership of the
Company (assuming exercise of all of Mr. Monroe's options). Mr. Monroe may pay
for such shares by delivery of a nonrecourse promissory note, bearing interest
at the then effective applicable federal rate, payable as to principal and
interest when such shares are sold.
Mr. Rauwerdink. The Company and Mr. Rauwerdink entered into an Employee
Stock Option Agreement dated May 6, 1996 (the "Rauwerdink Stock Option
Agreement") pursuant to which the Company granted Mr. Rauwerdink an option to
purchase 55,000 shares of the Company's Common Stock for a price of $3.20 per
share. Under the Rauwerdink Stock Option Agreement, one-fifth of the shares
covered by the option granted to Mr. Rauwerdink vest and become exercisable on
the earlier of May 6, 1997, or the date of the consummation of the Offering, and
one-fifth of the shares covered by such option vest and become exercisable on
each of the first four anniversaries of such earlier date if Mr. Rauwerdink is
employed by Lason on such dates. Notwithstanding the foregoing, all unvested
shares covered by the option granted to Mr. Rauwerdink under the Rauwerdink
Stock Option Agreement shall vest and become exercisable upon consummation of a
sale of the Company, if Mr. Rauwerdink is employed by Lason on such date. The
option granted under the Rauwerdink Stock Option Agreement expires on May 6,
2003.
Mr. Jablonski. The Company and Mr. Jablonski entered into an Employee Stock
Option Agreement dated June 16, 1996 (the "Jablonski Stock Option Agreement")
pursuant to which the Company granted Mr. Jablonski an option to purchase 60,000
shares of the Company's Common Stock for a price of $3.20 per share. Under the
Jablonski Stock Option Agreement, one-fifth of the shares covered by such option
vest and become exercisable on the earlier of July 1, 1997, or the date of the
consummation of the Offering, and one-fifth of the shares covered by such stock
option vest and become exercisable on each of the first four anniversaries of
such earlier date if Mr. Jablonski is employed by Lason on such dates.
Notwithstanding the foregoing, all unvested shares covered by the option granted
to Mr. Jablonski under the Jablonski Stock Option Agreement shall vest and
become exercisable upon consummation of a sale of the Company, if Mr. Jablonski
is employed by Lason on such date. The option granted under the Jablonski Stock
Option Agreement expires on June 16, 2003.
Messrs. Elland and Kowalski. The Company entered into an Employee Stock
Option Agreement dated January 17, 1995 (the "Employee Stock Option Agreement")
with Mr. Elland and Mr. Kowalski and certain other employees of Lason pursuant
to which Messrs. Elland and Kowalski were each granted options to purchase
28,410 shares of the Company's Common Stock for a price of $.40 per share. Under
the Employee Stock Option Agreement, one-fifth of the shares covered by each
such option vest on each of the first five anniversaries of the date of such
agreement if the holder thereof is employed by Lason on such date.
Notwithstanding the foregoing, all unvested shares covered by the option granted
to Messrs. Elland and Kowalski under the Employee Stock Option Agreement shall
vest and become exercisable upon consummation of this Offering or upon
consummation of a sale of the Company so long as Mr. Elland or Mr. Kowalski, as
the case may be, is employed by Lason on the date of such occurrence. The
options granted to Messrs. Elland and Kowalski under the Employee Stock Option
Agreement expires on January 17, 2002.
Mr. Gleklen. The Company entered into a Stock Option Agreement dated August
7, 1995 (the "Gleklen Stock Option Agreement") with Mr. Gleklen pursuant to
which Mr. Gleklen was granted an
48
<PAGE> 51
option to purchase 12,500 shares of the Company's Common Stock for a price of
$.40 per share. Under the Gleklen Stock Option Agreement, one-fifth of the
shares covered by the option granted to Mr. Gleklen vest and become exercisable
on each of the first five anniversaries of the date of such agreement. The
option granted to Mr. Gleklen under the Gleklen Stock Option Agreement expires
on the earlier to occur of (i) August 7, 2005, (ii) three months from the date
Mr. Gleklen is no longer a director of the Company and (iii) the effective date
of a sale of the Company as set forth in the Gleklen Stock Option Agreement.
Notwithstanding the foregoing, all shares covered by the option granted to Mr.
Gleklen vest and become exercisable during the ten days immediately preceding
any such sale of the Company or upon termination of his directorship as a result
of death, incapacity or upon the expiration of his current term as a director in
1999.
401(K) PLAN
Lason sponsors a 401(k) profit-sharing plan and trust (the "401(k) Plan").
Each employee of Lason who is at least 21 years of age or older who has worked
for the Company for a period of twelve months during which such employee has
performed 1,000 "Hours of Service" (as such term is defined in the 401(k) Plan)
is eligible to participate in the 401(k) Plan. An eligible participant may
contribute not less than 2% and up to 15% of pretax earnings. The 401(k) Plan is
contributory and Lason is not obligated to make any contribution on behalf of
any participant in the 401(k) Plan. However, Lason has contributed, on a monthly
basis, a discretionary amount on behalf of each participant in an amount up to
33% of such participant's contribution, but not exceeding 9% of such
participant's earnings during a plan year during any plan year. Each participant
is entitled to direct the investment of such participant's own contributions and
Lason's matching contributions among several alternative investment accounts.
1996 MANAGEMENT BONUS PLAN
The Company has established a Management Bonus Plan for the 1996 fiscal
year (the "1996 Bonus Plan"). Participants in the 1996 Bonus Plan were selected
by the Company's Chief Executive Officer. Each participant in the 1996 Bonus
Plan is entitled to receive a bonus payment if the Company as a whole or, in the
case of certain participants, a defined portion of the Company with which such
participant is principally involved exceeds a predetermined financial target
with respect to a quarter. If 85% or more of the target is obtained for a
quarter, a pro rata portion of the bonus is payable, and if less than 85% of the
target is obtained, no bonus is paid with respect to that quarter. Bonuses that
are not obtained in any quarter are not carried over to any subsequent quarter.
If the targets are met for each of the quarters in the year ending December 31,
1996, Messrs. Yanover, Monroe, Nesbitt, Elland and Kowalski would be entitled to
bonuses of $64,000, $87,000, $96,000, $90,000 and $80,000, respectively, and the
aggregate bonus amounts to be paid to all eligible participants under the 1996
Bonus Plan would be approximately $811,000. Based on the Company's results for
the six months ended June 30, 1996, Messrs. Yanover, Monroe, Nesbitt, Elland and
Kowalski were awarded bonuses of approximately $32,400, $44,100, $48,600,
$40,300 and $35,800, respectively, and $428,900 in aggregate bonuses were
awarded to all eligible participants under the 1996 Bonus Plan.
DIRECTORS' COMPENSATION
Each Director who is not an employee of the Company receives $1,000 for
attendance of each meeting of the Board and for each committee meeting attended
on a day other than a Board meeting. Directors are reimbursed for out-of-pocket
expenses incurred in connection with attending meetings. Directors may also be
issued options pursuant to the 1995 Stock Option Plan. See "-- Stock Options --
1995 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended December 31, 1995, compensation of executive officers of
the Company was determined by the Board, which included Messrs. Yanover, Monroe
and Nesbitt. The 1995 Stock Option Plan is administered by the Option Committee
consisting of Messrs. Rauner, Nolan and Gleklen.
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<PAGE> 52
CERTAIN LEGAL PROCEEDINGS
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 (which was identical to the allocation he
made at the time he began his employment with respect to other investments in
his 401(k) account) and resulted in the purchase of shares of common stock of
the new employer at a time when it was alleged that the employer was engaged in
merger negotiations. The shares purchased in the rollover transaction
constituted approximately 6.7% of Mr. Rauwerdink's total holdings in his new
employer's common stock.
50
<PAGE> 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF LASON SYSTEMS, INC.
On January 17, 1995, Lason Acquisition Corp., a Delaware corporation which
after the acquisition changed its name to Lason Systems, Inc., purchased
substantially all of the assets and assumed certain liabilities (the "1995
Recapitalization") of Lason Systems, Inc., a Michigan corporation ("Lason
Michigan"), pursuant to an Asset Purchase Agreement by and among Lason Systems,
Lason Michigan, The Joseph Jonathon Yanover and Jennifer D. Yanover Irrevocable
Trust dated January 5, 1993 (the "J. Yanover Trust"), the Robert A. Yanover
Living Trust u/a/d May 11, 1982 (the "R. Yanover Trust"), the Allen J. Nesbitt
Living Trust dated December 7, 1994 (the "Nesbitt Trust"), Mr. Richard C.
Kowalski, Mr. Donald L. Elland and Mr. Gregory Carey. In connection with the
1995 Recapitalization, the J. Yanover Trust, the R. Yanover Trust, the Nesbitt
Trust, Mr. Kowalski, Mr. Elland and Mr. Carey (the "Designated Stockholders")
and the Company entered into an Executive Stock Agreement dated January 17, 1995
(the "Executive Stock Agreement") pursuant to which the J. Yanover Trust, the R.
Yanover Trust, the Nesbitt Trust, Mr. Kowalski, Mr. Elland and Mr. Carey
purchased 66,074, 402,987, 469,064, 25,000, 28,815 and 8,058 shares,
respectively, of the Company's Class A-1 Common Stock for a price of $1 per
share, and GTCR Fund IV and the Company entered into a Purchase Agreement dated
January 17, 1995 (the "GTCR Purchase Agreement") pursuant to which GTCR Fund IV
purchased 1,000,002 shares of the Company's Class B Common Stock for an
aggregate purchase price of $10 million.
SELLER CREDIT AGREEMENTS
In connection with the 1995 Recapitalization, Lason Systems entered into
(i) a Credit Agreement dated January 17, 1995 (each, a "Seller Credit
Agreement"), with each of (i) Mr. Yanover, the J. Yanover Trust and the R.
Yanover Trust, (ii) Mr. Nesbitt and the Nesbitt Trust, (iii) Mr. Elland, (iv)
Mr. Kowalski and (v) Mr. Carey, pursuant to which Lason Systems loaned $609,778,
$609,791, $37,466, $32,487 and $10,478 to Messrs. Yanover, Nesbitt, Elland,
Kowalski and Carey (the "Borrowers"), respectively. The Company entered into the
Seller Credit Agreements to provide the respective Borrower with funds to pay
certain tax liabilities of the Borrowers and their respective affiliates in
connection with the Acquisition. If it is determined that such tax liabilities
of a Borrower and its affiliates exceed the amount loaned, Lason Systems is
obligated to a make an additional loan to such Borrower equal to such difference
(the aggregate of all such additional loans and the initial loan to such
Borrower is referred to as the "Loan"). Under the Seller Credit Agreements, each
Borrower is obligated to repay the amount of his respective Loan, together with
all unpaid accrued interest thereon, on January 17, 2005. The obligations of
Messrs. Yanover, Nesbitt, Elland, Kowalski and Carey under their respective
Seller Credit Agreements are secured by a pledge of 1,172,652, 1,172,660,
72,037, 62,500 and 20,145 shares of Common Stock owned by such Borrower and its
affiliates. Except for limited circumstances, Lason's sole recourse against each
Borrower for the amount of the Loan to such Borrower is to the shares of Common
Stock pledged with respect to such Seller Credit Agreement. Concurrently with
the consummation of the Offering, each of the Borrowers will repay the amounts
outstanding under his respective Seller Credit Agreement, one-half in cash and
one-half in the form of a constructive dividend from the Company to such
Borrower.
STOCKHOLDERS AGREEMENT
In connection with the 1995 Recapitalization, the Designated Stockholders,
GTCR Fund IV, Mr. Yanover, Mr. Nesbitt (the "1995 Stockholders") and the Company
entered into a Stockholders Agreement, dated January 17, 1995, which provides
for, among other things, (i) the designation of and the voting with respect to
the election of directors of the Board by the parties thereto, (ii) the approval
by the holders of at least one-third of the Common Stock purchased by the
Designated Stockholders pursuant to the Executive Stock Agreement and held by
the Designated Stockholders or their permitted transferees (the "Executive
Stock") of certain matters of corporate governance, (iii) the approval by the
holders of at least one-half of the Executive Stock of any issuance by the
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<PAGE> 54
Company of its securities to GTCR Fund IV or its affiliates (other than an
issuance used to cure or avoid a default under certain financing arrangements (a
"Designated Financing")) or for a determination by an investment banking firm
that such issuance is fair to the Company and its stockholders, (iv) each
Designated Holder to have the right to require GTCR Fund IV to purchase all (but
not less than all) of its Executive Stock at fair market value upon an issuance
of equity securities of the Company (other than any issuance pursuant to a
registered primary public offering or a Designated Financing) if such issuance
would cause the Designated Stockholders and their permitted transferees to hold
less than 20% of the outstanding Common Stock on a fully-diluted basis, (v) if
at any time prior to an initial public offering of the Company's equity
securities the Company issues any equity securities, an amount of each
Designated Stockholder's Loan under the Seller Credit Agreement to which he or
it is a party proportionate to the amount by which its percentage ownership of
the Common Stock is reduced by such issuance to be forgiven (along with the
unpaid accrued interest thereon), (vi) certain restrictions on transfer by the
parties thereto of shares of the Company, (vii) certain pre-emptive rights for
the parties thereto with respect to the issuance of capital stock of the Company
and (viii) the parties to the agreement to use their best efforts to sell the
Company if an initial public offering has not been consummated by January 17,
2005. The Stockholders Agreement will be terminated upon consummation of the
Offering.
EXECUTIVE VOTING AGREEMENT
In connection with the 1995 Recapitalization, the Nesbitt Trust, Mr.
Kowalski, Mr. Elland, Mr. Carey, Mr. Karl H. Hartig, Mr. James J. Dewan, Mr.
Lawrence C. Jones, Mr. Scott L. Christenson, Mr. Daniel J. Buckley, Mr. Paul G.
Dugan, Mr. John H. Wallanse and Mr. David J. Malosh entered into a Voting
Agreement, dated January 17, 1995 (the "Executive Voting Agreement"), pursuant
to which each party agreed to vote all of his or its stock of the Company
(including all shares subsequently acquired by such party) on any matter on
which the shareholders are entitled to vote only at the direction of the vote of
the holders of a majority of stock held by such parties and their transferees.
To give effect to such agreement, each such party executed and delivered to Mr.
Nesbitt, trustee of the Nesbitt Trust, an irrevocable proxy to vote his or its
shares. The initial term of the Executive Voting Agreement is ten years and may
be extended by the parties. During the term of the Executive Voting Agreement,
each party agreed to not transfer his or its shares without the prior written
consent of the holders of a majority of stock held by such parties and their
transferees. The Executive Voting Agreement will be terminated upon consummation
of the Offering.
REGISTRATION AGREEMENT
In connection with the 1995 Recapitalization, the Company and the 1995
Stockholders entered into the Registration Agreement. Pursuant to the
Registration Agreement, the 1995 Stockholders and their transferees, who hold in
the aggregate 4,999,997 shares of Common Stock, are entitled to certain
registration rights. Following the Offering, (i) holders of at least a majority
of the shares of Common Stock issued to GTCR Fund IV pursuant to the Purchase
Agreement and any other shares of Common Stock otherwise acquired by GTCR Fund
IV (the "GTCR Registrable Shares") and (ii) holders of at least a majority of
the shares of Common Stock issued to the Designated Stockholders pursuant to the
Executive Stock Agreement and any other shares of Common Stock otherwise
acquired by the Designated Stockholders (the "Designated Stockholder Registrable
Shares," and collectively with the GTCR Registrable Shares, the "Registrable
Shares") may each require the Company on one occasion to effect the registration
of the Registrable Shares on Form S-1 (a "Long-Form Registration") in which the
Company will pay all registration expenses. In addition to the Long-Form
Registrations, after the Offering, the holders of at least a majority of the
GTCR Registrable Shares and the holders of at least a majority of the Designated
Stockholder Registrable Shares may each require the Company to effect two
registrations of Registrable Shares on Form S-2 or S-3 (together with the
Long-Form Registrations, the "Demand Registrations") in which the Company will
pay all registration expenses. Finally, if the Company proposes to register any
of its Common Stock under the Securities Act, whether for its own account or
otherwise (a "Company Registration"), the holders of Registrable Shares are
entitled to
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<PAGE> 55
notice of such registration and, subject to certain priority provisions, are
entitled to include their Registrable Shares in such registration with all
registration expenses of the holders of Registrable Shares being paid by the
Company. Notwithstanding the foregoing, the Company will not be obligated to
effect a Demand Registration within six months after the effective date of a
prior Demand Registration or of a Company Registration in which holders of
Registrable Shares participated, and, under certain circumstances, a request may
be delayed by the Company for up to six months (but on no more than one
occasion).
VOTING AGREEMENT
The J. Yanover Trust, the R. Yanover Trust, the Joseph Jonathan Yanover and
Jennifer D. Yanover Irrevocable Trust No. 2 dated August 6, 1996, the Nesbitt
Trust, the James A. Nesbitt and Jennifer Rebecca Nesbitt Trust effective as of
January 1, 1996, Mr. Yanover, Mr. Nesbitt (the "Executive Group") and GTCR Fund
IV (together with the Executive Group, the "Existing Stockholders") are parties
to the Voting Agreement providing for, among other things, the designation of
and voting with respect to the election of directors of the Board by the
Existing Stockholders. Under the Voting Agreement, the Existing Stockholders
agree to vote their shares such that the Board at all times shall consist of two
directors designated by GTCR Fund IV, two directors designated by the Executive
Group, the Company's Chief Executive Officer and two outside directors jointly
designated by GTCR Fund IV and the Executive Group. If GTCR Fund IV and the
Executive Group cannot agree on the designation of an outside director with
respect to any election of directors, one nominee will be selected by each of
GTCR Fund IV and the Executive Group and the nominee obtaining the most votes in
the election of directors, with the Existing Stockholders voting without
restriction, shall be elected to the Board. The Existing Stockholders may not
vote to remove a director nominated pursuant to the Voting Agreement and must
vote to remove a director nominated pursuant to the Voting Agreement if directed
to do so by the Existing Stockholder who designated such director. The Voting
Agreement terminates when either GTCR Fund IV or the Executive Group holds in
the aggregate less than 10% of the Common Stock on a fully diluted basis. Upon
consummation of the Offering, the Existing Stockholders will hold, in the
aggregate, 59.8% of the Common Stock (56.9% if the Underwriters' over-allotment
option is exercised in full) and will be able to elect all of the members of the
Board. The Voting Agreement may render more difficult or tend to discourage
mergers, acquisitions, tender offers, proxy contests or assumptions of control
and changes of incumbent management, even when stockholders other than the
Existing Stockholders consider such a transaction to be in their best interest.
CERTAIN AFFILIATE TRANSACTIONS
The Company leases property and a building in Livonia, Michigan, which
includes approximately 27,460 square feet of commercial space, from Mart
Associates, a Michigan general partnership ("Mart"). Mr. Yanover owns 43.34% of
Mart and is its managing partner. Mr. Nesbitt owns 33.33% of Mart and is one of
its partners. For the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1996, the Company paid $191,100, $191,100, $191,100
and $95,550, respectively, in rent for such property and building. In addition,
the Company leases certain equipment from Computer Leasing Company of Michigan,
Inc. ("Computer Leasing"). Mr. Yanover owns 50% of Computer Leasing and serves
as its president. For the years ended December 31, 1994 and 1995, and for the
six months ended June 30, 1996, the Company paid $30,100, $57,100 and $25,700,
respectively, for such operating leases. The Company believes that each of the
leases is at market terms and rates.
The Company purchases printing services from Hatteras Printing, Inc.
("Hatteras"). Hatteras is owned by the wife of Mr. Nesbitt. For the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996, the
Company paid Hatteras $309,900, $726,000, $980,500 and $700,900, respectively,
for such printing services. The Company believes that it paid market prices for
such printing services. In addition, the Company sold copying and graphic art
services to Hatteras in the amount of $21,800, $32,700, $75,200 and $33,700,
respectively, for the years ended December 31, 1993,
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<PAGE> 56
1994 and 1995 and the six months ended June 30, 1996. Such services were sold at
the Company's current prices.
Until August 6, 1996, Laurence B. Deitch served as trustee of the Joseph
Jonathan Yanover and Jennifer D. Yanover Irrevocable Trust dated January 5,
1993, which upon consummation of the Offering will own 5.3% of the Common Stock.
Mr. Deitch is also a shareholder in the law firm of Seyburn, Kahn, Ginn, Bess,
Deitch & Serlin, P.C. For the years ended December 31, 1993, 1994 and 1995, and
for the six months ended June 30, 1996, the Company paid Seyburn, Kahn, Ginn,
Bess, Deitch & Serlin, P.C. approximately $151,000, $74,000, $189,000 and
$111,000, respectively, for legal services.
In the future, all material business transactions between the Company and
any executive officer or director of the Company or any member of their
immediate family will be subject to review and approval by a majority of the
Company's disinterested directors. In addition, the Board has determined that by
December 31, 1997, the Company shall no longer transact business with Hatteras.
THE RECAPITALIZATION
In connection with and immediately prior to the consummation of the
Offering, each share of Class A Common Stock, including the shares of Class A
Common Stock held by each of the officers and directors of the Company, will be
converted into one share of Common Stock, and each share of Class B Common
Stock, all of which is held by GTCR Fund IV, will be converted into
approximately 1.3 shares of Common Stock (assuming an initial public offering
price of $15.50 and consummation of the Offering on September 30, 1996). Each
share of Common Stock will then be split into 2.5 shares of Common Stock.
Concurrent with the consummation of the Offering, the Company shall use a
portion of the proceeds of the Offering to redeem 755,933 shares of Common Stock
owned by GTCR Fund IV at an aggregate price of approximately $11.7 million
(assuming an initial public offering price of $15.50 and consummation of the
Offering on September 30, 1996). See "Description of Capital Stock -- The
Recapitalization."
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock after giving effect to the Recapitalization (see
"Description of Capital Stock -- The Recapitalization") and immediately
following the Offering (i) by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each current executive
officer and director of the Company and (iii) by all officers and directors of
the Company as a group. Except as otherwise indicated below, each of the persons
named in the table has sole voting and investment power with respect to the
securities beneficially owned by it or him as set forth opposite its or his
name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------
PERCENT OF CLASS
-------------------
NUMBER BEFORE AFTER
NAME OF BENEFICIAL OWNER OF SHARES OFFERING OFFERING
- ------------------------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P. (2)(3)................ 2,500,002 48.4% 31.8%
Joseph Jonathan Yanover and Jennifer D. Yanover Irrevocable Trust
dated January 5, 1993 (Colin W. L. Armstrong, Trustee)(2)(4)..... 415,185 8.0% 5.3%
Robert A. Yanover(2)(5)............................................ 476,442 9.2% 6.1%
Allen J. Nesbitt(2)(6)............................................. 1,101,635 21.3% 14.0%
Gary L. Monroe(7).................................................. 170,452 3.2% 2.2%
William J. Rauwerdink(8)........................................... 11,000 * *
Brian E. Jablonski(9).............................................. 12,000 * *
Donald M. Gleklen(10).............................................. 2,500 * *
Bruce V. Rauner(11)................................................ 2,500,002 48.4% 31.8%
Joseph P. Nolan(11)................................................ 2,500,002 48.4% 31.8%
All Executive Officers and Directors of the Company as a group
(9 persons)(12).................................................. 4,274,031 79.8% 53.0%
</TABLE>
- ------------
* Indicates less than 1%.
(1) The number of shares of Common Stock deemed outstanding prior to the
Offering is 5,162,462 and the number of shares of Common Stock deemed
outstanding after the Offering is 7,862,462 (8,267,462 if the Underwriters'
over-allotment option is exercised in full). Each of these numbers includes
81,290 shares and 68,387 shares of Common Stock issuable in connection with
the acquisition of IITA and Great Lakes, respectively, assuming an initial
public offering price of $15.50 per share (see "Recent Acquisitions") and
excludes the 437,990 shares of Common Stock issuable pursuant to stock
options which will be exercisable upon consummation of the Offering and,
assuming an initial public offering price of $15.50 per share, 25,806
shares of Common Stock issuable upon conversion of a note in the amount of
$400,000 issued by the Company in connection with the acquisition of NRC
(see "Recent Acquisitions") and 755,933 shares of Common Stock to be
redeemed upon consummation of the Offering (see "Description of Capital
Stock -- The Recapitalization").
(2) Each of these parties has entered into an agreement providing for the
election of directors (see "Certain Relationships and Related Transactions
-- Voting Agreement"). Each such party disclaims beneficial ownership of
shares of Common Stock owned by each other such party.
(3) Excludes 755,933 shares of Common Stock owned by GTCR Fund IV to be
redeemed upon consummation of the Offering. See "Description of Capital
Stock -- The Recapitalization." The address of this holder is 6100 Sears
Tower, Chicago, Illinois 60606.
(4) The address of this holder is 116 Laurel Court, Ponte Verde Beach, Florida
32082.
(5) Includes 476,442 shares of Common Stock held by the Robert A. Yanover
Living Trust u/a/d May 11, 1982. The address of this holder is 133 Quayside
Drive, Jupiter, Florida 33477.
(6) Includes 881,310 shares of Common Stock held by the Allen J. Nesbitt Living
Trust dated December 7, 1994, 110,162 shares of Common Stock held by the
James A. Nesbitt and Jennifer Rebecca Nesbitt Irrevocable Trust effective
as of January 1, 1996 for the Benefit of James A. Nesbitt and 110,162
shares of Common Stock held by the James A. Nesbitt and Jennifer Rebecca
Nesbitt Irrevocable Trust effective as of January 1, 1996 for the Benefit
of Jennifer Rebecca Nesbitt. The address of this holder is 28400
Schoolcraft, Livonia, Michigan 48150.
(7) Includes 170,452 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. See "Management
-- Stock Options."
(8) Includes 11,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. See "Management
-- Stock Options."
(9) Includes 12,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. See "Management
-- Stock Options."
(10) Includes 2,500 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. See "Management
-- Stock Options."
(11) Includes 2,500,002 shares of Common Stock held by GTCR Fund IV, of which
GTCR IV, L.P. is the general partner. See footnote (3) above. Each of
Messrs. Rauner and Nolan is a principal of Golder, Thoma, Cressey, Rauner,
Inc., the general partner of GTCR IV, L.P., and therefore may be deemed to
share investment and voting control over the shares of Common Stock held by
GTCR Fund IV. Each of Messrs. Rauner and Nolan disclaims beneficial
ownership of the shares of Common Stock owned by GTCR Fund IV. The address
of each of these holders is 6100 Sears Tower, Chicago, Illinois 60606.
(12) Includes the shares of Common Stock described in footnotes (5), (6), (7),
(8), (9), (10) and (11) above.
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<PAGE> 58
DESCRIPTION OF CREDIT AGREEMENT
The Company, through its subsidiary Lason Systems, is party to a Loan
Agreement, dated January 17, 1995, as amended March 25, May 15, July 10, and
August 16, 1996 (the "Credit Agreement"), with First Union National Bank of
North Carolina as agent and as Lender (as defined in the Credit Agreement) and
each other Lender which from time to time is a party thereto, providing for a
$15 million term loan facility (the "Term Loan Facility"), a $13 million
revolving credit facility (the "Revolving Credit Facility"), an additional $10
million credit facility for acquisitions (the "Acquisition Facility") and an
$8.2 million interim term loan facility (the "Interim Facility").
Each loan (a "Loan") under a facility bears interest at a rate (with
respect to such Loan, the "Elected Rate") equal to, at the Company's option,
either (a) the prime rate publicly announced by the Agent from time to time plus
(i) 100 basis points if such Loan is under the Term Loan Facility or the
Acquisition Loan Facility, (ii) 75 basis points if such Loan is under the
Revolving Credit Facility or (iii) no basis points if such Loan is under the
Interim Facility or (b) the LIBOR Rate (as defined in the Credit Agreement)
specified for the applicable facility; provided that during the continuance of
an Event of Default (as defined in the Credit Agreement) the Company shall be
required to pay interest on each outstanding Loan at a rate equal to the Elected
Rate plus 200 basis points. Interest on the Loans is payable monthly in arrears
with respect to prime rate Loans, at the end of the applicable LIBOR period with
respect to LIBOR rate Loans and when any portion of unpaid principal is due with
respect to interest on such principal.
Under the Term Loan Facility, the Company is required to make the following
payments of principal: $500,000 at the end of each of its fiscal quarters
beginning June 30, 1996 and ending December 31, 1997; $625,000 at the end of
each of its fiscal quarters beginning March 31, 1998 and ending December 31,
2000; and $1 million on each of March 31, 2001 and June 30, 2001. In addition to
the scheduled payments, the Company is required to prepay no later than ninety
(90) days after the end of each fiscal year an amount of principal outstanding
under the Term Loan Facility equal to 50% of the Company's Net Cash Flow (as
defined in the Credit Agreement) for such fiscal year. The Company may prepay at
any time any amount of principal outstanding under the Term Loan Facility
without premium or penalty (so long as such amount is at least $250,000). The
Company may at any time have Loans outstanding under the Revolving Credit
Facility in an aggregate amount up to the lesser of (a) $10 million and (b) 85%
of the Eligible Accounts Receivable (as defined in the Credit Agreement) of the
Company. Amounts borrowed under the Revolving Credit Facility or the Acquisition
Revolving Credit Facility may be repaid and reborrowed. Under the Acquisition
Facility, the Company is required to pay the following amounts quarterly in
arrears, expressed as a percentage of the outstanding principal under the
Acquisition Facility: 3% in 1997, 4% in 1998, 5% in 1999, 6% in 2000 and 7% in
2001. All Loans under the Revolving Credit Facility or the Acquisition Facility
must be paid no later than June 30, 2001, all loans under the Interim Facility
must be paid no later than March 31, 1997, and all loans under the Acquisition
Facility and the Interim Facility must be paid upon receipt by the Company of
the proceeds of this Offering if such proceeds exceed $35 million. During the
term of the Revolving Credit Facility, the Company is obligated to pay to the
Agent on the last business day of each month a facility fee equal to 0.5% per
annum on the average daily undrawn portion of both the Revolving Credit Facility
and the Acquisition Facility during the previous month.
The Loans are secured by a pledge by Lason of the Collateral (as defined in
the Credit Agreement, generally the stock and assets of Lason Systems and its
subsidiaries) and by a guaranty by the Company. The Credit Agreement requires
Lason to meet certain financial tests, including minimum interest coverage,
maximum debt to operating cash flow ratio and minimum operating cash flow. The
Credit Agreement also contains covenants which, among other things, prohibit or
restrict the incurrence of additional indebtedness, payment of dividends,
transactions with affiliates, sales of assets, acquisitions, investments,
dissolution or mergers, prepayments of other indebtedness, incurrence of
additional liens and encumbrances and other actions by Lason customarily
restricted in such agreements. In addition, the Credit Agreement requires the
Company to invest additional equity in
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<PAGE> 59
Lason Systems on or before March 31, 1997 in an amount, if any, necessary to
cause the ratio of Funded Debt (as defined in the Credit Agreement) to Pro Forma
Adjusted EBITDA (as defined in the Credit Agreement) to be no greater than 2.75
to 1.0 for the four fiscal quarters ending on March 31, 1997. The Credit
Agreement contains customary events of default, including payment defaults,
breach of representations and warranties, covenant defaults, cross-defaults to
other indebtedness of Lason and to any default by Lason under any agreement the
termination of which would have a Material Adverse Effect (as defined in the
Credit Agreement), certain events, bankruptcy and insolvency, the entry of a
judgment in an amount greater than $250,000 which shall not be dismissed or
stayed within 60 days, a lien in excess of $250,000 is placed on the Collateral
(as defined in the Credit Agreement) by a governmental authority, or the
acquisition of control of Lason Systems by any person other than the Company or
GTCR Fund IV.
Upon consummation of the Offering, the Company plans to repay a portion of
its outstanding indebtedness under its Credit Agreement using a portion of the
net proceeds from the Offering. The Company also expects to terminate the Credit
Agreement and to enter into the New Credit Agreement providing for a revolving
line of credit of up to $30 million to be used to repay the remaining portion of
the indebtedness outstanding under the Credit Agreement and to finance
additional acquisitions, working capital, capital expenditures and other general
corporate purposes. The New Credit Agreement would expire on June 30, 1999.
Interest on amounts outstanding, if any, under the Acquisition Credit Facility
will be calculated using rates determined at the time of borrowing. Borrowings
would bear interest at rates ranging from a base percentage rate plus 1.25%
(9.5% at June 30, 1996) to a LIBOR plus 1.0% (6.6875% at June 30, 1996),
depending upon the Company's leverage ratio. The Company would pay a monthly fee
at an annual rate of 0.25% of the unused balance on the New Credit Agreement.
The Company would not be required to make principal payments prior to the end of
the term of the proposed loan. Borrowings, if any, under the New Credit
Agreement would be collateralized by substantially all of the Company's assets.
The New Credit Agreement would contain restrictions on the acquisition of stock
or assets, disposal of assets, incurrence of other liabilities, minimum
requirements for cash flow and certain financial ratios. There can be no
assurance, however, that such New Credit Agreement will be obtained or that, if
obtained, will be on terms that are favorable to the Company or sufficient for
the Company's needs.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon consummation of the Offering, the total amount of authorized capital
stock of the Company will consist of 20 million shares of common stock, par
value $0.01 per share (the "Common Stock"), and five million shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"), and 7,862,462 shares
of Common Stock will be issued and outstanding. The Company intends to adopt,
and intends to submit for approval by its stockholders, an Amended and Restated
Certificate of Incorporation and By-Laws to become effective upon consummation
of the Offering. The discussion herein describes the Company's capital stock,
Amended and Restated Certificate of Incorporation and By-Laws as anticipated to
be in effect upon consummation of the Offering. The following summary of certain
provisions of the Company's capital stock describes certain material provisions
of, but does not purport to be complete and is subject to, and qualified in its
entirety by, the Amended and Restated Certificate of Incorporation and the
By-Laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law. The Company has applied for quotation and trading of the Common
Stock on the Nasdaq National Market under the symbol "LSON," subject to official
notice of issuance.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Immediately prior to the Reclassification, the Company's issued and
outstanding common stock consisted of 999,998 shares of Class A-1 Common Stock,
5,115 shares of Class A-2 Common Stock and 1,000,001 shares of Class B Common
Stock. Prior to the Reclassification, the holders of Class A-1 Common Stock and
Class A-2 Common Stock (collectively, the "Class A Common Stock") and Class B
Common Stock were entitled to participate in any distribution made by the
Company in the following priority: (i) first, to the holders of Class B Common
Stock, ratably, until the holders of Class B Common Stock as a class had
received, taking into consideration all prior distributions, a 10% yield
(compounded quarterly) on the Unreturned Preferred Amount (the Preferred Amount
minus any amounts distributed pursuant to clause (ii)) (the "Unpaid Yield"),
(ii) second, to the holders of Class B Common Stock, ratably, until the holders
of Class B Common Stock as a class had received, taking in to consideration all
prior distributions other than distributions pursuant to clause (i) above, the
Preferred Amount ($9,900,000), and (iii) last, to the holders of Class A Common
Stock and the holders of Class B Commons Stock, ratably, the balance of such
distribution. Prior to the Reclassification, the holders of Class A-1 Common
Stock were entitled to one vote per share, the holders of Class B Common Stock
were entitled to four votes per share, and the holders of Class A-2 Common Stock
were entitled to no voting rights other than a class vote in connection with a
merger or reorganization in which the Class A-2 Common Stock would be treated
differently than the Class A-1 Common Stock.
THE RECAPITALIZATION
Immediately prior to the consummation of the Offering, each outstanding
share of Class A Common Stock shall be converted into one share of Common Stock
and each share of Class B Common Stock shall be converted into a number of
shares of Common Stock equal to (i) one plus (ii) a number of shares of Common
Stock valued at the initial public offering price of the Offering (adjusted for
the stock split) equal to the Unpaid Yield and the Unreturned Preferred Amount
with respect to such share of Class B Common Stock as of such date. Assuming an
initial public offering price of $15.50 and consummation of the Offering on
September 30, 1996, the aggregate Unpaid Yield and the aggregate Unreturned
Preferred Amount would be approximately $1.8 million and $9.9 million,
respectively, and each share of Class B Common Stock would be converted into
approximately 1.3 shares of Common Stock (the "Reclassification"). Each share of
Common Stock will then be split into 2.5 shares of Common Stock (the "Stock
Split"). Concurrent with the consummation of the Offering, the Company shall use
a portion of the proceeds of the Offering to redeem shares of Common Stock owned
by GTCR
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<PAGE> 61
Fund IV at a price equal to the initial public offering price of the Common
Stock in the Offering (the "Redemption," and together with the Reclassification
and Stock Split, the "Recapitalization").
COMMON STOCK
Following the Recapitalization and immediately prior to consummation of the
Offering, there will be 5,162,462 shares of Common Stock outstanding held by 27
holders of record. The issued and outstanding shares of Common Stock are, and
the shares of Common Stock being offered hereby will be upon payment therefor,
validly issued, fully paid and nonassessable. Subject to the prior rights of the
holders of any Preferred Stock, the holders of outstanding shares of Common
Stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as the Board may from time to time determine.
See "Dividend Policy." Following consummation of the Offering, the shares of
Common Stock will not be redeemable or convertible, and the holders thereof will
have no preemptive rights (other than pursuant to the Stockholders Agreement) or
subscription rights to purchase any securities of the Company. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive pro rata the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of any holders of Preferred Stock then outstanding.
Each outstanding share of Common Stock is entitled to vote on all matters
submitted to a vote of stockholders.
PREFERRED STOCK
The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of shares of Preferred Stock in series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of Preferred Stock would reduce the amount of funds available for the payment of
dividends on shares of Common Stock. Holders of shares of Preferred Stock may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Company before any payment is made to the
holders of shares of Common Stock. Under certain circumstances, the issuance of
shares of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock.
CERTAIN PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS AND STATUTORY PROVISIONS
The Amended and Restated Certificate of Incorporation to be effective upon
consummation of the Offering provides that the Board will be divided into three
classes, with each class, after a transitional period, serving for three years,
and one class being elected each year. A majority of the remaining directors
then in office, though less than a quorum, or the sole remaining director, will
be empowered to fill any vacancy on the Board which arises during the term of a
director. The provision for a classified Board may be amended, altered or
repealed only upon the affirmative vote of the holders of at least 80% of the
outstanding shares of the voting stock of the Company. The classification of the
Board may discourage a third party from making a tender offer or otherwise
attempting to gain control of the Company and may have the effect of maintaining
the incumbency of the Board.
The Amended and Restated Certificate of Incorporation will require that any
action required or permitted to be taken by the Company's stockholders must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by consent in writing. Additionally, the Amended and Restated
Certificate of Incorporation will require that special meetings of the
stockholders of the Company be called only by a majority of the Board or by
certain officers. These provisions
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<PAGE> 62
may not be amended, altered or repealed without the affirmative vote of at least
80% of the outstanding shares of the voting stock of the Company.
The By-Laws will provide that stockholders seeking to bring business before
or to nominate directors at any annual meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to such meeting or, if
less than 70 days' notice was given for the meeting, within 10 days following
the date on which such notice was given. The By-Laws also will specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions will restrict the ability of stockholders to bring matters before the
stockholders or to make nominations for directors at meetings of stockholders.
These provisions may not be amended, altered or repealed without the affirmative
vote of at least 80% of the outstanding shares of the voting stock of the
Company.
Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any Interested
Stockholder for a period of three years after the date of the transaction in
which the person became an Interested Stockholder, unless (i) the transaction is
approved by the Board prior to the date the Interested Stockholder obtained such
status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) on or subsequent to
such date the "business combination" is approved by the Board and authorized at
an annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the Interested
Stockholder.
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. The statute
could prohibit or delay mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to acquire
the Company. The Board has approved any acquisition of shares of Common Stock by
GTCR Fund IV or its affiliates that would otherwise result in GTCR Fund IV or
such affiliates becoming an Interested Stockholder. See "Risk Factors -- Certain
Charter, By-Laws and Statutory Anti-Takeover Provisions."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Amended and Restated Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, the Amended and Restated Certificate of Incorporation provides
that the Company shall indemnify directors and officers of the Company to the
fullest extent permitted by such law. These provisions may not be amended,
altered or repealed without the affirmative vote of at least 80% of the
outstanding shares of the voting stock of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be First Chicago
NBD.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 7,862,462 shares of Common Stock will be
outstanding (8,267,462 if the Underwriters' over-allotment option is exercised
in full). The 2,700,000 shares of Common Stock sold in the Offering (plus up to
405,000 additional shares of Common Stock if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act, unless such shares are held by an
"affiliate" of the Company as that term is defined in Rule 144, which shares
will be subject to the resale limitations of Rule 144. Other than the shares of
Common Stock being offered hereby, the currently outstanding shares of Common
Stock have not been registered under the Securities Act and may not be sold
unless such shares are registered or unless an exemption from registration, such
as the exemption provided by Rule 144, is available. 4,999,997 of such
unregistered shares, but for the lockup provisions described below, would be
eligible for sale not earlier than January 17, 1997, subject to certain volume
and other limitations under Rule 144.
The Company and certain of its stockholders, which as of the consummation
of the Offering will hold 4,703,265 shares of Common Stock, have agreed for the
Lockup Period not to sell or otherwise dispose of, and the Company has agreed
not to register, any shares of Common Stock or any securities of the Company
which are substantially similar to the shares of Common Stock, including, but
not limited to, any securities that are convertible into or exchangeable for, or
represent the right to receive, Common Stock or any such substantially similar
securities (other than the grant of options with respect to, and the issuance
and registration of up to 1.0 million shares of Common Stock by the Company in
connection with, the Company's 1995 Stock Option Plan and the issuance and
registration of up to 2.5 million shares of Common Stock by the Company for use
as consideration in further acquisitions), without the prior written consent of
Robertson Stephens & Company, except for the shares of Common Stock offered in
connection with the Offering.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least two years, is entitled to sell within any three-month period a number
of shares that does not exceed the greater of (i) one percent of the outstanding
Common Stock (approximately 78,625 shares of Common Stock immediately after the
Offering or 82,675 shares if the Underwriters' over-allotment option is
exercised in full) or (ii) the average weekly trading volume in the Common Stock
in the over-the-counter market during the four calendar weeks preceding the date
on which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is not
an affiliate of the Company for at least 90 days prior to a sale and who has
beneficially owned "restricted securities" for at least three years is entitled
to sell such shares under Rule 144 without regard to the limitations described
above.
In connection with the 1995 Recapitalization, the Company and the 1995
Stockholders entered into the Registration Agreement. Pursuant to the
Registration Agreement, the 1995 Stockholders and their transferees, who hold in
the aggregate 4,999,997 shares of Common Stock, are entitled to certain demand
and piggy-back registration rights with respect to such shares of Common Stock,
which may be exercised after the expiration of the Lockup Period. Such rights
could be used to force the Company to file a registration statement with respect
to the Common Stock owned by such persons. The existence of the Registration
Agreement and the perception that such sales of Common Stock could occur
thereunder could adversely effect the market price of the Common Stock and could
impair the Company's ability to raise capital through the sale of equity
securities. See "Certain Relationships and Related Transactions -- Registration
Agreement."
Promptly after consummation of the Offering, the Company expects to file
with the Commission a registration statement on Form S-8 covering up to 1.0
million shares of Common Stock with respect to
61
<PAGE> 64
the 1995 Stock Option Plan and a registration statement covering up to 2.5
million shares of Common Stock for use as consideration in future acquisitions.
Such shares, when registered and issued, will be freely tradeable without
restriction or further registration under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock, and no assurances can be given as to the effect, if any, that public
market sales of shares of Common Stock or the availability of such shares for
sale will have on the trading price prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities. See "Risk Factors -- Shares
Eligible for Future Sale."
62
<PAGE> 65
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC and William Blair & Company,
L.L.C. (the "Representatives"), have severally agreed, subject to the terms and
conditions of an underwriting agreement among the Company and the Underwriters
(the "Underwriting Agreement"), to purchase the number of shares of Common Stock
set forth opposite their respective names below. The Underwriters are committed
to purchase and pay for all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Robertson, Stephens & Company LLC..................................
William Blair & Company, L.L.C.....................................
----------
Total......................................................... 2,700,000
==========
</TABLE>
The Representatives have advised the Company that they propose to offer the
shares of Common Stock to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 405,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 2,700,000 shares that the Underwriters have agreed to
purchase from the Company. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 2,700,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, the holders of approximately
4,703,265 shares of the Common Stock have agreed with the Representatives that,
until 180 days after the date of this Prospectus, subject to certain limited
exceptions, they will not sell or otherwise dispose of shares of Common Stock,
including shares issuable under options or warrants exercisable during the 180
days after the date of this Prospectus, any options or warrants to purchase
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock owned directly by such holders or with respect to which
they have the power of disposition without the prior written consent of
Robertson, Stephens & Company LLC.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Company's
securities. The initial public offering price will be determined through
negotiations among the Company and the Representatives. Among the factors to be
considered in such negotiations will be prevailing market conditions,
63
<PAGE> 66
the net revenues and results of operations of the Company in recent periods,
market valuations of publicly traded companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the current state of the industry and the economy as a whole and
other factors deemed relevant.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis (a partnership which includes professional
corporations), Chicago, Illinois. Certain legal matters in connection with the
Common Stock will be passed upon for the Underwriters by Winston & Strawn,
Chicago, Illinois.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company for the year ended December 31, 1995, and the financial statements
of the Predecessor for the years ended December 31, 1994 and 1993 appearing in
this Prospectus and Registration Statement have been audited by Coopers &
Lybrand LLP, independent accountants, as set forth in their reports appearing
elsewhere herein and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), a registration statement on Form S-1
pursuant to the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This prospectus (the "Prospectus") does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus concerning the provisions of any document filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the Registration Statement. For
further information about the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof.
Upon completion of the Offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at its New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and
its Chicago Regional Officer, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the public
reference section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549, upon payment of the prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, and the
address of such site is http://www.sec.gov.
64
<PAGE> 67
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION, FINANCIAL STATEMENTS, AND
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LASON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Information................... F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheets as of June 30, 1996...... F-3
Unaudited Pro Forma Condensed Consolidated Statements of Income for the Six Months
ended June 30, 1996............................................................. F-5
Unaudited Pro Forma Condensed Consolidated Statements of Income for the Year ended
December 31, 1995............................................................... F-7
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements........... F-9
LASON, INC.
Report of Independent Accountants.................................................. F-14
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996
(Unaudited)..................................................................... F-15
Consolidated Statements of Income for the year ended December 31, 1995 and for the
six months ended June 30, 1995 and 1996 (Unaudited)............................. F-16
Consolidated Statements of Stockholders' Equity for the year ended December 31,
1995 and for the six months ended June 30, 1996 (Unaudited)..................... F-17
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and for
the six months ended June 30, 1995 and 1996 (Unaudited)......................... F-18
Notes to Consolidated Financial Statements......................................... F-19
LASON SYSTEMS, INC.
Report of Independent Accountants.................................................. F-28
Balance Sheet as of December 31, 1994.............................................. F-29
Statements of Income for the years ended December 31, 1993 and 1994................ F-30
Statements of Stockholders' Equity for the years ended December 31, 1993 and
1994............................................................................ F-31
Statements of Cash Flows for the years ended December 31, 1993 and 1994............ F-32
Notes to Financial Statements...................................................... F-33
GREAT LAKES MICROGRAPHICS CORPORATION
Report of Independent Accountants.................................................. F-36
Balance Sheets as of December 31, 1995 and June 30, 1996 (Unaudited)............... F-37
Statements of Income for the year ended December 31, 1995 and for the six months
ended June 30, 1995 and 1996 (Unaudited)........................................ F-38
Statements of Stockholders' Equity for the year ended December 31, 1995 and for the
six months ended June 30, 1996 (Unaudited)...................................... F-39
Statements of Cash Flows for the year ended December 31, 1995 and for the six
months ended June 30, 1995 and 1996 (Unaudited)................................. F-40
Notes to Financial Statements...................................................... F-41
NATIONAL REPRODUCTIONS CORP.
Report of Independent Accountants.................................................. F-43
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited)...... F-44
Statements of Operations for the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 (Unaudited)............................. F-45
Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1996 (Unaudited).......................... F-46
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 (Unaudited)............................. F-47
Notes to Financial Statements...................................................... F-48
</TABLE>
F-1
<PAGE> 68
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet has
been prepared based upon the historical consolidated balance sheet of Lason as
of June 30, 1996 and the balance sheets as of June 30, 1996 of the Acquisitions
(See "Business -- Acquisition Strategy") consummated after June 30, 1996 and
gives effect to (i) such Acquisitions, (ii) the Recapitalization and (iii) the
application of the net proceeds from the Offering (after deducting underwriting
discounts and commissions and estimated expenses of the Offering, but excluding
the underwriters' over-allotment option), as if each had occurred as of June 30,
1996. The following unaudited Pro Forma Condensed consolidated statements of
income for the six months ended June 30, 1996 and for the year ended December
31, 1995 give effect to each of the above transactions and to the Acquisitions
as if each had occurred as of January 1, 1995. Pro forma adjustments are
described in the accompanying notes.
The unaudited pro forma condensed consolidated financial information should
be read in conjunction with "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. The unaudited pro forma condensed consolidated statements of
income are not necessarily indicative of the actual results of operations that
would have been reported if the events described above had occurred as of
January 1, 1995, nor do such statements purport to indicate the results of
future operations of Lason. Furthermore, the pro forma results do not give
effect to all cost savings or incremental costs, if any, which may occur as a
result of the integration and consolidation of the acquisitions. In the opinion
of management, all adjustments necessary to present fairly such unaudited pro
forma condensed consolidated financial statements have been made.
F-2
<PAGE> 69
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
LASON ACQUISITIONS(1) ADJUSTMENTS LASON
------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets.......................... $15,819 $ 4,745 $ 628 D $ 21,192
Property, plant and equipment, net...... 3,278 2,116 (61)F 5,333
Goodwill, net........................... 18,272 134 17,454 A 35,860
Other assets............................ 3,315 302 (131)E,F,G 3,486
------- ------- ------- --------
Total assets.......................... $40,684 $ 7,297 $17,890 $ 65,871
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion, long term debt......... $ 2,000 $ 1,325 $(2,100)B $ 1,225
Other current liabilities............... 8,028 2,575 1,400 B 12,003
------- ------- ------- --------
Total current liabilities............. 10,028 3,900 (700) 13,228
Long term debt, less current portion.... 19,146 928 (8,458)B 11,616
Minority interest and other............. 402 -- 629 C 1,031
------- ------- ------- --------
Total liabilities..................... 29,576 4,828 (8,529) 25,875
Common stock with a put option.......... -- -- 1,060 B 1,060
Common stock............................ 50 35 (7)B 78
Additional paid in capital.............. 8,622 10 27,531 B 36,163
Loans to stockholders................... (628) (123) 751 D --
Retained earnings....................... 3,064 2,547 (2,916)B,E 2,695
------- ------- ------- --------
Total stockholders' equity............ 11,108 2,469 25,359 38,936
------- ------- ------- --------
Total liabilities and stockholders'
equity............................. $40,684 $ 7,297 $17,890 $ 65,871
======= ======= ======= ========
</TABLE>
- ------------
(1) See Schedule A for detail of the Acquisitions
The accompanying Notes are an integral part of these unaudited
pro forma condensed consolidated financial statements.
F-3
<PAGE> 70
SCHEDULE A
LASON, INC.
UNAUDITED SCHEDULE OF ACQUISITIONS
JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
GREAT LAKES NRC OTHER ACQUISITIONS
----------- ------ ------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets........................................ $ 1,005 $2,671 $1,069 $4,745
Property, plant and equipment, net.................... 207 1,061 848 2,116
Goodwill, net......................................... -- -- 134 134
Other assets.......................................... 8 192 102 302
------ ------ ------ ------
Total assets........................................ $ 1,220 3,924 $2,153 $7,297
====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion, long term debt....................... $ -- $1,325 $ -- $1,325
Other current......................................... 760 1,087 728 2,575
------ ------ ------ ------
Total current liabilities........................... 760 2,417 728 3,900
Long term debt, less current portion.................. -- 157 771 928
------ ------ ------ ------
Total liabilities................................... 760 2,569 1,499 4,828
Common stock.......................................... 2 28 5 35
Additional paid in capital............................ -- 10 -- 10
Loans to stockholders................................. -- (123) -- (123)
Retained earnings..................................... 458 1,440 649 2,547
------ ------ ------ ------
Total stockholders' equity.......................... 460 1,355 654 2,469
------ ------ ------ ------
Total liabilities and stockholders' equity.......... $ 1,220 $3,924 $2,153 $7,297
====== ====== ====== ======
</TABLE>
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-4
<PAGE> 71
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
LASON ACQUISITIONS(1) ADJUSTMENTS LASON
------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net of postage....................... $27,089 $14,588 $ -- $41,677
Cost of revenues............................... 17,696 11,199 -- 28,895
------- ------- ------ -------
Gross profit................................. 9,393 3,389 -- 12,782
Selling, general and administrative expenses... 5,273 2,672 (366)H 7,579
Compensatory option expense.................... 167 -- (36)I 131
Amortization of intangibles.................... 379 6 284J 669
------- ------- ------ -------
Income from operations....................... 3,574 711 118 4,403
Other income................................... 53 148 201
Interest expense............................... (885) (91) 465K (511)
------- ------- ------ -------
Total other income (expense)................. (832) 57 465 (310)
Income before minority interest and provision
for income taxes............................. 2,742 768 583 4,093
Minority interest in net income of
subsidiary................................... (28) -- (28)M (56)
Provision for income taxes..................... (992) -- (467)L (1,459)
------- ------- ------ -------
Net income..................................... $ 1,722 $ 768 $ 88 $ 2,578
======= ======= ====== =======
Pro forma primary and fully diluted earnings
per share.................................... $ .31N
=======
Weighted average common shares and common share
equivalents outstanding...................... 8,340
-------
</TABLE>
- ------------
(1) See Schedule B for detail of the Acquisitions.
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-5
<PAGE> 72
SCHEDULE B
LASON, INC.
UNAUDITED SCHEDULE OF ACQUISITIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
GREAT LAKES NRC OTHER ACQUISITIONS
----------- ------ ------ ------------
<S> <C> <C> <C> <C>
Revenues, net of postage.............................. $ 3,908 $7,176 $3,504 $ 14,588
Cost of revenues...................................... 3,018 5,627 2,554 11,199
------- ------ ------ --------
Gross profit..................................... 890 1,549 950 3,389
Selling, general and administrative expenses.......... 759 1,142 771 2,672
Amortization of intangibles........................... -- -- 6 6
------- ------ ------ --------
Income from operations........................... 131 407 173 711
Other income.......................................... 1 76 71 148
Interest expense...................................... -- (50) (41) (91)
------- ------ ------ --------
Total other income (expense)..................... 1 26 30 57
Income before provision for income taxes.............. 132 433 203 768
Provision for income taxes............................ -- -- -- --
------- ------ ------ --------
Net income............................................ $ 132 $ 433 $ 203 $ 768
======= ====== ====== ========
</TABLE>
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-6
<PAGE> 73
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
LASON ACQUISITIONS(1) ADJUSTMENTS LASON
------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net of postage..................... $46,605 $28,447 $ -- $75,052
Cost of revenues............................. 31,227 22,087 -- 53,314
------- ------- ----- -------
Gross profit............................... 15,378 6,360 -- 21,738
Selling, general and administrative
expenses................................... 9,406 5,805 (951)H 14,260
Compensatory option expense.................. 308 -- 668I 976
Amortization of intangibles.................. 817 11 568J 1,396
------- ------- ----- -------
Income from operations..................... 4,847 544 (285) 5,106
Other income................................. 66 70 -- 136
Interest expense............................. (1,760) (177) 894K (1,043)
------- ------- ----- -------
Total other income (expense)............... (1,694) (107) 894 (907)
Income before provision
for income taxes........................... 3,153 437 609 4,199
Minority interest in net income of
subsidiary................................. -- -- (29)M (29)
Provision for income taxes................... (1,139) (11) (421)L (1,571)
------- ------- ----- -------
Net income................................... $ 2,014 $ 426 $ 159 $ 2,599
======= ======= ===== =======
Pro forma primary and fully diluted earnings
per share.................................. $ .31N
=======
Weighted average common shares and common
share equivalents outstanding.............. 8,344
-------
</TABLE>
- ------------
(1) See Schedule C for detail of the Acquisitions
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-7
<PAGE> 74
SCHEDULE C
LASON, INC.
UNAUDITED SCHEDULE OF ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
GREAT LAKES NRC OTHER ACQUISITIONS
----------- ------- ------ ------------
<S> <C> <C> <C> <C>
Revenues, net of postage............................. $ 7,825 $14,593 $6,029 $ 28,447
Cost of revenues..................................... 6,397 11,536 4,154 22,087
------- ------- ------ --------
Gross profit....................................... 1,428 3,057 1,875 6,360
Selling, general and administrative expenses......... 1,371 2,555 1,879 5,805
Amortization of intangibles.......................... -- -- 11 11
------- ------- ------ --------
Income (loss) from operations...................... 57 502 (15) 544
Other income (expense)............................... 2 68 -- 70
Interest expense..................................... (3) (146) (28) (177)
------- ------- ------ --------
Total other income (expense)....................... (1) (78) (28) (107)
Income before provision for income taxes............. 56 424 (43) 437
Provision for income taxes........................... -- -- (11) (11)
------- ------- ------ --------
Net income (loss).................................... $ 56 $ 424 $ (54) $ 426
======= ======= ====== ========
</TABLE>
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-8
<PAGE> 75
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
On June 1, 1995, Lason acquired certain assets of Adcom Mailers, Inc. and
an affiliated company ("Adcom"). In January 1996, Lason acquired the assets of
Mail-Away Corporation ("Mail-Away"). In February 1996, Lason acquired
substantially all of the assets of Diversified Support Services, Inc.
("Diversified"). On April 1, 1996, Lason acquired 65% of the common stock of
Delaware Legal Copy, Inc. ("Delaware Legal"). Effective July 1, 1996, Lason
acquired the common stock of the following (i) Information & Image Technology of
America, Inc. ("IITA"), (ii) (80% of the common stock) of Micro-Pro, Inc. and MP
Services, Inc., affiliated companies ("Micro-Pro"), and (iii) Great Lakes
Micrographics Corporation ("Great Lakes"); and executed an agreement to acquire
all the common stock of National Reproductions Corp. ("NRC"). The results of
operations for Adcom, Mail Away, and Diversified are included in the results of
operations of Lason from the respective date of acquisition. The unaudited pro
forma condensed consolidated financial statements have not been adjusted to
reflect the acquisition of Adcom, Mail-Away, and Diversified as though each had
been completed as of January 1, 1995 as the impact of such adjustment would not
be material. The historical balance sheet of Lason at June 30, 1996 includes
Adcom, Mail-Away, Diversified and Delaware Legal. The aggregate purchase price,
including liabilities assumed, of the foregoing acquisitions completed
subsequent to June 30, 1996 was $23.6 million.
The unaudited pro forma condensed consolidated financial statements do not
give effect to the following, with respect to the acquisitions:
(1) Contingent purchase price adjustment for IITA, the purchase price
of $3.15 million may be increased by a maximum of 30% and decreased by a
maximum of 15% based on future results of operations exceeding or failing
to meet targeted earnings, as defined in the IITA stock purchase agreement.
Contingent purchase price adjustment for Great Lakes, the purchase price
may be increased by an amount equal to 25% of the amount by which Great
Lakes earnings before interest and income taxes exceeds $1.06 million in
each calendar year over the next three years.
(2) Lason has the option to purchase, subsequent to January 1, 1998,
the minority stockholders interest in Delaware Legal and Micro-Pro. If
Lason does not exercise its option, the minority stockholders may require
Lason to purchase such shares up to January 1, 1999. The purchase of the
minority interests will be recorded at fair value at the date of
acquisition.
(3) In the event the Offering is not completed within six months of
the respective acquisition closing date, for the following thirty months
stockholders of IITA have an option to require Lason to purchase the Lason
shares received as a portion of the purchase price.
(4) If begun in the six months after the closing of the acquisition,
former IITA stockholders would be entitled to receive one-half of the net
earnings, if any, from a to be formed entity to serve specific customers.
Such payments, if any, would end after the first three years following the
commencement of such business.
(5) If a contract is awarded within six months after the closing of
the acquisition of NRC for certain incremental work for an existing
customer, the NRC purchase price will be adjusted by an amount equal to 5%
of the gross revenue derived by NRC from such incremental work for a period
of three years.
BALANCE SHEET
The excess of the purchase price and liabilities assumed over the book
value of the net assets acquired for each acquisition has been allocated to
tangible and intangible assets, based on Lason's estimate of the fair market
value of the net assets acquired. The allocations of the excess purchase
F-9
<PAGE> 76
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONTINUED
price, as illustrated below, may change upon final appraisal of the fair market
value of the net assets acquired.
ACQUISITIONS COMPLETED SUBSEQUENT TO JUNE 30, 1996: (in millions)
<TABLE>
<S> <C>
Book value of net assets acquired................................................ $ 2.5
Allocation of purchase price in excess of acquired assets:
Goodwill....................................................................... 17.4
Covenants not to compete....................................................... .2
------
Assets of Acquisitions Completed Subsequent to June 30, 1996..................... $20.1
------
Plus: Liabilities assumed........................................................ 4.4
Total Purchase Price of Completed Acquisitions................................... $24.5
======
</TABLE>
The acquisitions completed subsequent to June 30, 1996 were financed using
approximately $16.0 million of borrowings under the Company's credit facilities,
issuance of a $400,000 convertible debenture and $2.3 million from common stock
issued.
Each of the Acquisitions has been accounted for as a purchase. See
"Business -- Acquisition Strategy," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Note 15 of
Notes to Consolidated Financial Statements.
The accompanying unaudited pro forma condensed consolidated balance sheet
as of June 30, 1996 has been prepared as if the acquisitions consummated after
June 30, 1996 had all been completed as of June 30, 1996 and includes the
following adjustments:
(A) A pro forma adjustment has been made to increase intangible assets
(consisting of $17.4 million of goodwill) equal to the excess of the
applicable purchase price over the fair market values assigned to specific
acquired assets, less liabilities assumed.
F-10
<PAGE> 77
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONTINUED
(B) The pro forma adjustments to Liabilities and Stockholders' Equity
consist of the following:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
CURRENT NONCURRENT LONG-TERM WITH PAID IN RETAINED
LIABILITIES LIABILITIES DEBT PUT OPTION CAPITAL EARNINGS
----------- ---------- --------- ------------ ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Acquisition Entries
Estimate of additional acquisition
costs................................... $ 1.4 $ .5
Debt of acquired companies not assumed.... (0.1) $ (0.3)
Eliminate stockholders' equity of acquired
companies............................... $ (2.5)
Record additional bank borrowings and
common stock issued to finance
acquisitions closed after June 30, 1996,
including $1.1 of common stock issued
with a put option....................... 15.8 $1.1 $ 1.2
Record promissory note issued in
conjunction with the acquisition of
NRC(1).................................. 0.4
----- --- ------ ---- ----- -----
Total Acquisition Entries............. 1.3 .5 15.9 $1.1 1.2 (2.5)
----- --- ------ ---- ----- -----
Use of Proceeds Entries
Estimated net proceeds.................... $ 38.0
Redemption of Common Stock and unpaid
yield(2)................................ (11.7)
Use of proceeds to repay debt issued to
finance acquisitions.................... $(2.0) (15.8)
Use of proceeds to repay other debt....... (8.6)
----- --- ------ ---- ----- -----
Total Use of Proceeds Entries......... (2.0) (24.4) -- 26.3 0
----- --- ------ ---- ----- -----
Total Adjustment............................ $ (.7) $ .5 $ (8.5) $1.1 $ 27.5 $ (2.5)
===== === ====== ==== ===== =====
</TABLE>
- ------------
(1) The promissory note is payable at the earlier of (i) one year following the
effective date of the Company's equity offering or (ii) October 1, 1997. The
Seller has the option of converting the note into the Company's Common Stock
at the offering price.
(2) Redemption and retirement of Class B stock and unpaid yield.
(C) The pro forma adjustment to record the 20 percent minority
interest in Micro-Pro.
(D) The pro forma adjustment to settle the Lason $628,000 shareholder
loan to be received in cash by the Company. In addition, the pro forma
adjustment for the NRC $123,000 shareholder loan which will not be
purchased as part of the acquisition.
(E) $222,000 of unamortized deferred financing costs at June 30, 1996,
net of $113,000 deferred tax asset, have been written off related to the
extinguishment of the associated debt using a portion of the proceeds of
the Offering. Deferred financing costs of 147,000, net of 83,000 deferred
tax asset which were incurred on the borrowings used to finance the
acquisitions subsequent to June 30 is presented as a charge to retained
earnings.
(F) Pro Forma adjustment to reduce other assets by 192,000 and
property plant and equipment by 61,000 to eliminate assets of NRC which
will not be acquired.
(G) Adjustment to record $200,000 of purchase price allocated to
non-compete covenants.
STATEMENT OF INCOME
The accompanying unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1995 and for the six months ended June
30, 1996 presents the results as
F-11
<PAGE> 78
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONTINUED
though each acquisition (other than Adcom, Mail Away, and Diversified) had been
consummated on January 1, 1995. All of the acquisitions, except Micro-Pro, have
a December 31 fiscal year end. Micro-Pro's fiscal year end was September 30.
Accordingly, Micro-Pro's results of operations for the year ended September 30,
1995, were adjusted to the twelve months ended December 31, 1995. A similar
process was followed for the six months ended June 30, 1996. IITA commenced
operations on August 1, 1995, accordingly the pro forma results of operations
for the year ended December 31, 1995, include IITA from the date of inception.
The accompanying unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1995 and for the six months ended June
30, 1996 have been prepared by combining the historical results of the Company
and, where applicable, the Acquisitions (excluding Adcom, Mail Away, and
Diversified) for such respective periods and include the following adjustments:
(H) Pro forma adjustments for the year ended December 31, 1995 and for
the six months ended June 30, 1996 have been made to reduce selling,
general and administrative expenses by approximately $951,000 and $366,000,
respectively, to eliminate specific expenses that would not have been
incurred had the Acquisitions occurred as of January 1, 1995. Such cost
savings relate to the reduction of certain management salaries based on
signed employment agreements. Additional cost savings that the Company
expects to realize through integration of the Acquisitions into Lason
operations have not been included.
(I) Adjustment to record compensatory option expense for the effects
of accelerated vesting provisions which provide for immediate vesting of
unvested shares assuming the effective date of the Offering was January 1,
1995.
(J) Adjustments for the year ended December 31, 1995 and for the six
months ended June 30, 1996 have been made to increase amortization by
$632,000 and $316,000, respectively, related to purchase price allocated to
goodwill and noncompete covenants, as if the Acquisitions had occurred as
of January 1, 1995. Goodwill is amortized over 30 years and the covenants
have an average 4 year amortization. Such amortization expense may change
upon final appraisal of the fair value of the net assets acquired. In
addition, pro forma adjustments for the year ended December 31, 1995 and
for the six months ended June 30, 1996 have been made to reverse
amortization expense of $64,000 and $32,000, respectively, on deferred
financing charges which would have been written off when the associated
debt was extinguished using a portion of the proceeds of the Offering.
(K) Pro forma adjustments for the year ended December 31, 1995 and for
the six months ended June 30, 1996 have been made to reverse interest
expense of $878,000 and $442,000, respectively, on debt retired by the
Company using a portion of the estimated net proceeds of $38.0 million. In
addition, pro forma adjustments for the year ended December 31, 1995 and
for the six months ended June 30, 1996 have been made to reverse interest
expense of $16,000 and $23,000, respectively, on debt of acquired companies
not assumed.
(L) The acquisitions were S-corporations and, accordingly, were not
subject to federal or state income taxes. The pro forma provision for
income taxes has been computed as if the acquisitions were subject to
federal and state corporate income taxes for the periods presented based on
the statutory tax rates then in effect. Additionally, the pro forma
adjustments have been tax effected at a 34% statutory rate.
(M) Pro forma adjustment to record the minority interest in net income
of Micro-Pro.
F-12
<PAGE> 79
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONCLUDED
(N) Pro forma primary and fully diluted earnings per share is computed
by dividing pro forma net income by the weighted average common share and
common share equivalents outstanding. Pro forma common share and common
share equivalents include as outstanding for all periods presented the
options granted in 1995 and 1996 using the treasury stock method and the
assumed offering price of $15.50 per share.
The pro forma common shares and common share equivalents present as
outstanding at January 1, 1995, the 2,700,000 offering shares and the
149,677 shares issued as consideration with respect to the acquisitions of
Great Lakes and IITA.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Weighted average common shares outstanding..................... 7,856,458 7,849,675
Common share equivalents....................................... 483,045 494,164
--------- ---------
Pro forma common shares and common share equivalents
outstanding.................................................. 8,339,503 8,343,839
========= =========
</TABLE>
(O) The extraordinary loss related to the write off of deferred
financing costs net of tax as the associated debt was extinguished using a
portion of the proceeds of the offering have not been recorded in the pro
forma condensed income statement. These amounts totaled $276,000 and
$147,000 for the year ended December 31, 1995 and for the six months ended
June 30, 1996, respectively.
F-13
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lason, Inc.:
We have audited the accompanying consolidated balance sheet of Lason, Inc. as of
December 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows and financial statement schedule for the
year then ended. 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 audit.
We conducted our audit 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 audit provides 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. as of
December 31, 1995 and the consolidated results of its operations and its cash
flows for the year then ended 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.
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 31, 1996, except for Note 6, as to which the
date is July 10, 1996 and Note 15, as to which the
date is .
- --------------------------------------------------------------------------------
The foregoing report is the form that will be signed upon approval by the
Company's Board of Directors of the stock split described in Note 15 to the
consolidated financial statements.
Coopers & Lybrand L.L.P.
Detroit, Michigan
August 28, 1996
F-14
<PAGE> 81
LASON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
JUNE 30,
1996
DEC. 31, -----------
1995
-------- (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................................ $ 103 $ 720
Accounts receivable (net of allowance for doubtful accounts of $80 and $88
at December 31, 1995 and June 30, 1996, respectively)..................... 11,090 12,481
Income tax refund receivable................................................ 649 206
Supplies.................................................................... 1,245 1,393
Prepaid expenses and other.................................................. 1,372 1,019
-------- --------
Total current assets.................................................... 14,459 15,819
PROPERTY AND EQUIPMENT:
Computer equipment and software............................................. 1,430 1,733
Production and office equipment............................................. 1,237 1,941
Leasehold improvements...................................................... 695 895
Other....................................................................... 124 173
-------- --------
3,486 4,742
Less accumulated depreciation and amortization.......................... (978) (1,464)
-------- --------
Net property and equipment.............................................. 2,508 3,278
Deferred income taxes....................................................... 2,817 2,706
Goodwill (net of accumulated amortization of $572 and $882 at
December 31, 1995 and June 30, 1996, respectively)........................ 16,848 18,272
Other intangibles (net of accumulated amortization of $105 and $173 at
December 31, 1995 and June 30, 1996, respectively)........................ 677 609
-------- --------
Total assets............................................................ $ 37,309 $40,684
======== ========
LIABILITIES
CURRENT LIABILITIES:
Cash Overdraft.............................................................. $ 230 $ 600
Current portion of long-term debt........................................... 2,000 2,000
Accounts payable to affiliates.............................................. 219 209
Accounts payable............................................................ 2,525 2,005
Customer deposits........................................................... 914 1,307
Accrued expenses............................................................ 2,254 1,822
Accrued copier expenses..................................................... 750 1,429
Deferred income taxes....................................................... 656 656
-------- --------
Total current liabilities............................................... 9,548 10,028
Long-term debt, less current portion........................................ 18,547 19,146
Minority interest and other................................................. -- 402
Commitments and contingencies (Note 14)..................................... -- --
STOCKHOLDERS' EQUITY
Class A-1 common stock, $.01 par value; 13,000,000 shares authorized;
999,998
issued and outstanding at December 31, 1995 and June 30, 1996............. 10 10
Class A-2 common stock, $.01 par value; 4,000,000 shares authorized, none
and 5,115 issued and outstanding at December 31, 1995 and June 30, 1996,
respectively.............................................................. -- --
Class B common stock, $.01 par value, 1,000,001 shares authorized, issued
and outstanding at December 31, 1995 and June 30, 1996.................... 10 10
Preferred stock, $.01 par value; 1,000,000 shares authorized, none issued
and outstanding at December 31, 1995 and June 30, 1996.................... -- --
Additional paid-in capital.................................................. 8,480 8,652
Loans to stockholders....................................................... (1,256) (628)
Retained earnings........................................................... 1,970 3,064
-------- --------
9,214 11,108
-------- --------
Total liabilities and stockholders' equity.............................. $ 37,309 $40,684
======== ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-15
<PAGE> 82
LASON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DEC. 31, ------------------
1995 1995 1996
---------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Revenues, net of postage of $20,672, $9,749, and $12,264 for
the year ended December 31, 1995 and for the six months ended
June 30, 1995 and 1996, respectively......................... $ 46,605 $23,695 $27,089
Cost of revenues, including supply expense to affiliate of
$1,037, $445, and $1,048 for the year ended December 31, 1995
and for the six months ended June 30, 1995 and 1996,
respectively................................................. 31,227 15,484 17,696
-------- -------- --------
Gross profit.............................................. 15,378 8,211 9,393
Selling, general and administrative expenses................... 9,406 4,563 5,273
Compensatory stock option expense.............................. 308 32 167
Amortization of intangibles.................................... 817 465 379
-------- -------- --------
Income from operations.................................... 4,847 3,151 3,574
Interest expense............................................... 1,760 764 885
Other income, net.............................................. (66) (78) (53)
-------- -------- --------
Income before income taxes................................ 3,153 2,465 2,742
Income taxes................................................... 1,139 890 992
-------- -------- --------
Income before minority interest in net income of
subsidiary.............................................. 2,014 1,575 1,750
Minority interest in net income of subsidiary.................. -- -- 28
-------- -------- --------
Net income................................................ $ 2,014 $ 1,575 $ 1,722
======== ======== ========
Primary and fully diluted earnings per share................... $ .32 $ .25 $ .28
======== ======== ========
PROFORMA:
Historical net income.......................................... $ 2,014 1,575 1,722
Proforma Compensatory stock option expense..................... 668 215 639
Proforma tax benefit........................................... (227) (73) (217)
-------- -------- --------
Proforma net income............................................ $ 1,573 $ 1,433 $ 1,300
======== ======== ========
Proforma primary and fully diluted earnings per share.......... $ .25 $ .23 $ .21
======== ======== ========
Weighted average number of common shares and common share
equivalents.................................................. 6,248 6,248 6,244
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-16
<PAGE> 83
LASON, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
---------------- --------------- ------------------ PAID-IN LOANS TO RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
------- ------ ------ ------ --------- ------ ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
January 1, 1995..... 999,998 $ 10 1,000,001 $ 10 $8,172 $ (1,300) -- $ 6,892
Net income............ -- -- -- -- -- -- -- -- $2,014 2,014
Compensatory stock
option expense...... -- -- -- -- -- -- 308 -- -- 308
Forgiveness of
stockholder loans... -- -- -- -- -- -- -- 44 (44) --
--------- --- ------ -- --------- --- ------ ------- ------ -------
Balances,
December 31, 1995... 999,998 $ 10 -- -- 1,000,001 $ 10 $8,480 $ (1,256) $1,970 $ 9,214
Net income
(unaudited)......... -- -- -- -- -- -- -- -- 1,722 1,722
Compensatory stock
option expense
(unaudited)......... -- -- -- -- -- -- 167 -- -- 167
Issuance of common
stock (unaudited)... -- -- 5,115 -- -- -- 5 -- -- 5
Forgiveness of
stockholder loans
(unaudited)......... -- -- -- -- -- -- -- 628 (628) --
--------- --- ------ -- --------- --- ------ ------- ------ -------
Balances,
June 30, 1996
(unaudited)......... 999,998 $ 10 5,115 -- 1,000,001 $ 10 $8,652 $ (628) $3,064 $11,108
========= === ====== == ========= === ====== ======= ====== =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-17
<PAGE> 84
LASON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DEC. 31, --------------------
1995 1995 1996
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 2,014 $ 1,575 $ 1,722
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,817 823 864
Compensatory stock option expense.......................... 308 32 167
(Gain) loss on disposal of fixed assets.................... 23 (2) (6)
Deferred income taxes...................................... 781 895 111
Changes in operating assets and liabilities net of effects
from acquisition:
Accounts receivable..................................... (2,046) 154 (1,180)
Income tax refund receivable............................ (649) (891) 443
Supplies................................................ (384) (78) (114)
Prepaid expenses and other.............................. (698) (3) 9
Accounts payable........................................ 397 (277) (530)
Customer deposits....................................... (31) (122) 393
Accrued expenses........................................ (324) (342) (446)
Accrued copier expenses................................. 47 337 679
Minority interest and other liabilities................. -- -- 308
-------- -------- --------
Net cash provided by operating activities.......... 1,255 2,101 2,420
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets........................... 713 5 33
Payment for assets of acquired business, net of cash
acquired................................................... (1,430) (1,430) (1,608)
Purchase of property and equipment........................... (1,126) (500) (1,202)
-------- -------- --------
Net cash used in investing activities.............. (1,843) (1,925) (2,777)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit....................... 35,883 10,785 29,778
Repayments on revolving line of credit....................... (34,836) (10,460) (28,179)
Cash overdraft............................................... 229 416 370
Principal payments on term loan.............................. (1,500) (750) (1,000)
Proceeds from exercise of employee stock options............. -- -- 5
-------- -------- --------
Net cash provided by (used in) financing
activities....................................... (224) (9) 974
-------- -------- --------
Net increase (decrease) in cash.............................. (812) 167 617
Cash, beginning of period.................................... 915 915 103
-------- -------- --------
Cash, end of period.......................................... $ 103 $ 1,082 $ 720
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $ 1,329 $ 474 $ 923
======== ======== ========
Cash paid during the period for income tax................... $ 1,000 $ 700 $ 900
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-18
<PAGE> 85
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. FORMATION AND ACQUISITION:
Lason, Inc. (formerly Lason Holdings, Inc. the "Company"), a Delaware
corporation, was incorporated on January 5, 1995. The Company's 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 funds to Lason Acquisition
Corporation, a non-operating 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 Company") and
provide working capital. Subsequent to the acquisition, Lason Acquisition Corp.
changed it name to Lason Systems, Inc. ("Lason"). Prior to the acquisition,
three shareholders owned 93.8 percent of the common stock of the predecessor
company. As part of the acquisition, the same three shareholders ("continuing
shareholders") collectively acquired 93.8 percent of the Class A-1 common stock
which represents a 46.9 percent aggregate interest of all outstanding classes of
common stock in Lason, Inc.
The acquisition has been accounted for as a purchase and accordingly, at
such date the Company recorded the assets and liabilities assumed at their
estimated fair values, adjusted for the impact of the continuing shareholders'
residual interest in the Company as described below. The excess of the purchase
price over the fair value of net assets acquired $16.8 million has been
allocated to goodwill and is being amortized over 30 years.
Pursuant to the consensus of the Emerging Issues Task Force ("EITF") Issue
Number 88-16, "Basis in Leveraged Buyout Transactions," goodwill has been
reduced by approximately $8.6 million representing the continuing stockholders'
residual interest in the Company with a corresponding charge against
stockholders' equity. The approximate $8.6 million reduction of stockholder's
equity represents a temporary difference between the tax basis and assigned book
value of goodwill that will result in future tax deductions. A deferred tax
asset of $2.9 million related to this basis difference has been credited to
stockholders' equity.
The aggregate purchase price and its allocation to the historical assets
and liabilities of the Company as of January 17, 1995 are as follows:
<TABLE>
<S> <C>
Cost to acquire net assets of the predecessor.................................. $31,445
Adjustment necessary to value continuing shareholders' interest at predecessor
basis........................................................................ (8,652)
--------
$22,793
========
ALLOCATION OF PURCHASE PRICE:
Net assets acquired............................................................ $ 5,968
Goodwill....................................................................... 16,825
--------
Total purchase price allocated............................................ $22,793
========
</TABLE>
2. OPERATIONS AND CUSTOMER CONCENTRATION:
The Company provides integrated outsourcing services for document
management, records management and business communications. These services
include high-volume optical and digital printing, facility management operations
at customer sites, converting inputs into digital formats and direct mailing.
The Company primarily serves customers in the automotive, financial
services, health care and professional services industries.
F-19
<PAGE> 86
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. OPERATIONS AND CUSTOMER CONCENTRATION -- CONCLUDED
Transactions under separate contracts with various divisions of one
automotive manufacturer accounted for approximately 49 percent of the Company's
net revenues for the year ended December 31, 1995. Receivables from this
customer were approximately $3,400 at December 31, 1995. In addition,
transactions under separate contracts with various divisions of another
automotive manufacturer accounted for approximately 12 percent of the Company's
net revenues for the year ended December 31, 1995. Receivables from this
customer were approximately $1,652 at December 31, 1995.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Interim Financial Data: The unaudited interim financial statements were
prepared in a manner consistent with that of the audited financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal recurring
nature.
b. Consolidation Principles: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Lason Systems, Inc.
and reflect twelve months of operating results as though the acquisition
described in Note 1 had occurred on January 1, 1995. All significant
intercompany balances have been eliminated.
c. Revenue Recognition: Revenues are recorded when the products are shipped
or the services are rendered. Revenues are presented in the income statement net
of postage because the cost of postage is passed through to the customer.
d. Supplies: Supplies are valued at cost, which approximates market, with
cost determined using the first-in, first-out ("FIFO") method.
e. 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.
Depreciation is computed using an accelerated method over the
estimated useful lives of the assets, ranging from 5 to 10 years.
f. Intangible Assets: Goodwill is amortized using the straight-line method
over a period of 30 years. A covenant-not-to-compete is being amortized using
the straight-line method over the five year term of the agreement. Deferred
financing costs are amortized using the interest method over the life of the
associated loan agreement.
Annually, the Company evaluates the net carrying value of goodwill to
determine if there has been any impairment in value. The methodology used
for this evaluation entails review of annual operating performance along
with anticipated results for the ensuing year based on operating budgets.
At December 31, 1995, the Company concluded that there had been no
impairment in the net carrying value of goodwill.
g. Accrued Copier Expense: Under various copy equipment leases, the Company
remits a per copy fee for each copy made. The costs associated with these leases
are included in cost of sales. Amounts unpaid at December 31, 1995 are reflected
as accrued copier expense.
F-20
<PAGE> 87
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONCLUDED
h. Income Taxes: Income taxes are calculated using the asset and liability
method under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
i. Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosures about the fair value of financial instruments whether or
not such instruments are recognized in the balance sheet. Due to the short-term
nature of the Company's financial instruments, other than debt, fair values are
not materially different from their carrying values. Based on the borrowing
rates currently available to the Company, the carrying value of debt
approximates fair value.
j. Use of Estimates in the Preparation of Financial Statements: 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
k. Earnings Per Share: Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding during the periods
presented, retroactively adjusted for the effect of the 2.5 for 1 stock split.
The weighted average common shares and common share equivalents outstanding
include as outstanding for all periods presented the options granted in 1995 and
1996 using the treasury stock method and the 755,933 shares which would have
been sold at the assumed Offering price of $15.50 to fund the redemption of
common shares owned by the Class B Shareholders. (See Note 15). Historical
earnings per share are $.93, $.73 and $.79 for the periods ended December 31,
1995, June 30, 1995 and June 30, 1996, respectively.
l. Effect of New Accounting Pronouncements: Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of" is effective for fiscal
years beginning after December 15, 1995. The statement establishes standards for
measuring impairment losses of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and those to be
disposed of. Lason does not expect the adoption of SFAS No. 121 to have a
material effect on its financial position or results of operations. SFAS No. 123
"Accounting for Stockbased Compensation" is effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 requires increased disclosures related to
stock-based compensation plans and encourages companies to adopt the fair value
method of accounting for stock options. Companies are also permitted to continue
to account for such transactions under Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees". The Company has
elected to continue to account for employee stock options under APB No. 25 and
will disclose the required pro forma effect on net income of the measurement
provisions of SFAS No. 123 in its 1996 consolidated financial statements.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<S> <C>
An analysis of the allowance for doubtful accounts follows:
Beginning balance, January 1, 1995.............................................. $ 239
Additions..................................................................... 151
Write-offs.................................................................... (310)
-----
Ending balance, December 31, 1995............................................... $ 80
=====
</TABLE>
F-21
<PAGE> 88
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
5. STOCKHOLDER LOANS:
In connection with the acquisition described in Note 1, Lason entered into
a Credit Agreement dated January 17, 1995 with certain stockholders who were
also stockholders in the Predecessor Company. Pursuant to which Lason loaned the
stockholders' $1.3 million which was used to pay their tax liability resulting
from the sale of the assets of the predecessor company.
Lason's sole recourse is to the stockholders' Class A-1 common stock,
provided that Lason has full recourse against each stockholder with respect to
any amount by which the loans exceed the estimated additional tax due. The loans
are presented as a reduction to stockholders' equity.
In addition, an agreement with certain of these stockholders, the
"continuing stockholders" as defined in Note 1, provides that at any time prior
to an initial public offering should the Company issue any common stock or
options or other rights to acquire common stock that dilute the continuing
stockholders' common stock interest, a portion of the loan will be forgiven
based on the dilution factor times the unpaid loan balance. At December 31,
1995, $44 of such loans have been charged to retained earnings as a result of
granting options to certain employees.
The outstanding principal amounts, together with unpaid accrued interest,
are due January 17, 2005. Amounts may be prepaid without penalty. Interest on
the loans accrues at the applicable federal rate for short-term obligations
(5.51 percent at December 31, 1995).
(unaudited)
At June 30, 1996, the Company has agreed to forgive 50 percent of the
outstanding amounts of the stockholder loans concurrent with the effective date
of the Offering (see Note 15). This forgiveness is presented in the Company's
consolidated financial statements for the six months ended June 30, 1996.
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Borrowings under revolving line of credit...................................... $ 7,047
Term bank loan................................................................. 13,500
Less current portion......................................................... (2,000)
--------
Long-term debt............................................................ $18,547
========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31:
1996......................................................................... $ 2,000
1997......................................................................... 2,000
1998......................................................................... 2,500
1999......................................................................... 2,500
2000 and thereafter.......................................................... 11,547
--------
$20,547
========
</TABLE>
Lason is party to a loan agreement, dated January 17, 1995 with a bank
which includes a $10 million revolving line of credit and a $15 million term
loan. Both expire on June 30, 2001. Interest on amounts outstanding under the
agreement is calculated using rates determined at the time of borrowing. With
each borrowing, Lason chooses the applicable interest rate. Borrowings on the
revolving line of credit bear interest at either the bank's prime plus .75
percent or LIBOR plus 2.25 percent. Borrowings on the term loan bear interest at
either the bank's prime rate plus 1.0 percent or LIBOR plus 2.50 percent.
Interest payment due dates vary depending on the rate chosen. At December 31,
1995, interest on the revolving line of credit was LIBOR plus 2.25 percent
(8.1875 percent at December 31, 1995) on $5,000 and at prime plus 1.0 percent
(9.25 percent at December 31,
F-22
<PAGE> 89
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
6. LONG-TERM DEBT -- CONCLUDED
1995) on $2,047. Revolving credit availability is based on 85 percent of
eligible accounts receivable. Lason pays a monthly commitment fee at an annual
rate of 0.5 percent of the unused balance on the revolving credit facility. At
December 31, 1995, there was approximately $2.9 million of unborrowed
availability under the revolving credit agreement.
At December 31, 1995, interest on the term loan was at LIBOR plus 2.5
percent (8.4375 percent at December 31, 1995). The term loan provides for
quarterly principal payments of $500 due March 31, 1996 through December 31,
1997, $625 due March 31, 1998 through December 31, 2000 and $1,000 due March 31,
2001 and June 30, 2001. In addition, Lason is required to make a mandatory
prepayment of the term loan on an annual basis in an amount equal to 50 percent
of Lason's net cash flow, as defined in the loan agreement, each fiscal year
(or, if less, the outstanding principal amount of the term loan). Each mandatory
prepayment is due no later than 90 days after the end of each fiscal year. No
mandatory prepayment is required for the year ended December 31, 1995.
Borrowings under the loan agreement are collateralized by substantially all of
Lason's assets. The loan agreement contains covenants which, among other things,
places restrictions on the acquisition and disposal of assets, payment of
dividends and incurrence of liabilities together with minimum requirements for
free cash flow and certain financial ratios. At December 31, 1995, the loan
agreement prohibits Lason from advancing funds or paying dividends to the
Company. Subsequent to January 17, 1997, Lason may pay dividends, not to exceed,
in any fiscal year, the sum of the lessor of (1) $1,200 and (2) ten percent of
the unredeemed investment in Class B Common Stock and the unpaid yield (see Note
12). Lason accounts for substantially all the net assets of the Company.
At December 31, 1995, Lason was in violation of certain financial and
nonfinancial covenants. On March 25, 1996, the bank amended the loan agreement
to waive the borrowing base limitation for the revolving line of credit and
waive the financial covenant violations at December 31, 1995. On April 8, 1996,
Lason obtained waivers of the nonfinancial covenant violations.
The loan agreement was further amended on July 10, 1996 to provide for an
Acquisition Revolving Credit Facility in the amount of $10,000 to finance the
acquisitions discussed in Note 15. The borrowings under this facility are
payable in full from the proceeds of the equity offering (see Note 15).
7. INCOME TAXES:
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by
F-23
<PAGE> 90
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
7. INCOME TAXES -- CONCLUDED
tax laws and regulations. The components of deferred income tax assets and
liabilities at December 31, 1995 are as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Goodwill........................................................................ $ 2,745
Depreciation.................................................................... 146
Compensatory stock option expense............................................... 111
Allowance for doubtful accounts................................................. 27
Covenant-not-to-compete amortization............................................ 9
-------
Total deferred tax assets.................................................. $ 3,038
=======
DEFERRED TAX LIABILITIES:
Supplies........................................................................ $ 423
Prepaid expenses................................................................ 259
Goodwill........................................................................ 194
-------
Total deferred tax liabilities............................................. $ 876
=======
</TABLE>
The provision for income taxes for the year ended December 31, 1995 is as
follows:
<TABLE>
<S> <C>
Current......................................................................... $ 358
Deferred........................................................................ 781
-------
$ 1,139
=======
</TABLE>
The difference between the effective tax rate of 36.1 percent and the U.S.
Federal Income tax rate results from travel and entertainment expenses that are
nondeductible for tax purposes.
8. OPERATING LEASES:
The Company has various operating lease agreements related primarily to
equipment and buildings. At December 31, 1995, future minimum rental payments
required under noncancelable operating leases with initial or remaining lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
EQUIPMENT BUILDINGS
--------- ---------
<S> <C> <C>
1996................................................................ $ 1,116 $ 489
1997................................................................ 994 238
1998................................................................ 730 238
1999................................................................ 527 238
2000................................................................ 133 238
------- -------
Total.......................................................... $ 3,500 $ 1,441
======= =======
</TABLE>
In addition, the Company has a number of equipment leases that are on a
month-to-month basis.
Rent expense for the year ended December 31, 1995 was $752 for buildings
which includes $191 of rent to a general partnership controlled by two of the
Company's stockholders. Rent expense for equipment for the year ended December
31, 1995 was $4,377, which includes $170 of rent to a related party.
9. ACQUISITIONS:
On June 1, 1995, Lason acquired certain assets of a corporation and
partnership for $1,430 cash. The acquisition was accounted for as a purchase.
The purchase price was allocated to the assets
F-24
<PAGE> 91
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
9. ACQUISITIONS -- CONCLUDED
acquired based on their fair values at the date of acquisition. Goodwill is
being amortized on the straight-line method over 30 years. The fair values of
the assets acquired were as follows:
<TABLE>
<S> <C>
Supplies........................................................................ $ 10
Equipment....................................................................... 825
Goodwill........................................................................ 595
------
Purchase price............................................................. $1,430
======
</TABLE>
In connection with the acquisition, the Company entered into a $700
consulting agreement, which included a covenant-not-to-compete, with an
individual who served as an officer and partner of the acquired corporation and
partnership. The agreement provides for annual payments of $140 during the next
five years.
The effect of this acquisition on the results of operations for the year
ended December 31, 1995 was not material.
10. RELATED PARTY TRANSACTIONS:
At December 31, 1995, the Company had the following balances due to or from
entities related to the Company:
<TABLE>
<S> <C>
Accounts receivable.............................................................. $ 51
Accounts payable................................................................. 219
</TABLE>
Included in sales are revenues received from related parties in the amount
of $103 for the year ended December 31, 1995.
Included in production expense are supply expenses paid to related parties
in the amount of $1,037 for the year ended December 31, 1995.
11. EMPLOYEE BENEFIT PLANS:
The Company participates in 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 is eligible to
participate in the Plan. Eligible participants may contribute not less than 2
percent and up to 15 percent of their pretax earnings 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 contribution for the year ended December 31, 1995 was
$172.
12. COMMON STOCK AND PREFERENTIAL DIVIDEND:
The Company's issued and outstanding common stock consisted of 999,998
shares of Class A-1 Common Stock and 1,000,001 shares of Class B Common Stock.
The holders of Class A-1 Common Stock and Class A-2 Common Stock (collectively,
the "Class A Common Stock") and Class B Common Stock are entitled to participate
in any distribution made by the Company in the following priority: (i) first, to
the holders of Class B Common Stock, ratably, until the holders of Class B
Common Stock had received, taking into consideration all prior distributions, a
10 percent yield (compounded quarterly) on $9,900 of the amount paid with
respect to the Class B Common Stock, ($944 at December 31, 1995) (ii) second, to
the holders of Class B Common Stock, ratably, until the holders of Class B
Common Stock had received, taking into consideration all prior distributions
other than
F-25
<PAGE> 92
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
12. COMMON STOCK AND PREFERENTIAL DIVIDEND -- CONCLUDED
distributions pursuant to clause (i) above, $9,900 and (iii) last, to the
holders of Class A Common Stock and the holders of Class B Common Stock,
ratably, the balance of such distribution. The holders of Class A-1 Common Stock
are entitled to one vote per share, the holders of Class B Common Stock are
entitled to four votes per share, and the holders of Class A-2 Common Stock have
no voting rights other than a class vote in connection with a merger or
reorganization in which the Class A-2 Common Stock would be treated differently
than the Class A-1 Common Stock.
13. STOCK OPTION PLAN:
The Company's 1995 stock option plan was adopted by the Board of Directors
and approved by the Company's stockholders in January 1995. A committee of the
Board of Directors selects certain key employees to be participants of the Plan.
The options are exercisable into Class A-2 non-voting common stock. At the date
of grant, the exercise price for such options was less than fair value.
Accordingly, compensation expense is recognized based on the difference between
the exercise price and fair value over the vesting period which ranges from 3 to
5 years.
At December 31, 1995, June 30, 1995, and June 30, 1996, 97 percent, 100
percent and 77 percent, respectively, of the outstanding stock options provide
for 100 percent vesting of unvested shares at the consummation of the Offering
(see Note 15). Proforma net income gives effect to the compensation expense
related to the accelerated vesting provisions.
Option prices range from $1.00 to $8.00. Information concerning the
Company's stock options is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Options outstanding, beginning of period........................... -- 167,729
New grants......................................................... 167,729 65,000
Exercised.......................................................... -- (5,115)
Terminated......................................................... -- (6,818)
-------- --------
Options outstanding, end of period................................. 167,729 220,796
Options outstanding, not exercisable............................... (145,002) (184,546)
-------- --------
Options outstanding, exercisable................................... 22,727 36,250
-------- --------
Available for future grants........................................ 573,000 508,011
======== ========
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
The Company is from time to time, a party to legal proceedings arising 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 and results of operations.
15. SUBSEQUENT EVENTS:
In January 1996, Lason acquired the assets of Mail Away Corporation ("Mail
Away"). In February 1996, Lason acquired substantially all of the assets of
Diversified Support Services, Inc. ("Diversified"). On April 1, 1996, Lason
acquired 65 percent of the common stock of Delaware Legal Copy, Inc. ("Delaware
Legal"). Lason acquired the common stock of, (i) Information & Image Technology
of
F-26
<PAGE> 93
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
15. SUBSEQUENT EVENTS -- CONCLUDED
America ("IITA") on July 16, 1996, (ii) (80 percent of the common stock) of
Micro-Pro, Inc. and MP Services, Inc., affiliated companies ("Micro-Pro") on
July 24, 1996, (iii) Great Lakes Technologies Corporation ("Great Lakes") on
July 17, 1996.
The aggregate purchase price, excluding liabilities assumed of $1,900, was
approximately $11,700, $9,400 of which was funded by bank borrowings and $2,300
through the issuance of common stock.
On August 6, 1996, Lason signed an agreement to acquire all the common
stock of National Reproductions Corp. for approximately $8,600, which will be
financed with $8,200 in bank borrowings and the issuance of a promissory note in
the amount of $400.
The Company is in the process of filing a registration statement with the
Securities and Exchange Commission in connection with the offering by the
Company of a new class of common stock for sale to the public (the "Offering").
In contemplation of the offering, each outstanding share of Class A Common
Stock and Class B Common Stock will be converted into one share and 1.3 shares,
respectively, of new common stock. Concurrent with the consummation of the
offering, the Company shall redeem 755,933 shares of common stock owned by the
holders of the former Class B shares at a price of $15.50 per share ($11,700 in
the aggregate) using a portion of the proceeds form the offering.
The Company's Board of Directors will approve a 2.5 to 1 stock split and
the authorized capital stock of the Company will consist of 20,000 shares of
common stock, par value $0.01 per share and 5,000 shares of preferred stock, par
value $0.01 per share.
F-27
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lason Systems, Inc.:
We have audited the accompanying balance sheet of Lason Systems, Inc. as of
December 31, 1994 and the related statements of income, stockholders' equity,
and cash flows for the years ended December 31, 1994 and 1993. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lason Systems, Inc. as of
December 31, 1994 and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 17, 1995
F-28
<PAGE> 95
LASON SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................... $ 102
Accounts receivable (net of allowance for doubtful accounts of $239)............... 10,249
Accounts receivable from affiliates................................................ 42
Supplies........................................................................... 814
Prepaid expenses and other......................................................... 819
--------
Total current assets.......................................................... 12,026
PROPERTY AND EQUIPMENT:
Computer equipment and software.................................................... 2,772
Office equipment................................................................... 2,190
Leasehold improvements............................................................. 630
Other.............................................................................. 307
--------
5,899
Less accumulated depreciation and amortization................................ 3,229
--------
2,670
Goodwill (net of accumulated amortization of $179)................................. 827
Other intangibles (net of accumulated amortization of $409)........................ 169
--------
Total assets.................................................................. $15,692
========
LIABILITIES
CURRENT LIABILITIES:
Short-term borrowings.............................................................. $ 3,300
Current portion of long-term debt.................................................. 223
Accounts payable to affiliates..................................................... 132
Accounts payable................................................................... 2,130
Customer deposits.................................................................. 820
Accrued expenses................................................................... 1,377
Accrued copier expenses............................................................ 826
--------
Total current liabilities..................................................... 8,808
Long-term debt, less current portion............................................... 261
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized 1,000,000 shares; issued and
outstanding 620,500.............................................................. 6
Additional paid-in capital......................................................... 331
Retained earnings.................................................................. 6,286
--------
6,623
--------
Total liabilities and stockholders' equity.................................... $15,692
========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-29
<PAGE> 96
LASON SYSTEMS, INC.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Revenues, net of postage of $9,595 and $15,276 in 1993 and 1994,
respectively............................................................ $31,151 $41,151
Cost of revenues, including expense to affiliate of $849 and $708, in 1993
and 1994, respectively.................................................. 20,684 27,238
------- -------
Gross profit......................................................... 10,467 13,913
Selling, general and administrative expense............................... 6,980 8,377
Amortization of intangibles............................................... 163 266
------- -------
Income from operations............................................... 3,324 5,270
Other expenses (income):
Interest expense.......................................................... 126 185
Other income, net......................................................... (21) (21)
------- -------
Net income........................................................... $ 3,219 $ 5,106
======= =======
Pro Forma:
Historical net income..................................................... $ 3,219 $ 5,106
Proforma income tax provision............................................. 1,162 1,843
------- -------
Proforma net income.................................................. $ 2,057 $ 3,263
======= =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-30
<PAGE> 97
LASON SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1993..................... 605,000 $6 $163 $ 4,766 $ 4,935
Distribution to stockholders.................. -- -- -- (1,587) (1,587)
Net income.................................... -- -- -- 3,219 3,219
------- --- ---- ------- -------
Balances, December 31, 1993................... 605,000 6 163 6,398 6,567
Distributions to stockholders................. -- -- -- (5,218) (5,218)
Issuance of 15,500 shares of stock at $10.86
per share................................... 15,500 168 168
Net income.................................... -- -- -- 5,106 5,106
------- --- ---- ------- -------
Balances, December 31, 1994................... 620,500 $6 $331 $ 6,286 $ 6,623
======= === ==== ======= =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-31
<PAGE> 98
LASON SYSTEMS, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 3,219 $ 5,106
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation......................................................... 708 972
Amortization......................................................... 163 266
Loss on disposal of fixed assets..................................... -- 12
Provision for bad debts.............................................. 42 204
Changes in operating assets and liabilities net of effects of
acquired businesses:
Accounts receivable............................................... (2,060) (702)
Supplies.......................................................... 8 (83)
Prepaid expenses.................................................. (172) (255)
Accounts payable.................................................. 37 (523)
Customer deposits................................................. 303 454
Accrued expenses.................................................. 218 247
Accrued copier expenses........................................... 413 40
-------- --------
Net cash provided by operating activities.................... 2,879 5,738
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for assets of acquired businesses, net of cash received........ (128) (1,028)
Purchase of property and equipment..................................... (1,116) (758)
Advance to affiliate................................................... (559) --
Other.................................................................. -- (33)
-------- --------
Net cash used in investing activities........................ (1,803) (1,819)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings, net............................... 200 1,200
Issuance of stock...................................................... -- 168
Distributions to shareholders.......................................... (1,587) (5,218)
Principal payments of long-term debt................................... (214) (243)
Proceeds from long-term debt........................................... 474 203
-------- --------
Net cash used in financing activities........................ (1,127) (3,890)
Net increase (decrease) in cash........................................ (51) 29
Cash, beginning of year................................................ 124 73
-------- --------
Cash, end of year...................................................... $ 73 $ 102
======== ========
Supplemental disclosure of cash flow information, interest paid........ $ 124 $ 181
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Cash paid for acquired assets.......................................... $ 128 --
Reduction of accounts receivable....................................... 92 --
-------- --------
Fair value of assets acquired.......................................... $ 220 --
======== ========
Book value of assets of acquired business.............................. -- $ 1,881
Cash paid for acquired business........................................ -- (1,040)
-------- --------
Liabilities assumed.......................................... $ -- $ 841
======== ========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-32
<PAGE> 99
LASON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. OPERATIONS AND CUSTOMER CONCENTRATION:
The Company provides integrated outsourcing services for document
management, records management and business communications. These services
include high-volume optical and digital printing, facility management operations
at customer sites, converting inputs into digital formats and direct mailing.
The Company primarily serves customers in the automotive, financial
services, health care and professional services industries.
Transactions under separate contracts with various divisions of one
automotive manufacturer accounted for approximately 57 percent and 55 percent of
the Company's net revenues for the years ended December 31, 1993 and 1994
respectively. Receivables from this customer were $4,769 at December 31, 1994.
In addition, transactions under separate contracts with various divisions of
another automotive manufacturer accounted for approximately 15 percent and 12
percent of the Company's net revenues for the years ended December 31, 1993 and
1994, respectively. Receivables from this customer were $1,272 at December 31,
1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Revenue Recognition: Revenues are recorded when the products are shipped
or the services are rendered. Revenues are presented in the income statement net
of postage because the cost of postage is passed through to the customer.
b. Supplies: Supplies are valued at cost, which approximates market, with
cost determined using the first-in, first-out ("FIFO") method.
c. 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.
Depreciation is computed using an accelerated method over the
estimated useful lives of the assets, ranging from 5 to 10 years.
d. Intangible Assets: The Company has intangible assets consisting
primarily of goodwill and a service contract with a major customer. The goodwill
is being amortized on a straight-line basis over ten years and the cost of the
service contract is being amortized on a straight-line basis over the three year
life of the agreement.
e. Accrued Copier Expense: Under various copy equipment leases, the Company
remits a per copy fee for each copy made. The costs associated with these leases
are included in production cost of sales. Amounts unpaid at December 31, 1994
are included as accrued copier expense.
f. Income Taxes: The Company has elected to be taxed as an S-Corporation.
As such, the Company does not pay federal income taxes; rather, the stockholders
report the taxable income or loss of the Company in their individual federal
income tax returns.
The proforma adjustments to income taxes reflect income taxes that
would have been reported had the Company been subject to federal income
taxes for the years presented.
F-33
<PAGE> 100
LASON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS)
3. ACQUISITIONS:
On January 1, 1994, the Company purchased the assets of a corporation owned
by the Company's majority stockholders, who had previously acquired the
corporation on March 1, 1993. The purchase price constituted the assumption of
all the liabilities of the seller. Concurrently, the Company paid the sellers
notes payable to its stockholders of $1,040. There was no step-up in basis of
the acquired corporations assets or liabilities as a result of this transaction.
Had the Company's 1993 income statement been restated to reflect the acquisition
as of March 1, 1993, net revenues and net income of the Company, on a pro forma
basis, would have been $32,848 and $3,162, respectively.
On November 30, 1994, the Company purchased the assets of another
corporation owned by the Company's majority stockholders, for approximately $98,
which equaled the net book value of the assets. The effect of this acquisition
on the results of operations for the years ended December 31, 1994 and 1993 was
not material.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
An analysis of the allowance for doubtful accounts for the year ended
December 31, 1994 follows:
<TABLE>
<S> <C>
Beginning, balance January 1, 1994............................................... $ 66
Additions........................................................................ 204
Write-offs....................................................................... (31)
----
Ending balance, December 31, 1994................................................ $239
====
</TABLE>
5. SHORT-TERM BORROWINGS:
At December 31, 1994, the Company has available a $8,000 line-of-credit
agreement. At December 31, 1994, outstanding borrowings under this line of
credit were $3,300. Borrowings under the line of credit are payable on demand
with interest at one-quarter of one percent above the bank's prime rate (prime
rate was 8.5 percent at December 31, 1994) and are limited to a percentage of
accounts receivable. Available and unused borrowings under the line of credit
are $4,700 at December 31, 1994. Amounts outstanding under the line of credit
were repaid on January 17, 1995 (see Note 9).
6. LONG-TERM DEBT:
Long-term debt at December 31, 1994 consists of the following:
<TABLE>
<S> <C>
Installment notes payable to bank, due through 1996
at various interest rates from 6.5 percent to 9.8 percent..................... $ 484
Less current portion.......................................................... (223)
------
Noncurrent portion of long-term debt..................................... $ 261
======
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31:
1995........................................................................... $223
1996........................................................................... 221
1997........................................................................... 40
</TABLE>
The Company's notes payable are collateralized by equipment purchased with
the note proceeds.
F-34
<PAGE> 101
LASON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
(IN THOUSANDS)
7. OPERATING LEASES:
The Company has various operating lease agreements related primarily to
equipment and buildings. At December 31, 1994, future minimum rental payments
required under operating leases are as follows:
<TABLE>
<CAPTION>
EQUIPMENT BUILDINGS
--------- ---------
<S> <C> <C>
1995................................................................ $ 278 $ 233
1996................................................................ 194 --
1997................................................................ 82 --
1998................................................................ 24 --
1999................................................................ 21 --
----- -----
Total.......................................................... $ 599 $ 233
===== =====
</TABLE>
In addition, the Company has a number of equipment leases that are on a
month-to-month basis.
Rent expense for 1993 and 1994 was $528 and $624, respectively, for
buildings with $191 paid to a party related through common ownership in both
1993 and 1994, respectively. Rent expenses for equipment for 1993 and 1994 was
$3,249 and $3,893, respectively.
8. RELATED PARTY TRANSACTIONS:
At December 31, 1994 the Company had the following balances due to or from
entities related to the Company:
<TABLE>
<S> <C>
Accounts receivable.............................................................. $ 42
Accounts payable................................................................. 132
</TABLE>
Included in revenues are amounts received from related parties of $166 and
$207 for 1993 and 1994, respectively.
Included in cost of sales are equipment maintenance and supply expenses to
related parties in the amount of $849 and $708 for 1993 and 1994, respectively.
9. EMPLOYEE BENEFIT PLANS:
The Company participates in a 401(k) profit-sharing plan and trust (the
"Plan"). All full-time employees, 20.5 years of age or older, with six months of
service are eligible to participate in the Plan. The Plan is contributory and
the Company will match up to 33 percent of eligible participant contributions
not to exceed 2 percent of the participant's wages. The Company's contribution
for 1993 and 1994 were $75 and $156, respectively.
10. SUBSEQUENT EVENT:
On January 17, 1995, Lason Acquisition Corp. ("LAC") acquired the assets of
the Company. The purchase price consisted of $28,000 in cash and the assumption
of certain liabilities. The current stockholders of the Company acquired
approximately 49 percent of the common stock of LAC's parent company, Lason,
Inc. Concurrent with the acquisition, LAC entered into a loan agreement which
provided term loans in the aggregated principal amount of $15,000 and revolving
credit loans in the aggregate principal amount of up to $10,000. The proceeds of
such loans will be used by LAC to finance the acquisition, to provide ongoing
working capital, to pay off existing debt and for other purposes set forth in
the loan agreement.
F-35
<PAGE> 102
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Lason, Inc.:
We have audited the accompanying balance sheet of Great Lakes Micrographics
Corporation as of December 31, 1995 and the related statements of income,
stockholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Great Lakes Micrographics
Corporation as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Detroit, Michigan
June 28, 1996, except for Note 6, as to
which the date is July 16, 1996
F-36
<PAGE> 103
GREAT LAKES MICROGRAPHICS CORPORATION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................................ $ 18 $ 13
Accounts receivable................................................. 827 930
Inventory........................................................... 28 29
Prepaid expenses and other.......................................... 23 33
------ -------
Total current assets........................................... 896 1,005
PROPERTY AND EQUIPMENT:
Equipment........................................................... 782 782
Vehicles............................................................ 164 164
Leasehold improvements.............................................. 34 34
Furniture........................................................... 55 55
------ -------
1,035 1,035
Less accumulated depreciation and amortization................. (797) (828)
------ -------
238 207
Deposits....................................................... 8 8
------ -------
$1,142 $ 1,220
====== =======
LIABILITIES
CURRENT LIABILITIES:
Accounts payable.................................................... $ 724 $ 700
Accrued payroll, benefits and withholdings.......................... 37 7
Other liabilities................................................... 52 52
------ -------
Total current liabilities...................................... 813 759
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share; authorized 50,000 shares;
2,000 shares issued and outstanding............................... 2 2
Retained earnings................................................... 327 459
------ -------
329 461
------ -------
$1,142 $ 1,220
====== =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-37
<PAGE> 104
GREAT LAKES MICROGRAPHICS CORPORATION
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................................. $7,825 $ 3,908 $ 4,068
Cost of revenues......................................... 6,397 3,018 3,323
------ ------- -------
Gross profit........................................ 1,428 890 745
Selling, general and administrative expenses............. 1,371 759 604
------ ------- -------
Income from operations.............................. 57 131 141
Interest expense......................................... 3 -- 2
Other income, net........................................ (2) (1) (1)
------ ------- -------
Net income.......................................... $ 56 $ 132 $ 140
====== ======= =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-38
<PAGE> 105
GREAT LAKES MICROGRAPHICS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995................................ 2,000 $ 2 $271 $ 273
Net income.............................................. -- -- 56 56
------ ---- ---- -----
Balance, December 31, 1995.............................. 2,000 $ 2 $327 $ 329
====== ==== ==== =====
Net income (unaudited).................................. -- -- 132 132
------ ---- ---- -----
Balances, June 30, 1996 (unaudited)..................... 2,000 $ 2 $459 $ 461
====== ==== ==== =====
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-39
<PAGE> 106
GREAT LAKES MICROGRAPHICS CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR SIX MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 56 $ 132 $ 140
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and Amortization......................... 67 31 40
Changes in operating assets and liabilities:
Accounts receivable................................ (3) (103) (86)
Inventory.......................................... 20 (1) (44)
Prepaid expenses and other......................... 6 (10) (1)
Accounts payable................................... 127 (24) 152
Accrued payroll, benefits and withholdings......... (37) (30) 54
Other liabilities.................................. 32 -- (35)
------ ----- -----
Net cash provided by (used in) operating
activities.................................. 268 (5) 220
------ ----- -----
Cash flows from investing activities, purchase of
property and equipment................................ (32) -- (29)
------ ----- -----
Net cash used in investing activities......... (32) -- (29)
------ ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term loan......................... (67) -- (34)
Repayment of shareholder loans.......................... (163) -- (163)
------ ----- -----
Net cash used in financing activities......... (230) -- (197)
------ ----- -----
Net increase (decrease) in cash......................... 6 (5) (6)
Cash, beginning of period............................... 12 18 12
------ ----- -----
Cash, end of period..................................... $ 18 $ 13 $ 6
====== ===== =====
Supplemental disclosures of cash flow information,
interest paid......................................... $ 35 -- $ 9
====== ===== =====
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-40
<PAGE> 107
GREAT LAKES MICROGRAPHICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
1. OPERATIONS AND CUSTOMER CONCENTRATION:
Great Lakes Micrographics Corporation (the "Company") provides micrographic
film, supplies, services and microimaging equipment through facilities located
in Chicago, Illinois, Indianapolis, Indiana and Grand Rapids, Kalamazoo and
Livonia, Michigan. The majority of the micrographic film and equipment sold by
the Company is provided by a large manufacturer and producer of microfilm and
micrographic hardware.
The Company primarily serves customers in the financial services industry.
Approximately 20 percent of the Company's revenues were derived from sales
directly to a single customer in 1995 and approximately 18 percent of trade
accounts receivable at December 31, 1995 are the result of such sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Interim Financial Data: The unaudited interim financial statements were
prepared in a manner consistent with that of the audited financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal recurring
nature.
b. Revenue Recognition: Revenue is recorded when the products are shipped
or services are rendered.
c. 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.
Depreciation is computed using an accelerated method over the
estimated useful lives of the assets, ranging from 5 to 10 years.
d. Inventory: Inventories are valued at cost, which approximates market,
with cost determined using the first-in, first-out ("FIFO") method.
e. Income Taxes: The Company has elected to be taxed as an S-Corporation.
As such, the Company does not pay federal income taxes, rather, the stockholders
report the taxable income or loss of the Company in their individual federal
income tax returns.
f. Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Statements,"
requires disclosures about the fair value of financial instruments whether or
not such instruments are recognized in the balance sheet. Due to the short-term
nature of the Company's financial instruments, (accounts receivable and accounts
payable) their carrying values approximate fair value.
g. Use of Estimates in the Preparation of Financial Statements: 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-41
<PAGE> 108
GREAT LAKES MICROGRAPHICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
(AMOUNTS IN THOUSANDS)
3. OPERATING LEASES:
The Company has various operating lease agreements related primarily to
equipment and buildings. At December 31, 1995, future minimum rental payments
under operating leases are as follows:
<TABLE>
<CAPTION>
EQUIPMENT BUILDINGS
--------- ---------
<S> <C> <C>
1996................................................................ $14 $ 102
1997................................................................ 9 62
1998................................................................ 4 35
1999................................................................ 2 24
--- -----
Total.......................................................... $29 $ 223
=== =====
</TABLE>
Rent expense for 1995 was $141 for buildings. Rent expense for equipment
for 1995 was $15.
4. RELATED PARTY TRANSACTIONS:
At December 31, 1995, the Company had the following balances due to or from
entities related to the Company:
<TABLE>
<S> <C>
Accounts receivable............................................................... $ 5
Accounts payable.................................................................. 23
</TABLE>
Included in 1995 sales are revenues received from related parties in the
amount of $95.
Included in cost of sales are expenses paid to related parties in the
amount of $13 for 1995.
5. COMMITMENTS AND CONTINGENCIES:
The Company is from time to time, a party to legal proceedings arising 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.
6. SUBSEQUENT EVENT:
On July 16, 1996, all of the outstanding stock of the Company was acquired
by Lason Systems, Inc., a wholly owned subsidiary of Lason, Inc. The purchase
price of $5,300 was comprised of $4,240 in cash, with the remainder payable in
common stock of Lason, Inc.
F-42
<PAGE> 109
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of National Reproductions Corp.:
We have audited the accompanying balance sheets of National Reproductions Corp.
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Reproductions Corp. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of depreciation in 1994.
Coopers & Lybrand L.L.P.
Detroit, Michigan
July 17, 1996, except for Note 10, as to which the
date is August 6, 1996
F-43
<PAGE> 110
NATIONAL REPRODUCTIONS CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
JUNE 30,
1996
DEC 31, DEC 31, -----------
1994 1995
------- ------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................................. $ 7 $ 8 --
ACCOUNTS RECEIVABLE:
Trade, less allowance for doubtful accounts of $20 in 1994, 1995 and
1996.............................................................. 2,227 2,892 $ 2,251
Inventory............................................................. 279 291 298
Prepaid expenses, deposits and other current assets................... 157 167 122
------ ------ -------
Total current assets.............................................. 2,670 3,358 2,671
Other assets, cash value of life insurance, net of policy loans of
$112, $150 and $150 in 1994, 1995 and 1996, respectively............ 182 187 192
Long-term advances, related company (net of allowance of $159, $174
and $176 in 1994, 1995 and 1996, respectively)...................... -- -- --
PROPERTY, PLANT AND EQUIPMENT:
Land.................................................................. 43 43 43
Building.............................................................. 131 131 131
Leasehold improvements................................................ 454 458 465
Production equipment.................................................. 2,145 2,112 2,132
Capital lease equipment............................................... 698 1,054 1,011
Office equipment and other............................................ 173 161 169
------ ------ -------
Total cost........................................................ 3,644 3,959 3,951
Less accumulated depreciation and amortization........................ 2,555 2,767 2,890
------ ------ -------
Net property, plant and equipment................................. 1,089 1,192 1,061
------ ------ -------
Total assets...................................................... $3,941 $4,737 $ 3,924
====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable......................................................... $ 760 $1,255 $ 1,040
Current portion of long-term debt..................................... 223 285 285
Accounts payable, trade and other..................................... 1,500 1,711 1,053
Accrued and other liabilities......................................... 66 45 34
------ ------ -------
Total current liabilities......................................... 2,549 3,296 2,412
LONG-TERM DEBT:
Bank and other, net of current portion.............................. 281 291 135
Stockholders........................................................ 58 33 22
------ ------ -------
Total long-term debt.............................................. 339 324 157
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 50,000 shares authorized, 28,000 shares
issued and outstanding.............................................. 28 28 28
Additional paid-in capital............................................ 10 10 10
Retained earnings..................................................... 1,015 1,281 1,440
Loan to stockholders.................................................. -- (202) (123)
------ ------ -------
Total stockholder's equity........................................ 1,053 1,117 1,355
------ ------ -------
Total liabilities and stockholders' equity........................ $3,941 $4,737 $ 3,924
====== ====== =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-44
<PAGE> 111
NATIONAL REPRODUCTIONS CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DEC 31, JUNE 30,
------------------ ----------------
1994 1995 1995 1996
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................................. $14,107 $14,593 $6,820 $7,176
Cost of revenues.......................................... 11,128 11,536 5,384 5,627
------- ------- ------ ------
Gross profit............................................ 2,979 3,057 1,436 1,549
Selling, general and administrative expenses.............. 2,622 2,555 1,284 1,142
------- ------- ------ ------
Operating income........................................ 357 502 152 407
Interest expense.......................................... 131 146 77 50
Other income, net......................................... (13) (68) (66) (76)
------- ------- ------ ------
Income before cumulative effect of change in accounting
principle............................................ 239 424 141 433
Cumulative effect of change in accounting method (Note
1)...................................................... (241) -- -- --
------- ------- ------ ------
Net income (loss)....................................... $ (2) $ 424 $ 141 $ 433
======= ======= ====== ======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-45
<PAGE> 112
NATIONAL REPRODUCTIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED LOANS TO STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDERS EQUITY
------ ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994.......... 28,000 $ 28 $ 10 $1,017 -- $ 1,055
Net loss........................... -- -- -- (2) -- (2)
------ ---- ---- ------ ------ -------
Balances, December 31, 1994........ 28,000 28 10 1,015 -- 1,053
Dividend distributions............. -- -- -- (158) -- (158)
Loans to stockholders.............. -- -- -- -- $ (202) (202)
Net income......................... -- -- -- 424 -- 424
------ ---- ---- ------ ------ -------
Balances, December 31, 1995........ 28,000 $ 28 $ 10 $1,281 $ (202) $ 1,117
Net income (unaudited)............. -- -- -- 433 -- 433
Dividend distributions
(unaudited)...................... -- -- -- (274) -- (274)
Loans to stockholders
(unaudited)...................... -- -- -- -- 79 79
------ ---- ---- ------ ------ -------
Balances, June 30, 1996
(unaudited)...................... 28,000 $ 28 $ 10 $1,440 $ (123) $ 1,355
====== ==== ==== ====== ====== =======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-46
<PAGE> 113
NATIONAL REPRODUCTIONS CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DEC. 31, JUNE 30,
--------------- ---------------
1994 1995 1995 1996
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (2) $ 424 $ 141 $ 433
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 339 418 167 207
Cumulative effect of change in accounting principle..... 241 -- -- --
(Gain) loss on sale of equipment........................ (11) 7 (9) (32)
Changes in operating assets and liabilities:
Accounts receivable.................................. 151 (665) (11) 641
Inventory............................................ 74 (13) 7 (7)
Prepaid expenses and other current assets............ 26 (10) 10 45
Accounts payable..................................... 9 211 (211) (658)
Accrued and other liabilities........................ (98) (21) 44 (11)
------ ------ ------ ------
Net cash provided by operating activities.......... 729 351 138 618
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment....... 24 18 32 76
Purchase of property, plant and equipment................. (234) (149) (112) (118)
Increase in cash surrender value of life insurance........ (42) (42) (6) (6)
------ ------ ------ ------
Net cash used in investing activities.............. (252) (173) (86) (48)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) line of credit notes
payable................................................. (400) 320 260 (140)
Proceeds from bank notes payable.......................... -- 175 -- --
Proceeds from issuance of long-term debt.................. 29 -- -- --
Principal payments under long-term debt................... (220) (325) (118) (231)
Increase in life insurance policy loans................... 32 38 -- --
Loans to stockholders..................................... (10) (457) (75) --
Repayments from stockholders.............................. 9 230 -- 79
Principal payments on loans from stockholders............. -- -- (44) (12)
Dividend distributions.................................... -- (158) (79) (274)
------ ------ ------ ------
Net cash used in financing activities.............. (560) (177) (56) (578)
------ ------ ------ ------
Net increase (decrease) in cash........................... (83) 1 (4) (8)
Cash, beginning of period................................. 90 7 7 8
------ ------ ------ ------
Cash, end of period....................................... $ 7 $ 8 $ 3 --
====== ====== ====== ======
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-47
<PAGE> 114
NATIONAL REPRODUCTIONS CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Business Purpose: National Reproductions Corp. (the
"Company") is engaged in the business of providing imaging, reprographics and
facilities management services. Substantially all of the Company's customers are
located in southeastern Michigan and approximately 30 percent of revenue is from
one automotive manufacturer. Receivables from this customer were approximately
$880 and $1,498 at December 31, 1994 and 1995, respectively.
b. Interim Financial Data: The unaudited interim financial statements were
prepared in a manner consistent with that of the audited financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included, and such adjustments are of a normal recurring
nature.
c. Inventory: Inventory is stated at the lower of cost or market,
determined by the first-in, first-out method and consists primarily of printing
supplies and materials.
d. Property, Plant and Equipment: Property, plant and equipment, including
significant improvements, are stated at cost. Effective January 1, 1994, the
Company changed its method of depreciating fixed assets from the straight-line
method to an accelerated method to more appropriately match depreciation expense
to revenue generated in earlier years of production lives. The cumulative effect
of the change in accounting method was recorded as a one-time charge in the
accompanying statement of operations. The effect of the changes for the year
ended December 31, 1994 was to decrease net income by approximately $5.
Depreciation and amortization are computed over the estimated useful lives of
the assets, ranging from 5 to 18 years.
Expenditures for normal repairs and maintenance are charged to
operations as incurred. Adjustments to the asset and related accumulated
depreciation accounts are made for retirements of property and equipment
with the resulting gain or loss included in operations.
e. Revenue Recognition: Revenues are recorded when the products are shipped
or the services are rendered. Revenues are presented in the income statement net
of postage because the cost of postage is passed through to the customer.
f. Income Taxes: The Company has elected to be taxed as an S-Corporation.
As such, the company does not pay federal income taxes, rather, the stockholders
report the taxable income or loss of the Company in their individual federal
income tax returns.
g. Use of Estimates in the Preparation of Financial Statements: 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
h. Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Statements,"
requires disclosures about the fair value of financial instruments whether or
not such instruments are recognized in the balance sheet. Due to the short-term
nature of the Company's financial instruments (accounts receivable and payable),
other than debt, fair values approximate their carrying values. Based on the
borrowing rates currently available to the Company, the carrying value of debt
approximates fair value.
i. Effect of New Accounting Pronouncements: Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of," is effective for fiscal
years beginning after December 15, 1995. The statement establishes standards for
measuring impairment loss of long-lived assets, certain identifiable intangibles
and
F-48
<PAGE> 115
NATIONAL REPRODUCTIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
CONCLUDED
goodwill related to those assets to be held and those to be disposed of. The
Company does not expect the adoption of SFAS No. 121 to have an effect on its
financial position or results of operations.
2. NOTES PAYABLE:
Notes payable consist of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---- ------
<S> <C> <C>
LINE OF CREDIT: The Company has a $1,400 line of credit payable on demand. $760 $1,080
The note bears interest at the rate of 1 percent above the bank's prime
rate (an effective rate of 9.50 percent at December 31, 1995) and is
collateralized by accounts receivable, inventory and equipment............
NOTES PAYABLE -- BANK: The Company has a $175 note payable calling for
interest only payments through September 1996, at which time the entire
outstanding balance is due. The note bears interest at the rate of 1
percent above the bank's prime rate (an effective rate of 9.50 percent at
December 31, 1995) and is cross collateralized with the line of credit.... -- 175
------
Total.................................................................. $760 $1,255
==== ======
</TABLE>
The weighted average interest rate of notes payable is 9.50 percent at
December 31, 1995.
3. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Relocation loan, bank (interest at prime plus 1 percent)................... $ 58 --
Equipment loan, bank (interest at prime plus 1 percent).................... 13 --
Obligations under capital leases........................................... 372 $518
Installment loans.......................................................... 61 58
---- ----
Total................................................................. 504 576
Less current portion..................................................... 223 285
---- ----
Long-term portion..................................................... $281 $291
==== ====
</TABLE>
a. Obligations under Capital Leases: The Company has acquired production
equipment under capital leases that extend through September 1999. Terms of the
leases require the Company to pay property taxes, insurance and maintenance
costs. Future minimum lease payments under the capital leases are as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31:
1996........................................................................... $301
1997........................................................................... 159
1998........................................................................... 73
1999........................................................................... 47
----
Total minimum lease payments................................................... 580
Less amount representing interest.............................................. 62
----
Present value of minimum lease payments........................................ $518
====
</TABLE>
F-49
<PAGE> 116
NATIONAL REPRODUCTIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS)
3. LONG-TERM DEBT -- CONCLUDED
The equipment purchased under the capital lease arrangements has been
capitalized as processing equipment at approximately $698 and $1,054 with
accumulated depreciation of approximately $290 and $571 at December 31,
1994 and 1995, respectively.
b. Installment Loans: Installment loans for the purchase of equipment are
payable in monthly installments totaling $3 at December 31, 1995 and mature at
various dates through October 1999. These loans are collateralized by equipment
capitalized at $100 with accumulated depreciation of $37 and bear interest at
rates ranging from 7.75 percent to 10.75 percent.
Future maturities on all long-term debt are as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31:
1996........................................................................... $285
1997........................................................................... 164
1998........................................................................... 77
1999........................................................................... 50
----
Total....................................................................... $576
====
</TABLE>
4. LEASE COMMITMENTS:
The Company leases general purpose office, branch outlet and production
facilities and equipment under noncancelable operating leases expiring on
various dates through 2002. Rent expense under such leases approximated $750 in
1994 and $625 in 1995.
Future minimum lease payments for these leases are as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31:
1996.......................................................................... $ 852
1997.......................................................................... 696
1998.......................................................................... 500
1999.......................................................................... 335
2000.......................................................................... 174
2001 and beyond............................................................... 197
------
Total...................................................................... $2,754
======
</TABLE>
The Company leases one branch office from a partnership owned by the
Company's stockholders. Rent expense under this leases approximated $110 in 1994
and 1995. Leasehold improvements of approximately $32 related to this lease are
depreciated over ten years using the straight-line method.
5. RETIREMENT PLAN:
In October 1984, the Board of Directors voted to establish a deferred
compensation plan under the provisions of Internal Revenue Code Section 401(k).
Contributions to the plan are made at the discretion of management. No
contributions were made by the Company under this plan for 1994 and 1995. The
plan covers substantially all Company personnel employed through December 31,
1993. See Note 9 regarding leased employees.
F-50
<PAGE> 117
NATIONAL REPRODUCTIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
(IN THOUSANDS)
6. STOCK REPURCHASE AGREEMENT:
The Company has an agreement with its three stockholders whereby, upon the
death or disability of a stockholder, the Company shall purchase all shares of
stock not subject to separate agreements between the stockholders from the
estate of the deceased or disabled stockholder. In addition, if a stockholder
wishes to dispose of his stock during his lifetime, he shall first offer the
stock to the Company and then to the other stockholders at a price determined as
if the stockholder had died. The Company's potential obligation under this
agreement is partially funded by life insurance. The agreement will terminate
upon completion of the transaction described in Footnote 10.
7. RELATED PARTY TRANSACTIONS:
Related company advances represent an advance to a related company, whose
general partners are also the majority stockholders of the Company, in
connection with its real estate activities. The advance is classified as
long-term and outstanding balances have been fully reserved as of December 31,
1994 and 1995. The advance bears interest at a rate equal to the Company's
borrowing rate on long-term debt with the bank (an effective rate of 8.75
percent at December 31, 1995). Interest income related to these loans
approximated $12 and $14 in 1994 and 1995, respectively.
Advances to stockholders are recorded as a reduction in stockholders'
equity.
Related party leases are described in Note 3.
8. CASH FLOWS:
Cash paid during 1994 and 1995 for interest was $132 and $146,
respectively.
Significant noncash investing and financing activities are as follows:
During 1994 and 1995, the Company leased equipment under capital leases.
The capital lease obligations incurred were $42 and $352, respectively.
9. LEASED EMPLOYEES:
Effective January 1, 1994, all Company personnel became employees of an
employee leasing company and are being leased back by the Company. The leasing
agreement is a three-year cancelable agreement requiring 30 days' notice for
termination. All payroll-related responsibilities, including health insurance
and workers' compensation insurance, are no longer the responsibility of the
Company. In addition, the Company will no longer make contributions to its
401(k) deferred compensation plan. The leased employees are eligible to make
contributions to the leasing company's 401(k) deferred compensation plan.
10. SUBSEQUENT EVENT:
On August 6, 1996, the Company signed an agreement to sell all its common
stock to Lason Systems, Inc., a wholly owned subsidiary of Lason, Inc., for a
purchase price of approximately $8,600.
F-51
<PAGE> 118
[LARGE PICTURE OF SEVERAL COMPACT DISKS WITH SMALLER INSET PICTURES OF A COMPACT
DISK DRIVE, INSTRUCTION MANUALS, LETTER WITH POSTAGE METER STAMP, IMAGING
APPARATUS, PRIORITY GRAM ENVELOPE, AND COPIER/PRINTER CONTROL PANEL AND THE
COMPANY'S LOGO.]
<PAGE> 119
[LASON LOGO]
<PAGE> 120
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by
the Company, of the issuance and distribution of the securities being registered
other than underwriting compensation:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 17,667
National Association of Securities Dealers fee..................... 5,388
NASDAQ original listing fee........................................ 15,000
Blue sky fees and expenses (including attorneys' fees and
expenses)........................................................ 15,000
Printing and engraving expenses.................................... *
Transfer agent's fees and expenses................................. *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Miscellaneous expenses.............................................
--------
Total......................................................... $
========
</TABLE>
- ------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action
or proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation and By-Laws
provide for the indemnification of directors and officers of the Company to the
fullest extent permitted by Section 145.
In that regard, the Amended and Restated Certificate of Incorporation and
By-Laws provide that the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director, officer or member of
another corporation, partnership, joint venture, trust or other
II-1
<PAGE> 121
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such an action or suit except that no such indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the indemnifying corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities of the Company were sold by the Company within the
past three years without registration:
On January 17, 1995, pursuant to a Purchase Agreement, the Company issued
1,000,001 shares of Class B Common Stock to GTCR Fund IV, for $10,000,000.
On January 17, 1995, pursuant to an Executive Stock Agreement, the Company
issued the following securities to the persons and for the consideration
described below:
(1) 402,987 shares of Class A-1 Common Stock to the R. Yanover Trust
for $402,987;
(2) 66,074 shares of Class A-1 Common Stock to the J. Yanover Trust
for $66,074;
(3) 469,064 shares of Class A-1 Common Stock to the Nesbitt Trust for
$469,064;
(4) 25,000 shares of Class A-1 Common Stock to Mr. Kowalski for
$25,000;
(5) 28,815 shares of Class A-1 Common Stock to Mr. Elland for $28,815;
and
(6) 8,058 shares of Class A-1 Common Stock to Mr. Carey for $8,058.
The foregoing sales and issuances of securities were exempt from
registration under the Securities Act by virtue of Section 4(2) thereof as
transactions not involving a public offering.
On February 26, 1996, the Company issued 1,705 shares of Class A-2 Common
Stock to Mr. Karl H. Hartig for $1,705 upon exercise by Mr. Hartig of his option
to purchase such shares granted pursuant to the Company's 1995 Stock Option
Plan.
On March 13, 1996, the Company issued 1,705 shares of Class A-2 Common
Stock to Mr. James J. Dewan for $1,705 upon exercise by Mr. Dewan of his option
to purchase such shares granted pursuant to the Company's 1995 Stock Option
Plan.
On May 2, 1996, the Company issued 1,705 shares of Class A-2 Common Stock
to Mr. Scott L. Christensen for $1,705 upon exercise by Mr. Christensen of his
option to purchase such shares granted pursuant to the Company's 1995 Stock
Option Plan.
The issuances of securities to Messrs. Hartig, Dewan and Christensen upon
exercise of their options were exempt from registration under the Securities Act
by virtue of Rule 701 thereof.
On July 16, 1996, the Company issued into escrow 1,317, 5,267, 2,632,
3,950, 2,632, 3,950, 8,977, 2,872, and 4,309 shares of Class A-1 Common Stock to
Richard J. Wolfson, the Richard Wolfson Charitable Remainder Unitrust, Donald M.
Wolfson, the Donald M. Wolfson Charitable Remainder Unitrust, Saul Wolfson, the
Saul Wolfson Charitable Remainder Unitrust, Bobby R. Stevens, Sr.,
II-2
<PAGE> 122
Dr. Eugene Wolchok, and the Eugene B. and Brenda R. Wolchok Charitable Remainder
Unitrust, respectively, as an estimated payment of a portion of the purchase
price in stock equal to $46,216.67, $184,827.60, $92,361.16, $138,611.93,
$92,361.16, $138,611.93, $315,017.54, $100,783.15, and $151,209.82,
respectively, in connection with the acquisition by the Company of Information
and Image Technology of America, Inc. The actual number of shares to be released
from the escrow will be equal to the portion of the purchase price to be paid in
stock divided by the initial public offering price of the Common Stock (adjusted
for the Stock Split). Assuming an initial public offering price of $15.50 per
share, approximately 1,193, 4,770, 2,384, 3,577, 2,384, 3,577, 8,129, 2,601 and
3,902 shares of Class A Common would be released from escrow, the remainder
would be cancelled. If the number of shares issued into escrow is inadequate,
additional shares will be issued.
On July 17, 1996, the Company issued into escrow 15,140 of Class A-1 Common
Stock to each of Robin L. Marshall and William E. Marvin as an estimated payment
of a portion of the purchase price in stock equal to $530,000 each in connection
with the acquisition by the Company of Great Lakes Micrographics Corporation.
The actual number of shares to be released from the escrow will be equal to the
portion of the purchase price to be paid in stock divided by the initial public
offering price of the Common Stock (adjusted for the Stock Split). Assuming an
initial public offering price of $15.50 per share, approximately 13,677 shares
of Class A Common Stock would be released from escrow for each of Messrs.
Marshall and Marvin, the remainder would be cancelled. If the number of shares
issued into escrow is inadequate, additional shares will be issued.
The issuance of securities described in the two prior paragraphs were
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof as transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Asset Purchase Agreement and Equipment Purchase Agreement dated May 29, 1995 by
and among Lason Systems, Inc., Adcom Mailers, Inc. and its affiliated company,
Linkster Leasing+
2.2 Asset Purchase Agreement dated December 28, 1995 by and among Lason Systems, Inc.
and Mail-Away Corporation+
2.3 Asset Purchase Agreement dated February 1, 1996 by and among Lason Systems, Inc.
and Diversified Support Services, Inc.+
2.4 Stock Purchase Agreement with respect to the acquisition of Delaware Legal Copy,
Inc. dated March 25, 1996 by and among Lason Systems, Inc. and the Shareholders
(as defined therein)+
2.5 Stock Purchase Agreement with respect to the acquisition of Information & Image
Technology of America, Inc. dated July 16, 1996 by and among Lason Systems, Inc.
and the Shareholders (as defined therein)+
2.6 Stock Purchase Agreement with respect to the acquisition of Great Lakes
Micrographics Corporation dated July 17, 1996 by and among Lason Systems, Inc.
and the Shareholders (as defined therein)+
2.7 Stock Purchase Agreement with respect to the acquisition of Micro-Pro, Inc. and
MP Services, Inc. dated July 24, 1996 by and among Lason Systems, Inc. and the
Shareholders (as defined therein)+
2.8 Stock Purchase Agreement with respect to the acquisition of National
Reproductions Corp. dated August 6, 1996 by and among Lason Systems, Inc. and the
Shareholders (as defined therein)
3.1 Form of Amended and Restated Certificate of Incorporation of the Company*
3.2 Form of Amended and Restated By-Laws of the Company*
4.1 Form of certificate representing Common Stock of the Company*
</TABLE>
II-3
<PAGE> 123
<TABLE>
<C> <S>
5.1 Opinion of Kirkland & Ellis with respect to the validity of the shares of Common
Stock offered*
10.1 Asset Purchase Agreement dated January 17, 1995 by and among Lason Acquisition
Corp., Lason Systems, Inc. and the J. Yanover Trust, the R. Yanover Trust and
Messrs. Nesbitt, Kowalski, Elland and Carey+
10.2 Purchase Agreement dated January 17, 1995 by and between the Company and GTCR
Fund IV+
10.3 Executive Stock Agreement dated January 17, 1995 by and among the Company and the
J. Yanover Trust, the R. Yanover Trust, the Nesbitt Trust and Messrs. Kowalski,
Elland and Carey+
10.4 Stockholders Agreement dated January 17, 1995 by and among the Company and
certain of its stockholders+
10.5 Registration Agreement dated January 17, 1995 by and among the Company and the
1995 Stockholders+
10.6 Credit Agreement dated January 17, 1995 by and among Lason Acquisition Corp. and
the J. Yanover Trust, the R. Yanover Trust and Mr. Yanover+
10.7 Credit Agreement dated January 17, 1995 by and among Lason Acquisition Corp. and
the Nesbitt Trust and Mr. Nesbitt+
10.8 Employment Agreement between Lason Systems, Inc. and Gary Monroe+
10.9 Offer of employment dated April 30, 1996 from Lason Systems, Inc. to Mr.
Rauwerdink+
10.10 Offer of employment dated June 12, 1996 from Lason Systems, Inc. to Mr.
Jablonski+
10.11 1995 Stock Option Plan of the Company+
10.12 Employee Stock Option Agreement dated January 17, 1995 by and among the Company,
Mr. Elland, Mr. Kowalski, Mr. Carey, Karl H. Hartig, James J. Dewan, Lawrence C.
Jones, Scott L. Christensen, Daniel J. Buckley, Paul G. Dugan, John H. Wallanse
and David J. Malosh+
10.13 Employee Stock Option Agreement dated December 21, 1995 by and between the
Company and Mr. Monroe+
10.14 Stock Option Agreement dated August 7, 1995 by and between the Company and Mr.
Gleklen+
10.15 Employee Stock Option Agreement by and between the Company and Mr. Rauwerdink+
10.16 Employee Stock Option Agreement by and between the Company and Mr. Jablonski+
10.17 1996 Lason Management Bonus Plan+
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust*
10.19 Amendment to Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust*
10.20 Loan Agreement dated January 17, 1995 by and among Lason Systems, Inc., First
Union National Bank of North Carolina, as lender and as agent, and each other
lender party thereto, including Term Note and Revolving Credit Note+
10.21 Security Agreement dated as of January 17, 1995 by and among Lason Systems, Inc.
and First Union National Bank of North Carolina, as agent for the Lenders (as
defined in the Loan Agreement)+
10.22 Guaranty Agreement dated as of January 17, 1995 given by the Company and extended
to First Union National Bank of North Carolina, as agent for the Lenders (as
defined in the Loan Agreement), and the Lenders for the benefit of Lason Systems+
10.23 Guarantor Pledge Agreement dated as of January 17, 1995 made by the Company for
the benefit of First Union National Bank of North Carolina, as agent for the
Lenders (as defined in the Loan Agreement)+
10.24 First Amendment to Loan Agreement dated as of March 25, 1996 between Lason
Systems, Inc. and First Union National Bank of North Carolina, as agent+
10.25 Second Amendment to Loan Agreement dated as of May 15, 1996 between Lason
Systems, Inc. and First Union National Bank of North Carolina, as agent+
10.26 Third Amendment to Loan Agreement dated July 10, 1996 between Lason Systems, Inc.
and First Union National Bank of North Carolina, as agent+
10.27 Lease Agreement dated as of September 3, 1985 by and between Lason Systems, Inc.
and Mart Associates as amended+
</TABLE>
II-4
<PAGE> 124
<TABLE>
<C> <S>
10.28 Lease Agreement dated August 3, 1995 by and between Lason Systems, Inc. and
Kensington Center, Inc.+
10.29 Lease Agreement by and between Lason Systems, Inc. and The Prudential Insurance
Company of America+
10.30 Fourth Amendment to Loan Agreement dated August 16, 1996 between Lason Systems,
Inc. and First Union National Bank of North Carolina, as agent
10.31 First Amendment to Lease dated as of July 26, 1996 by and between Kensington
Center, Inc. and Lason Systems, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Kirkland & Ellis (to be included in opinion filed as Exhibit 5.1)*
24.1 Powers of Attorney (included on the signature page included in Part II of the
initial filing)+
27.1 Financial Data Schedule+
</TABLE>
- ------------
* To be filed by amendment.
+ Previously filed.
(b)Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<S> <C>
I Condensed Financial Information of Registrant
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or not material, or
the information called for thereby is otherwise included in the consolidated
financial statements or notes thereto and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Troy, State of Michigan on August 30, 1996.
Lason, Inc.
By: /s/ WILLIAM J. RAUWERDINK
--------------------------------------
William J. Rauwerdink
Executive Vice President
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on August 30, 1996, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------- ---------------------------------------------
<S> <C>
ROBERT A. YANOVER* Chairman of the Board
- -------------------------------------------
Robert A. Yanover
GARY L. MONROE* Chief Executive Officer (principal executive
- ------------------------------------------- officer) and Director
Gary L. Monroe
ALLEN J. NESBITT* President and Director
- -------------------------------------------
Allen J. Nesbitt
/s/ WILLIAM J. RAUWERDINK Executive Vice President, Chief Financial
- ------------------------------------------- Officer, Treasurer and Secretary (principal
William J. Rauwerdink financial and accounting officer)
DONALD M. GLEKLEN* Director
- -------------------------------------------
Donald M. Gleklen
BRUCE V. RAUNER* Director
- -------------------------------------------
Bruce V. Rauner
JOSEPH P. NOLAN* Director
- -------------------------------------------
Joseph P. Nolan
*By: /s/ WILLIAM J. RAUWERDINK
- -------------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 126
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET, DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995
-------
<S> <C>
ASSETS
Investment in Subsidiaries......................................................... $12,914
Deferred Tax Asset................................................................. 105
-------
Total Assets.................................................................. $13,019
=======
LIABILITIES
Total Liabilities............................................................. --
STOCKHOLDERS' EQUITY
Common Stock....................................................................... 20
Additional Paid in Capital......................................................... 11,188
Retained Earnings.................................................................. 1,811
-------
Total Stockholders' Equity.................................................... 13,019
-------
Total Liabilities and Stockholders' Equity.................................... $13,019
=======
</TABLE>
S-1
<PAGE> 127
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DEC. 31,
1995
----------
<S> <C>
Revenue: ........................................................................ $ --
------
OPERATING EXPENSES:
Compensatory Stock Option Expense.............................................. 308
------
Operating Loss................................................................... (308)
Equity in Net Income of Subsidiary............................................... 2,104
------
Income before Income Taxes....................................................... 1,706
Income Tax Benefit............................................................... (105)
------
Net Income................................................................ $1,811
======
</TABLE>
S-2
<PAGE> 128
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DEC. 31,
1995
----------
<S> <C>
Net Cash Used in Operating Activities: .......................................... $ --
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiary......................................................... (10,900)
--------
Net Cash Used in Investing Activities............................................ (10,900)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock......................................................... 10,900
--------
Net Cash Provided by Financing Activities........................................ 10,900
--------
Change in Cash................................................................... --
Cash, Beginning of Year.......................................................... --
Cash, End of Year................................................................ $ --
========
</TABLE>
S-3
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ------------------------------------------------------------------------------ -----
<C> <S> <C>
1.1 Form of Underwriting Agreement*
2.1 Asset Purchase Agreement and Equipment Purchase Agreement dated May 29, 1995
by and among Lason Systems, Inc., Adcom Mailers, Inc. and its affiliated
company, Linkster Leasing+
2.2 Asset Purchase Agreement dated December 28, 1995 by and among Lason Systems,
Inc. and Mail-Away Corporation+
2.3 Asset Purchase Agreement dated February 1, 1996 by and among Lason Systems,
Inc. and Diversified Support Services, Inc.+
2.4 Stock Purchase Agreement with respect to the acquisition of Delaware Legal
Copy, Inc. dated March 25, 1996 by and among Lason Systems, Inc. and the
Shareholders (as defined therein)+
2.5 Stock Purchase Agreement with respect to the acquisition of Information &
Image Technology of America, Inc. dated July 16, 1996 by and among Lason
Systems, Inc. and the Shareholders (as defined therein)+
2.6 Stock Purchase Agreement with respect to the acquisition of Great Lakes
Micrographics Corporation dated July 17, 1996 by and among Lason Systems, Inc.
and the Shareholders (as defined therein)+
2.7 Stock Purchase Agreement with respect to the acquisition of Micro-Pro, Inc.
and MP Services, Inc. dated July 24, 1996 by and among Lason Systems, Inc. and
the Shareholders (as defined therein)+
2.8 Stock Purchase Agreement with respect to the acquisition of National
Reproductions Corp. dated August 6, 1996 by and among Lason Systems, Inc. and
the Shareholders (as defined therein)
3.1 Form of Amended and Restated Certificate of Incorporation of the Company*
3.2 Form of Amended and Restated By-Laws of the Company*
4.1 Form of certificate representing Common Stock of the Company*
5.1 Opinion of Kirkland & Ellis with respect to the validity of the shares of
Common Stock offered*
10.1 Asset Purchase Agreement dated January 17, 1995 by and among Lason Acquisition
Corp., Lason Systems, Inc. and the J. Yanover Trust, the R. Yanover Trust and
Messrs. Nesbitt, Kowalski, Elland and Carey+
10.2 Purchase Agreement dated January 17, 1995 by and between the Company and GTCR
Fund IV+
10.3 Executive Stock Agreement dated January 17, 1995 by and among the Company and
the J. Yanover Trust, the R. Yanover Trust, the Nesbitt Trust and Messrs.
Kowalski, Elland and Carey+
10.4 Stockholders Agreement dated January 17, 1995 by and among the Company and
certain of its stockholders+
10.5 Registration Agreement dated January 17, 1995 by and among the Company and the
1995 Stockholders+
10.6 Credit Agreement dated January 17, 1995 by and among Lason Acquisition Corp.
and the J. Yanover Trust, the R. Yanover Trust and Mr. Yanover+
10.7 Credit Agreement dated January 17, 1995 by and among Lason Acquisition Corp.
and the Nesbitt Trust and Mr. Nesbitt+
10.8 Employment Agreement between Lason Systems, Inc. and Gary Monroe+
10.9 Offer of employment dated April 30, 1996 from Lason Systems, Inc. to Mr.
Rauwerdink+
10.10 Offer of employment dated June 12, 1996 from Lason Systems, Inc. to Mr.
Jablonski+
10.11 1995 Stock Option Plan of the Company+
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ------------------------------------------------------------------------------ -----
<S> <S> <C>
10.12 Employee Stock Option Agreement dated January 17, 1995 by and among the
Company, Mr. Elland, Mr. Kowalski, Mr. Carey, Karl H. Hartig, James J. Dewan,
Lawrence C. Jones, Scott L. Christensen, Daniel J. Buckley, Paul G. Dugan,
John H. Wallanse and David J. Malosh+
10.13 Employee Stock Option Agreement dated December 21, 1995 by and between the
Company and Mr. Monroe+
10.14 Stock Option Agreement dated August 7, 1995 by and between the Company and Mr.
Gleklen+
10.15 Employee Stock Option Agreement by and between the Company and Mr. Rauwerdink+
10.16 Employee Stock Option Agreement by and between the Company and Mr. Jablonski+
10.17 1996 Lason Management Bonus Plan+
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust*
10.19 Amendment to Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust*
10.20 Loan Agreement dated January 17, 1995 by and among Lason Systems, Inc., First
Union National Bank of North Carolina, as lender and as agent, and each other
lender party thereto, including Term Note and Revolving Credit Note+
10.21 Security Agreement dated as of January 17, 1995 by and among Lason Systems,
Inc. and First Union National Bank of North Carolina, as agent for the Lenders
(as defined in the Loan Agreement)+
10.22 Guaranty Agreement dated as of January 17, 1995 given by the Company and
extended to First Union National Bank of North Carolina, as agent for the
Lenders (as defined in the Loan Agreement), and the Lenders for the benefit of
Lason Systems+
10.23 Guarantor Pledge Agreement dated as of January 17, 1995 made by the Company
for the benefit of First Union National Bank of North Carolina, as agent for
the Lenders (as defined in the Loan Agreement)+
10.24 First Amendment to Loan Agreement dated as of March 25, 1996 between Lason
Systems, Inc. and First Union National Bank of North Carolina, as agent+
10.25 Second Amendment to Loan Agreement dated as of May 15, 1996 between Lason
Systems, Inc. and First Union National Bank of North Carolina, as agent+
10.26 Third Amendment to Loan Agreement dated July 10, 1996 between Lason Systems,
Inc. and First Union National Bank of North Carolina, as agent+
10.27 Lease Agreement dated as of September 3, 1985 by and between Lason Systems,
Inc. and Mart Associates as amended+
10.28 Lease Agreement dated August 3, 1995 by and between Lason Systems, Inc. and
Kensington Center, Inc.+
10.29 Lease Agreement by and between Lason Systems, Inc. and The Prudential
Insurance Company of America+
10.30 Fourth Amendment to Loan Agreement dated as of August 16, 1996 between Lason
Systems, Inc. and First Union National Bank of North Carolina, as agent,
including Amended and Restated Revolving Credit Note and Interim Term Note
10.31 First Amendment to Lease dated as of July 26, 1996, by and between Kensington
Center, Inc. and Lason Systems, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Kirkland & Ellis (to be included in opinion filed as Exhibit 5.1)*
24.1 Powers of Attorney (included on the signature page included in Part II of the
initial filing)+
27.1 Financial Data Schedule+
</TABLE>
- ------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 2.8
AGREEMENT OF PURCHASE AND SALE OF STOCK
THIS AGREEMENT is made on the 6th day of August, 1996 but
effective as of the first day of July, 1996, between and among LASON SYSTEMS,
INC., a Delaware corporation, the address of which is 1305 Stephenson Highway,
Troy, Michigan 48084 ("Buyer"); JAMES PAMEL whose address is 29400 Stephenson
Highway, Troy, Michigan 48084, JOHN MARKOUL whose address is 29400 Stephenson
Highway, Troy, Michigan 48084 and PETER PAMEL whose address is 29400 Stephenson
Highway, Troy, Michigan 48084 (sometimes hereinafter collectively referred to
as "Shareholders"); NATIONAL REPRODUCTIONS CORPORATION, a Michigan corporation,
the address of which is 29400 Stephenson Highway, Madison Heights, Michigan
48071 (the "Corporation"). Shareholders and Corporation are hereinafter
collectively referred to in this Agreement as "Selling Parties".
R E C I T A L S:
Shareholders have represented that they own all of the issued
and outstanding capital stock of Corporation as follows:
<TABLE>
<CAPTION>
SHAREHOLDER NO. OF SHARES % OF OWNERSHIP
----------- ------------- --------------
<S> <C> <C>
James Pamel
("J. Pamel") 12,253 44.73%
John Markoul
("Markoul") 14,000 50%
Peter Pamel
("P. Pamel") 1,477 5.27%
------
28,000 100%
</TABLE>
Buyer desires to purchase one hundred (100%) percent of the
capital stock in Corporation (the "Shares") from Shareholders, and Shareholders
desire to sell the Shares to Buyer, and Corporation desires that this
transaction be consummated.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
SECTION 1.1 SALE AND TRANSFER OF SHARES. Subject to the
terms and conditions set forth in this Agreement, on the Closing Date (as
defined below in Section 7.1), Shareholders will transfer and convey the Shares
to Buyer, and Buyer will acquire the Shares from Shareholders, free and clear
of all liens,
1
<PAGE> 2
encumbrances, security agreements, equities, options, claims, charges and
restrictions. The certificates representing the Shares shall be duly endorsed
in blank for transfer, or accompanied by a separate written instrument of
assignment, and shall be accompanied by such other or further supporting
documents as Buyer or its counsel may reasonably require.
SECTION 1.2 PURCHASE PRICE. Subject to the matters set
forth in Section 8.4 hereof, the purchase price for the Shares is Eight Million
Five Hundred Eleven Thousand Nine Hundred Sixty-One and 00/100 ($8,511,961.00)
Dollars (the "Purchase Price"). The Purchase Price was established as follows:
(i) an estimated purchase price between Buyer and Shareholders of $9,000,000.00
was established; (ii) the estimated purchase price was adjusted by $123,853.00
to $9,123,853.00 in order to reflect the change in the Corporation's net worth
from the Corporation's balance sheet at March 31, 1996 of $1,529,554.00 to a
net worth at June 30, 1996 of $1,653,407.00; and (iii) from the foregoing
adjusted purchase price the following items were deducted: (a) $120,000.00 -
property located at 16901 W. Eight Mile Road, Detroit, Michigan (the "Eight
Mile Road Property") being deeded to Investment Associates or its' designee;
(b) shareholder receivables being forgiven - $123,253.00; (c) Investment
Associates receivable being forgiven - $176,258.00; and (d) cash surrender
value of key man life insurance being assigned to J. Pamel and Markoul at
closing - $192,381.00 leaving the aforesaid purchase price of $8,511,961.00.
SECTION 1.3 PAYMENT OF THE PURCHASE PRICE. Subject only
to the provisions of this Section 1.3, the Purchase Price shall be paid to
Shareholders on the Closing Date in immediately available funds by certified or
bank cashier's checks or confirmed wire transfer at Buyer's option. The amount
of the Purchase Price to which each of the Shareholders is entitled hereunder
(which shall be in proportion to their ownership interests in the Corporation)
is set forth on Exhibit "1.3".
Notwithstanding the foregoing, J. Pamel shall receive
$400,000.00 of his aliquot share of the Purchase Price in the form of a
Promissory Note issued by Buyer. Such Promissory Note shall contain, inter
alia, the following terms and conditions: (i) it shall be without interest
except in the event of default in which case it shall bear interest at the
First Union National Bank of North Carolina Prime Rate of Interest plus five
(5%) percent; (ii) it shall be due and payable in full on the first to occur of
one (1) year following the initial public offering of Buyer's parent
corporation, Lason Holdings, Inc., a Delaware corporation ("Holdings") or
October 1, 1997; (iii) it shall contain an option for J. Pamel to acquire
$400,000.00 worth of Holdings' common stock at the offering price to the public
on the date of its initial public offering, with such shares being fully
registered and freely tradeable; (iv) such option may be exercised at any time
prior to the due date of the Promissory Note; provided that Buyer shall have no
obligation to prepay the Promissory Note; and (v) in the event
2
<PAGE> 3
that Holdings does not complete an initial public offering by May 1, 1997,
then, and in that event, J. Pamel may accelerate payment of the Promissory Note
to that date which is thirty (30) days following the date of J. Pamel's notice
to Buyer of his desire for accelerated payment.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
Selling Parties represent and warrant to Buyer that, as of the
date hereof:
SECTION 2.1 ORGANIZATION, STANDING AND POWER.
Corporation is duly organized, validly existing and in good standing under the
laws of the State of Michigan, has all necessary corporate power to own its
properties and to carry on its business as now owned and operated by it, is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or its properties makes such qualification
necessary.
SECTION 2.2 CAPITALIZATION. The authorized capital stock
of Corporation consists of Fifty Thousand (50,000) shares of common stock
having a par value of $1.00 each, of which Twenty Eight Thousand (28,000)
shares are issued and outstanding. All of the Shares are validly issued, fully
paid and nonassessable. There are no outstanding subscriptions, options,
rights, warrants, convertible securities or other agreements or commitments
obligating Corporation to issue or to transfer from treasury any additional
shares of its capital stock of any class.
SECTION 2.3 TITLE TO SHARES. Except as set forth on
Exhibit "2.5", each of the Shareholders is the owner, beneficially and of
record, of that number of Shares described in the first recital hereof, free
and clear of all liens, encumbrances, security agreements, equities, options,
claims, charges and restrictions.
SECTION 2.4 SUBSIDIARIES. Corporation does not own,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or other entity,
except for the stock investment disclosed on Exhibit "2.12".
SECTION 2.5 AUTHORITIES AND CONSENTS. The execution,
delivery and performance of this Agreement by Corporation, and the consummation
of the transactions contemplated hereby, has been duly and validly authorized
by the Board of Directors of Corporation. Except as set forth on Exhibit
"2.5", Selling Parties represent and warrant that they have the right, power,
legal capacity and authority to enter into and perform their respective
obligations under this Agreement and that no consent or approval of, notice to
or filing with any governmental authority having jurisdiction over
3
<PAGE> 4
any material aspect of the business or assets of Corporation, and no consent or
approval of or notice to any other person or entity, is required in connection
with the execution and delivery by Selling Parties of this Agreement or the
consummation by Selling Parties of the transactions contemplated hereby.
SECTION 2.6 NO BREACH OR VIOLATION. Except for the Master
Revolving Note dated July 1, 1993 in the original principal amount of
$1,400,000 with Comerica Bank, the execution, delivery and performance of this
Agreement by Corporation, and the consummation of the transactions contemplated
hereby, does not and will not result in or constitute any of the following: (i)
a breach of any term or provision of this Agreement; (ii) a default, breach or
violation, or an event that, with notice or lapse of time or both, would be a
default, breach or violation of any of the terms, conditions or provisions of
the Articles Of Incorporation or By-Laws of Corporation, or any material lease,
license, promissory note, security agreement, commitment, indenture, mortgage,
deed of trust or other agreement, instrument or arrangement to which
Corporation is a party or by which it or its property is bound; (iii) an event
that would permit any party to terminate or rescind any agreement or to
accelerate the maturity of any indebtedness or other obligation of Corporation;
or (iv) the creation or imposition of any lien, charge or encumbrance on any of
the material properties of Corporation.
SECTION 2.7 FINANCIAL STATEMENTS. There have heretofore
been delivered to Buyer: (i) unaudited financial statements, including balance
sheets, statements of income and retained earnings, and statements of changes
in financial position for Corporation as of December 31, 1993, December 31,
1994 and December 31, 1995, and for the twelve (12) month period then ended
reviewed by Plante Moran, independent public accountants, whose opinions with
respect to said statement are included therein ; and (ii) unaudited balance
sheet and statement of income and retained earnings for Corporation as of June
30, 1996 and for the 6-month period then ended, accompanied by a certificate of
the Chief Executive Officer or Chief Financial Officer of Corporation stating
that such balance sheet and statement of income are unaudited but include all
adjustments considered necessary for a fair presentation of the results for the
period indicated.
All of the financial statements referred to above (the "Financial
Statements") have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved.
The Financial Statements present fairly the financial positions of Corporation
to which they relate as at the respective dates thereof, and the related
results of operations of Corporation for the periods therein referred to.
SECTION 2.8 UNDISCLOSED LIABILITIES. Except as set forth
on Exhibit "2.8", Corporation has no debts, liabilities or obligations of any
kind, whether accrued, absolute, contingent or
4
<PAGE> 5
otherwise, which, under generally accepted accounting principles, should have
been so reflected or reserved against or disclosed in the Balance Sheets or in
the Financial Statements. All debts, liabilities and obligations incurred
after the closing date of the Balance Sheets were incurred in the ordinary
course of business and are usual and normal in amount both individually and in
the aggregate.
SECTION 2.9 ABSENCE OF CERTAIN CHANGES. Except as set
forth on Exhibit "2.9", since June 30, 1996, the business of Corporation has
been operated only in the ordinary course and, without limiting the generality
of the foregoing, Corporation has not:
A. Declared, set aside or paid any dividend or other
distribution in respect of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any of its capital stock,
except in the ordinary course of business;
B. Sustained any damage, destruction or loss, by reason
of fire, explosion, earthquake, casualty, labor trouble, requisition
or taking of property by any government or agency thereof, windstorm,
embargo, riot, act of God or public enemy, flood, accident, revocation
of license or right to do business, total or partial termination,
suspension, default or modification of contracts, governmental
restriction or regulation, other calamity or other similar or
dissimilar event (whether or not covered by insurance), materially and
adversely affecting its condition (financial or otherwise), earnings,
business, assets, liabilities, properties, operations or prospects;
C. Had any material adverse change in its condition
(financial or otherwise), earnings, business, assets, properties,
liabilities, operations or prospects;
D. Issued, authorized for issuance, or sold any equity
security, bond, note or other security, or granted, or entered into,
any commitment or obligation to issue or sell any such equity
security, bond, note or other security, whether pursuant to offers,
stock option agreements, stock bonus agreements, stock purchase plans,
incentive compensation plans, warrants, calls, conversion rights or
otherwise;
E. Incurred additional debt for borrowed money, or
incurred any obligation or liability (fixed, contingent or otherwise)
except in the ordinary and usual course of its business;
F. Paid any obligation or liability (fixed, contingent
or otherwise), or discharged or satisfied any lien or encumbrance, or
settled any liability, claim, dispute,
5
<PAGE> 6
proceeding, suit or appeal, pending or threatened against them or any
of their assets or properties, except liabilities included in the
Balance Sheets and in the Financial Statements, and current
liabilities incurred in the ordinary and usual course of its business;
G. Mortgaged, pledged, otherwise encumbered or subjected
to lien any of its material assets or properties, tangible or
intangible, except for liens for current taxes which are not yet due
and payable and purchase-money liens arising out of the purchase or
sale of products or services made in the ordinary and usual course of
its business;
H. Sold, transferred, leased, licensed or otherwise
disposed of any asset or property, tangible or intangible, except in
the ordinary and usual course of its business, or discontinued any
product line or the manufacture, sale or other disposition of any of
its products or services;
I. Purchased or otherwise acquired any debt or equity
securities of any corporation, partnership, joint venture, firm or
other entity;
J. Made any expenditure for the purchase, acquisition,
construction or improvement of a capital asset, except in the ordinary
and usual course of its business;
K. Entered into any transaction or contract (excluding
contracts with customers for products and services), or made any
commitment to do the same, except in the ordinary and usual course of
business and not involving an amount in any case in excess of
$50,000.00;
L. Waived any right or claim or canceled any debts or
claims or voluntarily suffered any extraordinary losses;
M. Sold, assigned, transferred or conveyed any property
rights, except in the ordinary and usual course of business;
N. Effected any amendment or supplement to any employee
profit sharing, stock option, stock purchase, pension, bonus,
incentive, retirement, medical reimbursement, life insurance deferred
compensation or any other employee benefit plan or arrangement except
in the usual and ordinary course of business;
O. Paid to or for the benefit of any of its directors,
officers, employees or shareholders any compensation of any kind other
than wages, salaries and benefits at times and rates in effect prior
to December 31, 1995 except in the usual and ordinary course of
business;
6
<PAGE> 7
P. Effected any change in its directors or executive
management;
Q. Effected any amendment or modification in its
Articles of Incorporation or By-Laws;
R. Changed its accounting methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates);
S. Revalued any of its assets;
T. Increased the salary or other compensation payable or
to become payable to any of its officers, directors or employees, or
declared, paid or committed to pay a bonus or other additional salary
or compensation to any such person except in the usual and ordinary
course of business;
U. Made any loan to any person or entity, or guaranteed
any loan;
V. Agreed, committed or entered into any other
understanding to do any of the things described in the preceding
Subsections A through V.
SECTION 2.10 TAXES. Except as set forth in Exhibit
"2.10", within the times and in the manner prescribed by law, Corporation has
filed all tax returns required to be filed and has paid or made adequate
provision for payment of all taxes upon it, its properties, income or
franchises, due and payable on or before the date hereof. Except as set forth
in Exhibit "2.10", there are no claims pending against Corporation for past-due
taxes, nor has Corporation been notified of any claims. There are no present
disputes or discussions with federal, state, local, foreign, commonwealth or
other authorities with respect to any taxes of any nature payable by
Corporation. Except as set forth in Exhibit "2.10" there are no outstanding
waivers or agreements by Corporation for the extension of the time for the
assessment of any tax. The tax returns of Corporation, if audited, have been
finally determined by the Internal Revenue Service or other taxing authority,
or otherwise closed, and any penalties, deficiencies, assessments, additions to
tax and interest proposed as a result of such audits have been paid or settled.
The charges, accruals and reserves for taxes reflected in the balance sheet as
of May 31, 1996, and included in the Financial Statements, are, adequate for
any and all taxes for the periods ending the date of such balance sheets and
for all prior periods, whether or not disputed. As used in this Section 2.10,
the terms "tax" and "taxes" refer to any tax, assessment, additions to tax,
fee, penalty, interest or other governmental charge imposed by any federal,
state, county, local, foreign, commonwealth or other governmental entity.
Corporation
7
<PAGE> 8
has never filed, nor will it file, any consent under Section 341(f) of the
Internal Revenue Code of 1986, as amended, on or before the Closing Date. The
Shareholders will have prepared and the Shareholders will be responsible for
the cost of such preparation and filing all requisite federal and state tax
returns for the period ending June 30, 1996 notwithstanding the fact that
Buyer as the post closing parent corporation of Corporation shall be
responsible for preparing same; provided, however, that Buyer will have the
right to approve same, which shall not be unreasonably withheld.
SECTION 2.11 RECEIVABLES. Except as set forth on Exhibit
2.11, all receivables of Corporation shown on the Balance Sheets and the
Financial Statements and arising thereafter are carried at values determined in
accordance with generally accepted accounting principles consistently applied,
and represent valid and binding obligations of the debtors requiring no further
performance by Corporation. Reserves for doubtful accounts have been
established on the books of Corporation in accordance with generally accepted
accounting principles consistently applied and are reflected on the balance
sheets included in the Financial Statements.
SECTION 2.12 INVESTMENTS AND INVESTMENT SECURITIES.
Corporation has no interest, of record or beneficial, direct or indirect, in
any governmental bonds or notes, other investment securities and assets held
for investment except as set forth on Exhibit 2.12.
SECTION 2.13 REAL PROPERTY.
A. Exhibit "2.13" sets forth a complete and accurate
address of each parcel of real property owned by or leased to
Corporation (collectively, the "Real Property").
B. To the best of Selling Parties' knowledge, the Real
Property and the current and planned use thereof is and will be in
compliance with all, and is and will not be in violation of any,
applicable federal, state or local statute, ordinance, order,
requirement, law, rule or regulation (including, without limitation,
building, zoning or environmental laws) affecting the Real Property
and its use.
C. No notice of violation of any applicable federal,
state or local statute, law, ordinance, rule, regulation, order or
requirement, or of any covenant, condition, restriction or easement
affecting the Real Property or with respect to the use or occupancy of
the Real Property, has been given to Corporation by any governmental
authority having jurisdiction over the Real Property or by any other
person entitled to enforce the same.
8
<PAGE> 9
D. To the best of Selling Parties' knowledge, there is
not: (i) any intended public improvement which may involve any charge
being levied or assessed or which may result in the creation of any
lien upon the Real Property; (ii) any intended or proposed federal,
state or local statute, ordinance, order, requirement, law or
regulation (including, but not limited to, zoning changes) which may
adversely affect the current or planned use of the Real Property; or
(iii) any suit, action, claim or legal, administrative, arbitration or
other proceeding or governmental investigation pending or threatened
or contemplated against or affecting the Real Property nor is there
any basis for any such matters.
E. Corporation has not subjected, and will not subject
or suffer to be subjected hereafter the Real Property or any portion
thereof to any lease, sublease, tenancy, concession, license,
occupancy agreement or similar right, mortgage, deed of trust, lien,
encumbrance, claim, charge, equity, covenant, condition, restriction,
easement, right of way or other matter affecting the Real Property or
any portion thereof except as set forth in Exhibit "2.13", and has not
entered into, and shall not enter into, any agreement to do any of the
above.
F. There are no unpaid taxes, assessments (special,
general or otherwise) or bonds of any nature affecting the Real
Property or any portion thereof due and payable by Corporation.
SECTION 2.14 LEASES. Exhibit "2.14" lists all leases,
rental agreements, conditional sales contracts and other similar agreements
(collectively, "Leases") which cannot be terminated by Corporation without
liability at any time upon less than thirty (30) days' notice or which involve
payment by them in the future of more than $10,000.00, under which Corporation
holds or uses any real or personal property or leases any of the same to
others. Corporation has complied with the material provisions of all such
leases, and all such leases are valid, in good standing and enforceable by
Corporation in accordance with their terms, except as limited by bankruptcy,
insolvency or other similar laws affecting the rights of creditors generally
and by limitations on enforceability applicable to contracts generally.
Notwithstanding anything contained in said leases, Corporation has such title
to or interests thereunder as are necessary to continue to conduct its business
as presently conducted, and there is no title defect to which any of said
leases is subject which might be expected at any time to have a material
adverse effect on Corporation or its condition (financial or other), earnings,
assets, liabilities, business, operations or prospects. Exhibit "2.14" sets
out any and all advances, deposits and prepayments made by Corporation under
such leases.
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SECTION 2.15 ENVIRONMENTAL MATTERS.
A. None of the operations or property of Corporation is
or has been subject to any judicial or administrative proceeding,
order, judgment, decree or settlement alleging or addressing a
violation of or liability under any requirements of law derived from
or relating to all federal, state and local laws relating to or
addressing the environment, health or safety (including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section Section 9601 et seq., Occupational
Safety and Health Act, 29 U.S.C. Section Section 651 et seq.,
Resource Conversation and Recovery Act, 42 U.S.C. Section Section
6901 et seq., Clean Air Act, 42 U.S.C. Section Section 7401 et seq.,
Federal Water Pollution Control Act, 33 U.S.C. Section Section 1251
et seq., and any similar federal or state acts or statutes now in
effect), which requirements are sometimes herein collectively referred
to as the "Environmental Laws".
B. Corporation has no knowledge of a "Release" nor has
it filed any notice under any applicable Environmental Laws reporting
such "Release" (defined as any spill, emission, leaking, deposit,
discharge, dispersal or other release) into the indoor or outdoor
environment or into or out of any of the Real Estate (including
movement in or through the air, soil, surface water, groundwater or
property) of a "Contaminant" (defined as any hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or
petroleum-derived substance or waste, asbestos, polychlorinated
biphenyls, or any constituent of any of the foregoing, including such
items as are defined under any federal, state or local law or
regulation), or indicating past or present treatment, storage (other
than for less than ninety (90) days) or disposal of a "hazardous
waste" (as that term is defined under 40 Code of Federal Regulations
("CFR") Part 261 or any state equivalent) or reporting a material
violation of any applicable Environmental Laws.
C. Corporation has not received any written notice,
claim or report from any governmental authority or third party to the
effect that Corporation is or may be liable to any other person or
entity as a result of the Release or threatened Release of a
Contaminant into the environment.
SECTION 2.16 PATENTS, ETC. Exhibit "2.16" contains a list
and brief description of all trade names, trademarks, trademark registrations
and applications for registration, service marks, patent rights, patent
applications, trade secrets, copyrights and applications therefor (herein
collectively referred to as "Proprietary Rights") owned by Corporation, useful
or necessary to the conduct of its business, or in which Corporation has any
rights, licenses or immunities and of all patent licensing
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and similar arrangements to which Corporation is a party. All Proprietary
Rights are owned by Corporation, and are, to the best of Selling Parties'
knowledge, valid and in full force and effect.
SECTION 2.17 NON-INFRINGEMENT; AGREEMENTS. Except as set
forth on Exhibit 2.17, no Proprietary Right is the subject of litigation or
other adversary proceedings. To the best of Selling Parties' knowledge, no
present or presently proposed operation or activity of Corporation infringes
the rights of any other person or entity, and no person or entity is infringing
the Proprietary Rights of Corporation. Corporation has the right and
authority, including without limitation, adequate licenses, to use such
Proprietary Rights as are necessary to enable Corporation to conduct and
continue to conduct all phases of its business in the manner presently
conducted by it. Corporation is not a party to or bound by any license or
agreement requiring the payment by it of any royalty, override or similar
payment in connection with any activity conducted or to be conducted by it.
Except as provided for by the terms of contracts with governmental authorities,
Corporation is not a party to any agreement: (i) prohibiting or restricting its
use or sale of any special device, item, customer list, secret process or the
like; or (ii) limiting its business to any territory, pricing policy or
customers; or (iii) requiring exclusive dealing or otherwise in restraint of
its business.
SECTION 2.18 INSURANCE. All policies of liability, theft,
life, fire, title and other forms of insurance and surety bonds (including,
without limitation, any standby letters of credit), insuring Corporation, its
directors, officers, employees, properties, assets and business are listed and
briefly described on Exhibit "2.18". All of said policies are, to the best of
Selling Parties' knowledge, valid and in good standing. Corporation has
experienced no losses or made claims under any of such policies which are
extraordinary for a company of its' size except as are set forth on Exhibit
"2.18".
SECTION 2.19 INTERESTED TRANSACTIONS. Corporation has no
contract or agreement (oral or written) with, any outstanding loans to or from,
or any outstanding liabilities (except for no more than one (1) months' salary
at no more than the annual rate) to any officer, director, employee or
stockholder of Corporation or any relative of any such person or any
corporation or other entity in which any of such persons has a material
financial interest, direct or indirect, or of which any such person is an
officer, director or partner, except as are set forth on Exhibit 2.19.
SECTION 2.20 CUSTOMERS AND SALES. A correct and current
list of all customers of Corporation whose annual purchases during 1995
exceeded $100,000.00 is set forth on Exhibit "2.20". There are no facts or
circumstances known to the Selling Parties or any of them indicating that any
customer who has ordered products
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or services from Corporation which have not yet been delivered intends to
cancel such order. Selling Parties have no knowledge that any of the customers
of Corporation intend to cease doing business with Corporation, or materially
alter the amount of the business that they are presently doing with
Corporation.
SECTION 2.21 EXISTING EMPLOYMENT CONTRACTS AND/OR
REMUNERATION AGREEMENTS. Exhibit "2.21" sets forth a complete and accurate
list of all employment contracts or other agreements or arrangements providing
for employee remuneration or benefits to which Corporation is a party or by
which Corporation is bound, copies of the originals of which have been provided
to Buyer. All such contracts and arrangements are in full force and effect,
and neither Corporation nor any other party is in default under any such
contract or arrangement, nor are there any amendments, modifications, changes
or releases thereto, written or oral. There have been no claims of defaults
and there are no facts or conditions which if continued, or upon notice, will
result in a default under such contracts or arrangements. Corporation has no
obligation to employ or engage any agent, consultant, employee, officer,
director or shareholder, or to provide bonuses, profit sharing payments,
severance pay or retirement benefits, life, medical or other insurance or any
other employee benefits or any other payments, which in each case is not
terminable at will without liability to Corporation.
SECTION 2.22 EMPLOYEE BENEFITS PLANS. Exhibit "2.22" sets
forth a complete and accurate list of all pension, bonus, profit-sharing, stock
option or other plan or arrangement providing for employee benefits (including
any plan within the meaning of Section 3(3) of the Employment Retirement Income
Security Act), to which Corporation is a party or by which Corporation is
bound, copies of the originals of which are attached hereto as Exhibit "2.22".
There are no unfunded liabilities or other obligations of Corporation with
respect to any such pension, bonus, profit-sharing, stock option or other plans
or arrangements providing for employee benefits except as set forth on Exhibit
"2.22" hereto.
SECTION 2.23 WORKERS COMPENSATION; EMPLOYMENT
DISCRIMINATION; LABOR RELATIONS. Corporation has complied in all material
respects with all applicable federal, state and local laws, rules, regulations
and executive orders relating to employment, all applicable laws, rules and
regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of taxes from compensation of employees and the payment
of premiums and benefits under applicable worker compensation laws. There are
no employment discrimination proceedings by any employee or former employees
against Corporation currently threatened or pending before any state or federal
court or state or federal administrative agency, tribunal, commission or board
and no facts or circumstances exist which may result in the filing or
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commencement of any such proceeding. All currently pending or outstanding
worker's compensation claims are listed on Exhibit "2.23" attached hereto and
all such claims are fully insured against. Corporation has no union contracts
or collective bargaining agreements with, or any other obligations to, employee
organizations or groups, nor is Corporation currently engaged in any labor
negotiations excepting minor grievances not involving any employee organization
or group. There is no effort being made to organize the employees of
Corporation into any collective bargaining unit or to solicit them to join any
labor organization and Corporation has no knowledge of any intention on the
part of any labor organization to organize such employees or to solicit them to
join any labor organization. There is no pending or threatened labor dispute,
strike or work stoppage affecting the business of the Corporation. Corporation
is not bound by any prior court, administrative agency, tribunal, commission or
board, decree, judgment, decision, arbitration agreement or settlement relating
to collective bargaining agreements, conditions of employment or, to the best
of Selling Parties' knowledge, attempts to organize a collective bargaining
unit which may adversely affect the business and affairs of Corporation or the
transactions contemplated hereby. Except as set forth on Exhibit "2.23", there
is no unfair labor practice compliant against Corporation pending before the
National Labor Relations Board.
SECTION 2.24 OTHER CONTRACTS. Exhibit "2.24" lists and
briefly describes all contracts, agreements, commitments, guarantees, letters
of intent, understandings or other arrangements of a contractual nature,
written or oral (including, but not limited to, franchise, patent, trademark
and royalty agreements and excluding contracts with customers for the provision
of goods or services), other than outstanding purchase orders made in the
ordinary course of business, to which Corporation is a party and which: (i)
involve payment by Corporation of more than $10,000.00; or (ii) materially
affect the condition (financial or other), earnings, assets, liabilities,
business, operations or prospects of Corporation. Corporation has, to the best
of Selling Parties' knowledge, complied in all material respects with the
provisions of all contracts under which it is bound, and has not been in
material default or claimed default under any thereof. For purposes of the
preceding sentence, any breach or claims of breach, other than those which
could be cured by the payment of not more than $10,000.00 in the aggregate for
all breaches and claimed breaches (whether or not related) shall be deemed
"material".
SECTION 2.25 OFFICERS AND DIRECTORS, ETC. Exhibit "2.25"
is a true and complete list of:
A. The names of all present officers and directors of
Corporation and their current annual salary or other compensation
(such as, but not limited to, consultant's fees) and including all
bonuses, whether deferred, accrued or otherwise, which were paid or
accrued during 1995;
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B. The names, titles and annual compensation of all
salaried employees of Corporation whose compensation (in whatever
form) from Corporation as of the date hereof will equal or exceed an
annual rate of $50,000.00 in 1996, or equaled such amount in the year
ended December 31, 1995.
C. The name of each bank or other financial institution
in which Corporation has an account, deposit or safe deposit box, and
the names of all persons authorized to draw thereon or to have access
thereto;
D. The names of all persons holding tax or other powers
of attorney from Corporation and a summary of the terms of each; and
E. The names of all persons authorized (by the By-Laws
or by resolution of the Board of Directors or otherwise) to write
checks or borrow funds on behalf of Corporation.
SECTION 2.26 CORPORATE DOCUMENTS. Corporation has
furnished or made available to Buyer or its representatives for its
examination, the originals, or true, correct and complete copies, of: (i) the
Articles of Incorporation and By-Laws of Corporation; (ii) the minute books of
Corporation containing all records required to be set forth of all proceedings,
consents, actions and meetings of the shareholders and Board of Directors;
(iii) all permits, orders and consents issued by any governmental authority
(domestic or foreign) with respect to Corporation, or any security issued by
them, and all applications for such permits, orders and consents; and (iv) the
stock transfer books of Corporation setting forth all issuances and transfers
of any capital stock.
SECTION 2.27 LITIGATION AND CLAIMS. Except as set forth
on Exhibit "2.27" there is: (i) no action, suit, proceeding, claim or
investigation pending or, to the best of Selling Parties' knowledge,
threatened, in any court or before any arbitrator or before or by any federal,
state or other governmental department, commission, bureau, agency or
instrumentality, domestic or foreign, and, to the best of Selling Parties'
knowledge; (ii) no other unresolved claim made against Corporation or affecting
it or its properties or business, or the transactions contemplated by this
Agreement; and there is no factual or legal basis for any such action, suit,
proceeding, claim or investigation which would materially affect any of the
same. All correspondence, memoranda and other written notifications
(collectively "Complaints") which it has received within the twelve (12) months
preceding the date hereof concerning, or relating to, complaints or expressions
of dissatisfaction with the products, services or personnel of Corporation,
which Complaints, either individually, or in the aggregate, could result in a
material adverse change to the condition (financial or other), earnings,
business, assets, operations or prospects of Corporation are listed on Exhibit
"2.27"
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and Buyer has been provided with accurate and complete copies of same. The
matters set forth in Exhibit "2.27", if decided adversely to Corporation will
not result in a material adverse change in the earnings, business, assets or
condition (financial or other), operations or prospects of Corporation.
Corporation is not presently engaged in any legal action to recover monies due
to it or damages sustained by it.
SECTION 2.28 GENERAL LIABILITY. Selling Parties have no
knowledge of any statement of facts or the occurrence of any event forming the
basis for any present tort claim against Corporation not covered by insurance.
SECTION 2.29 OTHER TANGIBLE PERSONAL PROPERTY. Exhibit
"2.29" contains a complete and accurate list and brief description of all
material machinery, tools, dies, appliances, vehicles, furniture, equipment
(including essential replacement parts) and other tangible personal property of
any kind and description, other than inventories, owned or leased by
Corporation (the "Tangible Personal Property"). The Tangible Personal Property
constitutes all tangible personal property necessary for the conduct by
Corporation of its business as now conducted. All motor vehicles listed on
Exhibit "2.29" have current smog certificates or have passed emission standards
examinations required by applicable law. Except as stated in Exhibit "2.29",
no Tangible Personal Property used by Corporation in connection with its
business is held under any lease, security agreement, conditional sales
contract or other title retention or security arrangement, or is located other
than in the possession of Corporation.
SECTION 2.30 TITLE TO ASSETS. Corporation has good and
marketable title to all its assets and interests in assets, whether real,
personal, mixed, tangible and intangible, which constitute all the assets and
interests in assets that are used in its business. All these assets are free
and clear of mortgages, liens, pledges, charges, encumbrances, equities,
claims, easements, rights of way, covenants, conditions or restrictions, except
for: (i) those disclosed in the Balance Sheets and in the Financial Statements;
(ii) the lien of current taxes not yet due and payable; and (iii) possible
minor matters that, in the aggregate, are not substantial in amount and do not
materially detract from or interfere with the present or intended use of any of
these assets, nor materially impair business operations. All real property and
tangible personal property of Corporation is in good operating condition and
repair, ordinary wear and tear excepted. Corporation is in possession of all
premises leased to it from others. No officer, director or employee of
Corporation, nor any spouse, child or relative of any of these persons, owns or
has any interest, directly or indirectly, in any of the real or personal
property owned by or leased to or any copyrights, patents, trademarks, trade
names or trade secrets licensed by Corporation.
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SECTION 2.31 BEST KNOWLEDGE. The term "to the best of
Selling Parties' knowledge", or equivalent terms, as used to qualify any of the
foregoing representations and warranties, means the personal knowledge of J.
Pamel, Markoul and P. Pamel as to the subject matter of such representations
and warranties.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Holdings hereby represent and warrant to Selling
Parties as follows:
SECTION 3.1 ORGANIZATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and is duly authorized to carry on its
business where and as now conducted and to own, lease and operate properties as
it now does.
SECTION 3.2 AUTHORIZATION. Buyer has full power and
authority to enter into this Agreement and to perform this Agreement in
accordance with its terms, and the execution, delivery and performance of this
Agreement (including, but not limited to, the Promissory Note and option
contemplated in Section 1.3 hereof) by Buyer has been duly authorized by all
requisite corporate action, including approval by Buyer's Board of Directors.
SECTION 3.3 NO BREACH. Buyer knows of no facts or
circumstances that may tend to cause, or relate to, an existing or potential
breach or default by Selling Parties of the material terms, conditions,
representations and warranties set forth herein.
SECTION 3.4 VALIDLY ISSUED. The total authorized number
of shares of capital stock which Holdings has authority to issue is 19,000,002
shares, consisting of 13,000,000 shares of Class A-1 Common Stock, of which
1,066,184 shares are issued and outstanding; 4,000,000 shares of Class A-2
Common Stock, of which approximately 5,115 shares are issued and outstanding;
1,000,002 shares of Class B Common Stock, of which 1,000,002 shares are issued
and outstanding; and 1,000,000 shares of Preferred Stock, none of which shares
are issued and outstanding. Additionally, certain persons hold 119,181 options
to acquire Class A-1 Common Stock and certain persons hold 103,115 options to
acquire Class A-2 Common Stock. When issued in accordance with the terms of
this Agreement, the Class A-1 Stock will be validly issued, fully paid and
non-assessable.
ARTICLE 4
FURTHER AGREEMENTS OF THE PARTIES
SECTION 4.1 ACCESS TO INFORMATION. Buyer and its
representatives may make such investigation of the properties,
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assets and business of Corporation as Buyer may reasonably request, and
Corporation shall give to Buyer and to its counsel, accountants and other
representatives, full access during normal business hours to all of the
properties, books, contracts, commitments, records and files of Corporation,
and shall furnish to Buyer all such documents and copies of documents
(certified as true and complete if requested) and such information concerning
the business and affairs of Corporation as Buyer may reasonably request. Such
investigation shall not be deemed in any way to diminish the liability of
Selling Parties in respect of the representations, warranties, schedules,
certificates or agreements given hereunder.
SECTION 4.2 CONDUCT OF BUSINESS BY CORPORATION. From the
date hereof until the Closing Date, except as Buyer may previously consent in
writing, Corporation shall:
A. Carry on its business and activities in the ordinary
course as previously carried on, and shall not make or institute any
methods of management, accounting or operation that will vary
materially from those methods used by Corporation as of the date of
this Agreement. Without limitation of the generality of the
foregoing, Corporation shall not enter into any agreement or
arrangement involving sale or lease of a material portion of its
assets or the granting of any preferential right to purchase such
assets, properties or rights, except in connection with the sale or
lease of inventory to customers in the ordinary course or business;
B. Maintain in full force and effect the insurance
policies listed in Exhibit "2.18" to this Agreement;
C. Make no change in its Articles of Incorporation or
By-Laws;
D. Make no change in its authorized or issued capital
stock and issue or grant no options, warrants or rights to purchase
shares of or convert other securities into its capital stock;
E. Not declare or pay any dividend or other distribution
in respect of any shares of its capital except in the usual and
ordinary course of business;
F. Purchase, redeem or otherwise acquire, directly or
indirectly, no shares of its capital stock;
G. Use its best efforts to preserve its business
organization intact, to keep available the services of its present
officers and employees, except in the case of unsatisfactory
performance, and to preserve the good will of all those having
business relations with it (including, but not limited to, its
customers);
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H. Enter no contract or commitment, except contracts or
commitments entered into in the ordinary course of business, none of
which (other than inventory purchases customary in nature and amount)
shall involve payment by Corporation of more than $50,000.00;
I. Terminate none of the contracts or agreements listed
in Exhibit "2.24" or modify any of said contracts or agreements except
in accordance with their terms;
J. Except pursuant to existing arrangements disclosed in
Exhibit "2.25" or otherwise in the usual and ordinary course of the
Corporation's business: (i) grant no increase in salaries or
compensation payable or to become payable by it, to any officer,
employee, sales agent or representative, other than increases in
customary amounts pursuant to normally scheduled salary reviews; or
(ii) increase benefits payable under any employee plan or otherwise to
any officer, employee, sales agent or representative;
K. Duly comply with all laws, regulations, ordinances,
orders, injunctions and decrees applicable to it and to the conduct of
its business;
L. Encumber or mortgage none of its property or incur
any liability for borrowed money, make any loans or advances to or
assume, guarantee, endorse or otherwise become liable with respect to,
the obligations of any other person, firm or corporation;
M. Acquire or agree to acquire none of the assets or
capital stock of any other person, firm or corporation, except for
purchases from suppliers in the ordinary course of business;
N. Except in the usual and ordinary course of the
Corporation's business, make or agree to make no capital expenditures
in excess of $10,000.00 for any single item, or $10,000.00 in the
aggregate, or enter into any leases of capital equipment or property
under which the annual lease charge is in excess of $10,000.00;
O. Maintain and keep its properties and facilities in as
good condition and working order as at present, except for
depreciation through ordinary wear and tear;
P. Perform all of its obligations under contracts
relating to or affecting its assets, properties and rights, except for
non-material failures;
Q. Not do, or agree to do, except in the ordinary course
of business, any of the following acts: (i) pay any obligation or
liability, fixed or contingent, other than
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current liabilities; (ii) waive or compromise any right or claim; or
(iii) cancel, without full payment, any note, loan or other obligation
owing to Corporation; and
R. Enter into no negotiations or agreements with any
governmental authority (other than negotiations or agreements for the
purchase of goods or services from Corporation) which would affect the
future operation of its business.
SECTION 4.3 CONSENTS. Corporation shall use its best
efforts to obtain the consent of all persons whose consent is required to the
consummation of the transactions contemplated hereby, in form and substance
satisfactory to Buyer.
SECTION 4.4 COMMUNICATIONS. Each party hereto agrees to
consult and seek the prior approval of the other parties on reasonable notice,
which approval shall not be unreasonably withheld or delayed, as to the content
of any press releases or any written statements for general circulation
regarding the subject contained in this Agreement.
SECTION 4.5 UPDATING OF SCHEDULES. From the date hereof
until the Closing Date, Corporation shall keep up to date all of the schedules,
exhibits and certificates furnished (or to be furnished) under this Agreement,
and shall promptly notify Buyer of any changes, additions or events which may,
after the lapse of time, cause any change or addition thereto.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLING PARTIES
The obligations of Selling Parties to consummate the
transactions contemplated by this Agreement shall be subject to the following
conditions, except as Selling Parties may waive in writing in accordance with
Section 10.5 below:
SECTION 5.1 PERFORMANCE. Buyer shall have performed and
complied with all agreements and covenants required by this Agreement to be
performed or satisfied by it on or prior to the Closing Date.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES. The
representations, warranties and covenants of Buyer, set forth in Article 3
hereof, shall be true and correct in all material aspects on the date hereof,
and on the Closing Date, as if made again at and as of such time, subject to
any transactions which are contemplated or permitted by this Agreement.
SECTION 5.3 CERTIFICATE OF OFFICER. Selling Parties
shall have been furnished with a certificate executed by an officer
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of Buyer, in form and substance satisfactory to Selling Parties, certifying the
fulfillment of the condition set forth in Section 5.2 above.
SECTION 5.4 LEGAL OPINION. Seyburn, Kahn, Ginn, Bess,
Deitch And Serlin, counsel for Buyer, shall have delivered to Selling Parties
customary legal opinions for a transaction of the type contemplated herein.
SECTION 5.5 LITIGATION. Immediately prior to the Closing
Date, there shall be no litigation or proceeding: (i) pending or threatened
against Shareholders or Corporation, or any of their respective directors,
officers or shareholders, or involving the assets or properties of any of them,
for the purpose of enjoining or preventing the consummation of this Agreement
or otherwise claiming that such consummation is improper; or (ii) pending
against Shareholders or Buyer which, if decided adversely, would adversely
affect the right of Shareholders to transfer the stock or the right of Buyer to
retain the stock, property and other assets or to continue the operations of the
property, assets and business of Corporation after the Closing Date, and which,
in the judgment of Shareholders, would make the consummation of this Agreement
inadvisable. Immediately prior to the Closing Date, there shall be no
governmental investigation pending or threatened which, in the judgment of
Shareholders and the Board of Directors of Corporation, might lead to or result
in any litigation or proceeding of the nature referred to in the foregoing
sentence.
SECTION 5.6 THIRD PARTY CONSENTS. Prior the Closing
Date, Shareholders and Corporation shall have obtained the written consent,
waiver or approval of each person: (i) who is a party to a contract or
agreement with Shareholders and Corporation or a contract or agreement by which
Shareholders or Corporation are bound; and (ii) whose current, waiver or
approval is required under such contract or agreement as a result of
consummation of the transactions contemplated by this Agreement.
SECTION 5.7 EMPLOYMENT AGREEMENTS. P. Pamel and Michael
McCombs shall have executed and delivered to Buyer employment agreements which
are mutually acceptable in form and content. The agreement of Michael McCombs
shall include a provision terminating that certain employment agreement dated
December 20, 1995 by and between Corporation and Mr. McCombs. Additionally,
James E. Stone shall have executed an instrument acknowledging that the
employment contract between himself and Corporation is an employment
arrangement at will and further acknowledging that he may, therefore, be
terminated at any time.
SECTION 5.8 COVENANTS NOT TO COMPETE. J. Pamel and
Markoul shall have executed and delivered to Buyer covenants not to compete
which are mutually acceptable in form and content.
SECTION 5.9 LANDLORD CONSENTS. Corporation shall have
delivered to Buyer the consent of the following Landlords to the
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imputed "assignment" of such Landlord's lease with Corporation by virtue of a
change in control of Corporation: (i) Millsmith Industries, Inc. under lease
dated November 13, 1991; (ii) Millsmith Industries, Inc. under lease dated
March, 1996; (iii) Ford Motor Land Development Corporation under lease dated
October 13, 1992; and (iv) Ren Cen Ventures under lease dated February 10,
1988.
SECTION 5.10 TERMINATION OF BUY/SELL. Corporation shall
execute and deliver an instrument terminating the Buy Sell Agreement of June 4,
1996 and all previous agreements.
SECTION 5.11 WAIVER OF RE-PURCHASE RIGHT. Corporation and
Shareholders shall execute and deliver an instrument waiving the Corporation's
right to re-purchase stock as contained in its Articles Of Incorporation.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the following conditions,
except as Buyer may waive in writing in accordance with Section 10.5 below:
SECTION 6.1 AUTHORIZATION OF TRANSACTION. All action
necessary to authorize the execution, delivery and performance of this
Agreement by Selling Parties and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors of Corporation and by the Shareholders.
SECTION 6.2 REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Selling Parties contained herein, except as
contemplated hereby, shall be true at and as of the Closing Date with the same
effect as though such representations and warranties had been made at and as of
such time, and Selling Parties shall have performed or complied with all
obligations, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing Date.
SECTION 6.3 CERTIFICATE OF SELLING PARTIES. Buyer shall
have been furnished with a certificate executed by an officer of Corporation
and by Shareholders, in form and substance satisfactory to Buyer, certifying to
the fulfillment of the condition set forth in Section 6.2 above.
SECTION 6.4 LEGAL OPINION. Dickinson, Wright, Moon Van
Dusen and Freemen, counsel for Selling Parties, shall have delivered to Buyer
customary legal opinions for a transaction of the type contemplated herein.
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SECTION 6.5 SATISFACTORY CUSTOMER DUE DILIGENCE. Buyer
shall have completed meetings with those certain of the Corporation's customers
as are set forth on Exhibit "6.5" hereto. The results of those investigations
shall be satisfactory to Buyer in all respects in the exercise of its sole and
absolute discretion.
SECTION 6.6 UNTRUE STATEMENTS. This Agreement, together
with the Exhibits attached hereto or subsequently provided to Buyer at the time
of Closing, shall not contain any untrue statement of a known material fact or
omit to state a known material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
SECTION 6.7 MATERIAL ADVERSE CHANGE. There shall have
been no material adverse change in the condition (financial or otherwise),
earnings, business, assets, liabilities, properties, operations or prospects of
Corporation, and there shall not have been any occurrence, circumstance or
combination thereof (whether arising heretofore or hereafter), including
litigation pending or threatened, which might result in any such material
adverse change before or after the Closing Date.
SECTION 6.8 LITIGATION. Immediately prior to the Closing
Date, there shall be no litigation or proceeding: (i) pending or threatened
against Buyer or Corporation, or any of their respective directors, officers or
shareholders, or involving the assets or properties of any of them, for the
purpose of enjoining or preventing the consummation of this Agreement or
otherwise claiming that such consummation is improper; or (ii) pending against
Buyer or Corporation which, if decided adversely, would adversely affect the
right of Buyer to retain the stock, property and other assets or to continue
the operations of the property, assets and business of Corporation (or of Buyer
or any of its subsidiaries) after the Closing Date, and which, in the judgment
of the Board of Directors of Buyer, would make the consummation of this
Agreement inadvisable. Immediately prior to the Closing Date, there shall be
no governmental investigation pending or threatened which, in the judgment of
the Board of Directors of Buyer, might lead to or result in any litigation or
proceeding of the nature referred to in the foregoing sentence.
SECTION 6.9 THIRD PARTY CONSENTS. Prior to the Closing
Date, Corporation shall have obtained the written consent, waiver or approval
of each person: (i) who is a party to a contract or agreement with Corporation
or a contract or agreement by which Corporation or its property is bound; (ii)
whose consent, waiver or approval is required under such contract or agreement
as a result of consummation of the transactions contemplated by this Agreement;
and (iii) whose failure to provide such consent, waiver or approval would have
or might reasonably be expected to have a material
22
<PAGE> 23
adverse effect on the condition (financial or otherwise), earnings, business,
assets, liabilities, operations or prospects of Corporation.
SECTION 6.10 CORPORATE ACTION. Immediately prior to the
Closing Date, Buyer shall have received, in form and substance reasonably
satisfactory to Buyer, the resignations of such officers and directors of
Corporation, effective as of the Closing Date, as Buyer may have stipulated to
Corporation in writing prior to the Closing Date.
SECTION 6.11 EMPLOYMENT AGREEMENTS. P. Pamel and Michael
McCombs shall have executed and delivered to Buyer employment agreements which
are mutually acceptable in form and content. The agreement of Michael McCombs
shall include a provision terminating that certain employment agreement dated
December 20, 1995 by and between Corporation and Mr. McCombs. Additionally,
James E. Stone shall have executed an instrument acknowledging that the
employment contract between himself and Corporation is an employment
arrangement at will and further acknowledging that he may, therefore, be
terminated at any time.
SECTION 6.12 LANDLORD CONSENTS. Corporation shall have
delivered to Buyer the consent of the following Landlords to the imputed
"assignment" of such Landlord's lease with Corporation by virtue of a change in
control of Corporation: (i) Millsmith Industries, Inc. under lease dated
November 13, 1991; (ii) Millsmith Industries, Inc. under lease dated March ___,
1996; and (iii) Ford Motor Land Development Corporation under lease dated
October 13, 1992.
SECTION 6.13 COVENANTS NOT TO COMPETE. J. Pamel and
Markoul shall have executed and delivered to Buyer covenants not to compete
which are mutually acceptable in form and content.
SECTION 6.14 ENVIRONMENTAL ASSESSMENT. Shareholders
shall, at their expense, have delivered to Buyer a Phase I environmental
assessment of the Eight Mile Road Property, which assessment shall be
acceptable to Buyer, in all respects, in the exercise of its sole and absolute
discretion.
SECTION 6.15 LEASE MODIFICATION. The Corporation's lease
for the occupancy of 433 East Larned Street, Detroit, Michigan 48226 shall be
modified to a month to month tenancy on otherwise substantially the same terms
and conditions as currently exist.
SECTION 6.16 TERMINATION OF BUY/SELL. Corporation shall
execute and deliver an instrument terminating the Buy Sell Agreement of June 4,
1996 and all previous agreements.
23
<PAGE> 24
SECTION 6.17 WAIVER OF RE-PURCHASE RIGHT. Corporation and
Shareholders shall execute and deliver an instrument waiving the Corporation's
right to re-purchase stock as contained in its Articles Of Incorporation.
SECTION 6.18 EIGHT MILE ROAD LEASE. Corporation and
Investment Associates shall have entered into a month to month lease for the
Eight Mile Road Property on mutually acceptable terms and conditions.
ARTICLE 7
THE CLOSING
SECTION 7.1 TIME AND PLACE. The transfer of the Shares
by Shareholders to Buyer (the "Closing") shall take place at the offices of
Buyer's counsel, Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, in Southfield,
Michigan at 9:00 a.m., local time, on August 16, 1996 but effective as of July
1, 1996, or at such other time and place as the parties may agree to in writing
(the "Closing Date") but in no event later than September 6, 1996.
SECTION 7.2 SELLING PARTIES' OBLIGATIONS AT CLOSING. On
the Closing Date, Shareholders shall deliver to Buyer the following
instruments, in form and substance satisfactory to Buyer and its counsel,
against delivery of the items specified in Section 7.3:
A. Certificates representing the Shares, registered in
the name of the respective Shareholders, duly endorsed by the
respective Shareholders for transfer as specified in Section 1.1 or
accompanied by a separate written instrument of assignment. On
submission of those certificates to Corporation for transfer,
Corporation shall issue to Buyer a new certificate representing the
Shares, registered in the name of Buyer and shall issue to
Shareholders new certificates representing their remaining shares in
the Corporation;
B. The stock book, stock ledger, minute book and
corporate seal of Corporation;
C. Except as otherwise specified by Buyer, the written
resignations of all the officers and directors of Corporation;
D. The certificate executed by Corporation's officer and
by Shareholders, dated the Closing Date, as provided in Section 6.3;
and
E. The opinion of counsel as provided in Section 6.4.
SECTION 7.3 BUYER'S OBLIGATIONS AT CLOSING. At the
Closing, Buyer shall deliver to Shareholders the following instruments and
documents against delivery of the items specified in Section 7.2:
24
<PAGE> 25
A. The Purchase Price payable to Shareholders in their
respective proportions;
B. The Promissory Note and Option contemplated in
Section 1.3 hereof;
C. Certified resolutions of Buyer's Board of Directors,
in form reasonably satisfactory to counsel for Selling Parties,
authorizing the execution, delivery and performance of this Agreement
and all actions to be taken by Buyer under this Agreement;
D. The certificate executed by Buyer's officer, dated
the Closing Date, as provided in Section 5.3;
E. An opinion of Buyer's counsel, dated the Closing
Date, as provided for in Section 5.4;
F. Key man life insurance policies on the lives of
Markoul and J. Pamel together with assignments thereof; and
G. A covenant deed to the Eight Mile Road Property
conveying good and marketable title to the Eight Mile Road Property
together with an ALTA policy of title insurance in the amount of
$120,000.00, with the cost of such policy being split equally between
Shareholders and Buyer. Current real property taxes are to be
prorated between Shareholders and Buyer on the due date basis.
H. A month to month lease for the Eight Mile Road
Property on mutually acceptable terms and conditions.
I. A waiver and release of the collection of receivables
owed to the Corporation by Shareholders and Investment Associates.
ARTICLE 8
OBLIGATIONS AFTER CLOSING
SECTION 8.1 AGREEMENT TO REFRAIN FROM COMPETITION. The
provisions of Sections 8.1A, 8.1B, 8.1C, 8.1D and 8.1E of this Agreement in
favor of Buyer, shall apply only to the following persons and to no others: J.
Pamel and Markoul (hereinafter referred to in this Article 8 as "Senior
Shareholders") it being acknowledged that the noncompetition agreement of P.
Pamel in favor of Buyer is contained in the separate employment agreement
between he and the Corporation.
A. Senior Shareholders agree that each of them will not,
directly or indirectly (and whether or not for compensation), within
the twenty-four (24) month period
25
<PAGE> 26
immediately following the Closing Date, actively solicit the following
types of business within Michigan: all of the records management and
document management activities (including, but not limited to,
imaging, micrographics and scanning and conversion services) engaged
in by Corporation on the date of this Agreement as long as Buyer (or
any successor) shall, directly or indirectly, be engaged in such
activity in any of such states.
B. Senior Shareholders further agree that each of them
will not directly or indirectly, at any time during the non- compete
period: (i) divert or attempt to divert from Corporation any business
of any kind in which Corporation is engaged; (ii) take any action that
causes the termination of a business relationship between Corporation
and any customer or supplier of Corporation; or (iii) induce or
attempt to induce any person who is an employee of Corporation to
leave the employ of Corporation.
C. During the period specified in Section 8.1A, Senior
Shareholders further agree not to: (i) divulge, communicate, use to
the detriment of Corporation or Buyer or for the benefit of any other
person or persons, or misuse in any way, any confidential information
or trade secrets of Corporation, including personnel information,
know-how, computer programs, customer lists or other technical data;
(ii) divert or attempt to divert from Corporation any business of any
kind in which Corporation is engaged on the date hereof; or (iii)
induce or attempt to induce any person who is an employee of
Corporation on the date hereof to leave the employ of Corporation or
Buyer. Senior Shareholders acknowledge and agree that any information
or data which is unique to Corporation that either of them has
acquired on any of these matters or items was received in confidence
and as a fiduciary of Corporation.
D. Each of the Senior Shareholders has had knowledge of
the affairs, trade secrets, customers, potential customers and other
proprietary information of Corporation, and Senior Shareholders
acknowledge and agree that compliance with the covenants set forth in
this Section 8.1 is necessary for the protection of the goodwill and
other proprietary interest of Corporation and Buyer. Senior
Shareholders acknowledge and agree that in the event of a breach of
such covenants, neither Corporation, Buyer nor any successors would
have an adequate remedy at law, and Corporation, Buyer and any
successor shall be entitled to injunctive relief in addition to any
other remedies which may be available to them hereunder.
E. If, in any judicial proceeding, a court shall refuse
to enforce the covenants included herein, then said unenforceable
covenant shall be deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the
remaining separate covenants to be
26
<PAGE> 27
enforced. It is the intent and agreement of Buyer and Senior
Shareholders that these covenants be given the maximum force, effect
and application permissible under law.
Notwithstanding anything to the contrary set forth herein, the foregoing
covenants not to compete are to be restated in separate agreements which will
set forth the compensation which is to be paid to Senior Shareholders for such
covenants.
SECTION 8.2 FURTHER ASSURANCES. From time to time, at
Buyer's request (whether or not after the Closing), and without further
consideration and at the expense of Buyer, Shareholders will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated by this Agreement, and to vest in Buyer good, valid and marketable
title to the Shares.
SECTION 8.3 FORD MOTOR COMPANY AGREEMENT. Corporation is
currently pursuing certain incremental work from Ford Motor Company, which work
is more particularly described as follows: FTDC offset printing and
fulfillment services (the "New Ford Work"). In the event that Corporation is
awarded a contract for the New Ford Work within 6 months of the Closing Date,
then, and in that event, the Purchase Price will be adjusted by an amount equal
to five (5%) percent of the gross revenue derived by the Corporation from the
New Ford Work for a period of three (3) years from and after the commencement
of the New Ford Work, payable quarterly in arrears. Notwithstanding anything
to the contrary set forth herein, in the event that the Corporation first
begins work on the New Ford Work contract after the one hundred eightieth (180)
day following the Closing Date then, and in that event, the foregoing
adjustment to the Purchase Price shall not be paid.
ARTICLE 9
INDEMNIFICATION
SECTION 9.1 BUYER'S INDEMNITY. Buyer agrees to
indemnify, defend and hold harmless Shareholders from and against, and in
respect to, any and all losses, expenses, costs, obligations and liabilities,
damages and deficiencies, including interest, penalties and reasonable
attorneys' fees (collectively referred to herein as "Losses")they may incur by
reason of Buyer's breach of or failure to perform any of its representations,
warranties, commitments or covenants in this Agreement, or in any instrument,
agreement or exhibit furnished or to be furnished by or on behalf of Buyer
under this Agreement, or by reason of any act or omission of Buyer, or any of
its successors or assigns, after the Closing Date, that constitutes a breach or
default under, or a failure to perform, any obligation, duty or liability to
any of the Selling Parties under this Agreement or any loan agreement, lease,
contract, order or other agreement (relating to the business of Corporation) to
which any of the Selling Parties is a party or by which any of them are bound
at the Closing Date.
27
<PAGE> 28
SECTION 9.2 SHAREHOLDERS' INDEMNITY. Shareholders,
severally, do hereby indemnify, defend and hold harmless Buyer from and against
all Losses that Buyer shall incur or suffer which result from the breach of, or
failure by Selling Parties to perform, any of their representations,
warranties, covenants or agreements in this Agreement, including any exhibit
hereto. Buyer shall give Shareholders prompt written notice, certified mail
return receipt requested, of any claim to be made by Buyer under this Section
9.2, which notice shall set forth the amount of the claim and all of the facts
relating thereto. Shareholders shall have a reasonable opportunity to confirm
such claim, at Shareholders' expense and within ten (10) business days after
receipt of the aforesaid notice, including, without limitation, review by them
or by an attorney and/or accountant retained by them of the factual basis for
such claim. Buyer agrees to cooperate with any such confirmation request and
make available to Shareholders, or to the attorney and/or accountant appointed
by them, at all reasonable times, for inspection and review, the books and
records of Buyer relating to the claim, including, but not limited to, any
worksheets relating to computation of the claim.
If, as a result of the confirmation, Shareholders do not agree
that Buyer is entitled to indemnification with respect to the claim and such
disagreement cannot, with good faith effort, be promptly settled within an
additional ten (10) business days, Buyer and Shareholders shall each appoint
within five (5) business days an arbitrator, and the two arbitrators so
appointed shall appoint a third arbitrator. If said two arbitrators cannot
agree on the selection of a third arbitrator within the next ten (10) business
days, then either Buyer or Shareholders shall be entitled to apply to the
American Arbitration Association sitting at Detroit, Michigan for the selection
of a third arbitrator who shall then participate in such arbitration
proceedings, and who shall be selected from a list of arbitrators possessing
the qualifications set forth below. Any arbitrator appointed pursuant to this
Section 9.2 shall be a qualified expert with generally recognized current
competence in mergers and acquisitions and complex business transactions.
Except as otherwise provided herein, such arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
Within thirty (30) business days of the date of selection of
the last of the arbitrators to be selected by the foregoing procedure, the
arbitrators shall furnish the parties with their written determination. Such
written determination shall be certified and signed by at least a majority of
the arbitrators, and shall be final and binding on the parties, except with
respect to any alleged breach under Section 8.1 as to which the parties may
pursue other remedies at law or in equity. Except with respect to any alleged
breach under Section 8.1, judgment may be entered on any award rendered by the
arbitrators in any federal or state court
28
<PAGE> 29
having jurisdiction over the parties. Each of Buyer and Shareholders shall pay
the arbitrator selected by it, and the costs of the third arbitrator shall be
paid one-half ( 1/2) by Buyer and one-half ( 1/2) by Shareholders.
In the event a claim or demand is made upon Buyer by a third
party, which claim or demand Buyer believes could result in a claim by Buyer
for indemnification under this Section 9.2, Buyer shall give Shareholders
prompt written notice of such claim or demand as soon as practicable after
receipt thereof by Buyer. Buyer shall consult with Shareholders to determine
what defenses to such claims should be asserted. Shareholders may participate
in, but not control, the negotiation, defense or settlement of any third-party
claim or demand and may retain counsel at their own expense to represent them
in such matters and participate on their behalf.
Notwithstanding anything to the contrary set forth herein, it
is understood and agreed that: (i) the arbitration methodologies set forth in
this Section 9.2 represent Buyer's sole available procedural remedies for
enforcement of the within indemnity, except with respect to any alleged breach
under Section 8.1 as to which Buyer may pursue other remedies at law or in
equity; (ii) only Shareholders shall have any liability under the indemnity
given to Buyer hereunder; and (iii) the extent of Shareholders' liability for
damages for a breach of any of the representations, warranties, covenants or
agreements in this Agreement, except for any alleged breaches of Section 8.1 or
2.10 hereof, shall be limited to the remedies, procedures and limitations set
forth in this Section 9.2.
With regard to any civil actions which may arise out of any
alleged breach of Section 8.1, such civil action shall be heard de novo.
SECTION 9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations, warranties and covenants made by the Selling Parties in
this Agreement, or in any schedule, exhibit, certificate or other document
delivered in connection with this Agreement, shall not be deemed to be waived
or otherwise affected by any investigation made by the other party hereto and
shall survive the Closing Date; provided, however, that such representations,
warranties, covenants and agreements shall survive only to the extent that the
right of indemnification for breach thereof is not otherwise limited pursuant
to Section 9.4 hereof.
SECTION 9.4 LIMITATION ON INDEMNIFICATION. The following
limitations shall apply to the aforesaid right of indemnification: (i) no
indemnification shall be required as to amounts recovered pursuant to any
insurance policy by the party seeking indemnification; (ii) no indemnification
shall be required by any of the Shareholders until the aggregate amount of
Buyer's
29
<PAGE> 30
damages exceeds $45,000.00 and then only as to amounts in excess of $45,000.00;
(iii) no indemnification shall be required from the Shareholders for amounts in
excess of an aggregate $2,000,000.00; (iv) no indemnification shall be required
unless a claim for indemnification is first made within 18 months of the
Closing Date except for claims arising out of Sections 2.2 or 2.3 hereof which
shall be brought within the applicable statute of limitations; (v) the
indemnifying parties shall not be liable for consequential damages except for
attorney fees; and (vi) this indemnification is several and not joint and
several with the liability of each Shareholder not to exceed his proportionate
interest in the Purchase Price. At the conclusion of the aforesaid 18 month
period, Buyer and Shareholders shall execute a Mutual Reciprocal Waiver and
Release with regard to all matters which could arise under this Article 9
provided that such Reciprocal Waiver and Release shall exclude pending claims
and claims which can be brought after such 18 month period under Sections 2.2.
or 2.3 hereof and claims which could arise under executory contracts between
Buyer, Corporation, Shareholders or any of their affiliates (e.g., the
covenants not to compete of J. Pamel and Markoul).
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1 FINDER'S OR BROKER'S FEES. Each of the
parties represents and warrants that it has dealt with no broker or finder in
connection with any of the transactions contemplated by this Agreement except
for Shareholders who have engaged the services of Sperry, Mitchell & Company,
Inc. of New York, New York as its investment banker, and, insofar as it knows,
no broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions. Selling Parties and Buyer each
agree to indemnify and hold harmless one another against any loss, liability,
damage, cost, claim or expense incurred by reason of any brokerage, commission
or finder's fee alleged to be payable by reason of any act, omission or
statement of the indemnifying party with Shareholders acknowledging full
personal responsibility for paying the fees of Sperry, Mitchell & Company, Inc.
SECTION 10.2 EXPENSES. Buyer shall pay all costs and
expenses incurred or to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions contemplated hereby.
In the event that this Agreement should be terminated in accordance with
Section 10.10, all legal, accounting and other costs and expenses incurred in
connection therewith, and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
SECTION 10.3 EFFECT OF HEADINGS. The subject headings of
the Articles and Sections of this Agreement are included for purposes of
convenience only, and shall not affect the construction or interpretation of
any of the provisions hereof.
30
<PAGE> 31
SECTION 10.4 ENTIRE AGREEMENT; MODIFICATION; WAIVER. This
Agreement, together with the Disclosure Schedule and all of the exhibits
furnished hereunder, constitutes the sole and entire agreement between the
parties pertaining to the subject matter contained herein, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by all the parties.
SECTION 10.5 WAIVER. Buyer may waive in writing
compliance by Selling Parties, and Selling Parties may waive in writing
compliance by Buyer, with any of the covenants or conditions contained in this
Agreement, except those conditions imposed by law. No act, failure to act,
practice or custom shall constitute an implied waiver of full compliance with
any of the provisions hereof. The granting of a written waiver pursuant to
this Section shall apply, unless expressly set forth therein to the contrary,
only to the specific incident of noncompliance with the specific provisions of
this Agreement set forth therein.
SECTION 10.6 COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 10.7 PARTIES IN INTEREST. Nothing in this
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and assigns, or is intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement. None of the provisions hereof shall be deemed to give
any third persons any right of subrogation or action over or against any party
and to this Agreement.
SECTION 10.8 BINDING EFFECT. This Agreement shall be
binding on, and shall inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and assigns.
SECTION 10.9 RECOVERY OF LITIGATION COSTS. Except as
otherwise provided elsewhere in this Agreement, if any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement or by reason of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled.
31
<PAGE> 32
SECTION 10.10 CONDITIONS PERMITTING TERMINATION. Subject
to the provisions of Section 7.1 relating to the postponement of the Closing
Date, either party may, on or before the Closing Date, terminate this Agreement
without liability to the other if a condition to its performance shall not be
fulfilled or a material default or breach cannot be cured at or prior to August
16, 1996, or such later date as is agreed to by Buyer and Selling Parties,
provided such terminating party is not in default pursuant to the terms of this
Agreement. Termination as provided herein shall not waive any rights of any
party against another for default or breach of any provision of this Agreement
SECTION 10.11 NOTICES. All notices, requests, demands and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
served personally on the party to whom notice is to be given, or on the fifth
(5th) day after mailing if mailed to the party to whom notice is to be given,
by first-class mail, register or certified, postage paid and properly addressed
as follows:
To Corporation At: National Reproductions Corporation
29400 Stephenson Highway
Madison Heights, Michigan 48071
Attention: Peter Pamel
With A Copy To: Richard Bolton, Esq.
Dickinson, Wright, Moon
Van Dusen and Freeman
One Detroit Center
500 Woodward Avenue
Suite 4000
Detroit, Michigan 48226
To Shareholders At: National Reproductions Corporation
29400 Stephenson Highway
Madison Heights, Michigan 48071
With A Copy To: Richard Bolton, Esq.
Dickinson, Wright, Moon
Van Dusen and Freeman
One Detroit Center
500 Woodward Avenue
Suite 4000
Detroit, Michigan 48226
To Buyer At: Lason Systems, Inc.
1305 Stephenson Highway
Troy, Michigan 48084
Attn: Gary L. Monroe
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<PAGE> 33
With A Copy To: Laurence B. Deitch, Esq.
Seyburn, Kahn, Ginn, Bess,
Deitch And Serlin
2000 Town Center, Suite 1500
Southfield, Michigan 48075-1195
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
SECTION 10.12 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of Michigan.
THIS AGREEMENT was executed as of the date and year first set
forth above.
BUYER:
LASON SYSTEMS, INC., a Delaware
corporation
By: /s/ Gary L. Monroe
----------------------------------
Gary L. Monroe
Its: Chief Executive Officer
----------------------------------
HOLDINGS:
LASON HOLDINGS, INC., a Delaware
corporation
(solely for the purpose of being bound
by Section 1.3, Article 3, Section 8.3
and Article 9 of this Agreement)
By: /s/ Gary L. Monroe
----------------------------------
Gary L. Monroe
Its: Chief Executive Officer
----------------------------------
33
<PAGE> 34
SHAREHOLDERS:
/s/ James Pamel
--------------------------------------
JAMES PAMEL
/s/ John Markoul
--------------------------------------
JOHN MARKOUL
/s/ Peter Pamel
--------------------------------------
PETER PAMEL
CORPORATION:
NATIONAL REPRODUCTIONS CORPORATION,
a Michigan corporation
By: /s/ John Markoul
----------------------------------
Its: President
----------------------------------
34
<PAGE> 35
EXHIBIT "1.3"
Purchase Price: $8,511,961.00
Allocated among Shareholders as follows:
<TABLE>
<S> <C> <C>
John Markoul 50% $4,255,980.50
James Pamel 44.73% $3,807,400.16*
Peter Pamel 5.27% $ 448,580.34
-------------
$8,511,961.00
=============
</TABLE>
* Payable as follows:
Promissory Note - $400,000.00
Cash - $3,406,272.51
35
<PAGE> 1
EXHIBIT 10.30
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT dated as of August 16, 1996 (this "Amendment"),
is made and entered into by and between
LASON SYSTEMS, INC., a Delaware corporation with its principal
offices in Livonia, Michigan (the "Borrower");
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association with its principal offices in Charlotte, North Carolina ("First
Union"), and the other financial institutions that are now or hereafter become
parties to the Loan Agreement as hereinafter defined (collectively, the
"Lenders"); and
FIRST UNION, as Agent for the Lenders to the extent described in ARTICLE
XII of the Loan Agreement (in such capacity, the "Agent").
RECITALS
A. The Borrower, the Lenders, and the Agent entered into a Loan
Agreement dated as of January 17, 1995 (together with all amendments and
modifications thereto, the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
B. Pursuant to the Loan Agreement and the other Loan Documents,
the Lenders have made Term Loans to the Borrower in the principal amount of
$15,000,000, have made a Revolving Line of Credit available to the Borrower in
the maximum principal amount of the lesser of (i) $10,000,000 or (ii) the
Borrowing Base, and have made an Acquisition Revolving Credit Facility
available in the maximum principal amount of $10,000,000 for the purpose of
funding and refunding certain Acquisitions by the Borrower and to repay
outstanding amounts borrowed under the Revolving Line of Credit.
C. The Borrower has requested that the Agent and the Lenders
provide an additional interim term loan facility in the principal amount of
$8,500,000 (the "Interim Term Loan Facility"), and increase the amount of the
Revolving Line of Credit to $13,000,000.
D. The Borrower, the Lenders, and the Agent desire to amend the
Loan Agreement hereby in order to provide for the Interim Term Loan Facility,
to increase the Revolving Line of Credit and to make certain other amendments
upon the terms and conditions and subject to the limitations set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Lenders, and
the Agent hereby agree as follows:
<PAGE> 2
ARTICLE I
AMENDMENT
1.1. Section 1.1 - Definitions. Section 1.1 of the Loan Agreement
is amended by amending or adding certain definitions as provided below:
(a) The definition of "Base Rate" is deleted in its entirety and
the following is substituted in its place:
"Base Rate" shall mean, with respect to the Revolving Loans,
the Prime Rate plus .75 percentage points (i.e., 75 basis
points) per annum, with respect to the Term Loans, the Prime
Rate plus 1.00 percentage point (i.e., 100 basis points) per
annum, with respect to the Acquisition Revolving Loans, the
Prime Rate plus 1.00 percentage point (i.e., 100 basis points)
per annum, and with respect to the Interim Term Loans, the
Prime Rate. The Base Rate shall increase (up to but never in
excess of the maximum amount authorized by law) or decrease,
as of the opening of business on the effective date of any.
change in the Prime Rate, by an amount equal to the amount of
such change in the Prime Rate. In the event First Union shall
abolish or abandon the practice of announcing the Prime Rate or
should the same be unascertainable, the Agent, after
consultation with the Borrower, shall designate a comparable
reference rate, which shall be deemed to be the Base Rate
under this Loan Agreement and the other Loan Documents.
(b) The definition of "Commitment" is deleted in its entirety and
the following is substituted in its place:
"Commitment" shall mean, for any Lender, such Lender's Term
Loan Commitment plus its Revolving Credit Commitment plus
its Acquisition Revolving Credit Commitment plus its Interim
Term Loan Commitment.
(c) A new term, "Fourth Amendment Closing Date," is added as
follows:
"Fourth Amendment Closing Date" shall mean the dated date of
the Fourth Amendment to Loan Agreement between the parties
hereto.
(d) The definition of "Funded Debt" is amended by adding the
following at the end of such definition: "and the
Interim Term Loans."
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<PAGE> 3
(e) A new term, "Interim Term Loan Commitment," is added as
follows:
"Interim Term Loan Commitment" shall mean, at any time for any
Lender, the amount set forth opposite such Lender's name on
ANNEX I hereto under the heading "Interim Term Loan
Commitment," as such amount may be adjusted from time to time
pursuant to the terms of this Agreement as set forth in the
register maintained by the Agent pursuant to SECTION 4.10(B).
(f) A new term, "Interim Term Loans," is added as follows:
"Interim Term Loans" shall mean the term loans made available
by the Lenders to the Borrower pursuant to ARTICLE IIA hereof.
(g) A new term, "Interim Term Notes," is added as follows:
"Interim Term Notes" shall mean the promissory notes of the
Borrower evidencing the indebtedness under the Interim Term
Loans, dated as of August 16, 1996.
(h) The definition of "LIBOR Rate" is deleted in its entirety and
the following is substituted in its place:
"LIBOR Rate" shall mean, for any Interest Period, an interest
rate per annum (rounded upwards, if necessary, to the next
higher 1/100 of one percentage point) obtained by dividing (i)
the rate of interest determined by Agent to be the rate for
deposits in U.S. dollars for the applicable Interest Period
which appears on the Telerate Page 3750 at approximately 11:00
a.m. London time, two (2) Eurodollar Business Days prior to
the first date of the applicable Interest Period, or if such
rate is not available, the rate per annum at which, in the
opinion of Agent, U.S. Dollars in the amount of $5,000,000 are
being offered to leading reference banks for settlement in the
London interbank market at approximately 11:00 a.m. London
time, two (2) Eurodollar Business Days prior to the first date
of the applicable Interest Period, by (ii) the percentage
equal to one hundred percent (expressed as a decimal fraction)
minus the Reserve Requirement for such Interest Period plus,
with respect to Revolving Loans, 2.25 percentage points (i.e.,
225 basis points), with respect to Term Loans, 2.5 percentage
points (i.e., 250 basis points), with respect to Acquisition
Revolving Loans, 2.50 percentage points (i.e., 250 basis
points), and with respect to Interim Term Loans, 0 percentage
points. Notwithstanding the foregoing, with regard to any
LIBOR Loan covered by any Swap Agreement, the definition and
calculation of LIBOR
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<PAGE> 4
Rate under this Loan Agreement shall be consistent with the
definition and calculation of LIBOR Rate pursuant to such Swap
Agreement, and in the event of any inconsistency between this
Loan Agreement and such Swap Agreement, the terms of the Swap
Agreement shall control. The LIBOR Rate shall be adjusted as
of the first day of each Interest Period to reflect the LIBOR
Rate for such Interest Period.
(i) The definition of "Loans" is deleted in its entirety and the
following is substituted in its place:
"Loans" shall mean and collectively refer to the Term Loans
made under ARTICLE II hereof, the Interim Term Loans made
under ARTICLE IIA hereof, the Revolving Loans made under the
Revolving Line of Credit referred to in ARTICLE III hereof,
and the Acquisition Revolving Loans referred to in ARTICLE
IIIA hereof.
(j) The definition of "Notes" is deleted in its entirety and the
following is substituted in its place:
"Notes" shall mean the Term Notes, the Revolving Credit Notes,
the Interim Term Notes and the Acquisition Revolving Credit
Notes.
(k) A new term, "Subordinated Indebtedness," is added as follows:
"Subordinated Indebtedness" shall mean any unsecured
Indebtedness of the Borrower incurred with the written
permission of the Agent which expressly contains in the
instruments evidencing such Indebtedness or in the indenture
or other similar instrument under which it is issued (which
indenture or other similar instrument shall be binding on all
holders of such Indebtedness) subordination provisions (in
form and substance satisfactory to the Agent) substantially to
the effect that the holder agrees that the Indebtedness
evidenced by such instrument, and any renewals or extensions
thereof, shall at all times and in all respects be subordinate
and junior in right of payment to the Obligations. Without
limiting the effect of the foregoing, the terms "subordinate"
and "junior", as used to describe the Subordinated
Indebtedness, shall include within their meanings the
following:
(i) If an Event of Default occurs under this Loan
Agreement and has not been waived or cured, such
holder shall not demand, sue for, take or receive all
or any part of such Indebtedness unless and
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<PAGE> 5
until the Obligations shall have been paid in full;
and
(ii) In the event of any insolvency or bankruptcy
proceedings, and any receivership, liquidation,
reorganization or other similar proceedings in
connection therewith, relative to the Borrower, or
any of the Borrower's property, and in the event of
any proceedings for voluntary liquidation,
dissolution or insolvency or bankruptcy, the Lenders
shall be entitled to receive payment in full of the
Obligations (including without limitation
post-petition interest, regardless of whether such
interest is allowable under Section 506 of the United
States Bankruptcy Code) before such holders are
entitled to receive any payment on account of such
Indebtedness, and to that end the Lenders shall be
entitled to receive distributions of any kind or
character, whether in cash or property or securities,
which may be payable or deliverable in any such
proceeding in respect of such Indebtedness.
1.2. Schedule 1.1. Schedule 1.1 is hereby amended by
adding the UCC-1 Financing Statements as set out in Annex A attached hereto.
1.3. Article IIA - Interim Term Loans. A new Article IIA
is hereby added after Article II as follows:
ARTICLE IIA
INTERIM TERM LOANS
2A.1 Interim Term Loans. The Lenders hereby severally establish,
on the terms and conditions set forth in this Agreement and in reliance upon
the representations and warranties made hereunder, an interim term loan
facility in the aggregate principal amount of up to Eight Million Five Hundred
Thousand Dollars ($8,500,000), from which each Lender severally agrees to make
its respective Interim Term Loan in the amount of its respective Interim Term
Loan Commitment. The Interim Term Loans shall be evidenced by the Interim Term
Notes, and the proceeds of the Interim Term Loans shall be advanced to the
Borrower, upon satisfaction of the terms and conditions hereunder, on the
Fourth Amendment Closing Date.
2A.2 Interim Term Notes. On the Fourth Amendment Closing Date, the
Borrower shall execute and deliver to each Lender an Interim Term Note to
evidence such Lender's Interim Term Loan. Each Interim Term Note shall (i) be
payable to the order of the appropriate Lender and be dated on the Fourth
Amendment Closing Date; (ii) be in the stated principal amount of such Lender's
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<PAGE> 6
Fourth Amendment Term Loan Commitment; and (iii) bear interest in accordance
with the applicable provisions of ARTICLE IV hereof.
2A.3 Repayment of Interim Term Loans.
(a) Payments; Dates. Unless due sooner pursuant to the applicable
provisions of ARTICLES IX and X, and subject to subsection (b) below, the
aggregate principal amount of the Interim Term Loans shall be due and payable
in full and shall be repaid by the Borrower on the earlier of (i) March 31,
1997, or (ii) the date of receipt by the Borrower of proceeds from the Equity
Offering.
(b) Optional Prepayments. The Borrower shall have the right at
any time, or from time to time, upon at least five (5) Business Days' prior
notice to the Agent, to prepay the Interim Term Loans in whole or in part,
without premium or penalty; provided, however, that each partial prepayment
shall be in an aggregate principal amount of at least $250,000, and if
greater, an integral multiple thereof. Interest on any amount prepaid, accrued
to the date of prepayment, shall be paid on such date of prepayment. Each
prepayment of principal on the Interim Term Loans pursuant to this subsection
shall be applied to scheduled principal payments in inverse order of maturity.
1.4. Section 3.1 - Revolving Loans. Section 3.1(a) of the Loan
Agreement is hereby amended by deleting "Ten Million Dollars ($10,000,000)" in
the fifth line and substituting "Thirteen Million Dollars ($13,000,000)" in
its place.
1.5. Section 3A.6 - Mandatory Prepayments. Section 3A.6 of the Loan
Agreement is hereby amended by deleting such section in its entirety and
substituting the following in its place:
3A.6 Mandatory Prepayments. In the event of an Equity
Offering, the Borrower shall apply the proceeds thereof in the
following order:
(a) to the payment of the Interim Term Loans pursuant to
SECTION 2A.3(a);
(b) to the payment of the Acquisition Revolving Credit
Notes pursuant to SECTION 3A.2(ii); and, thereafter,
(c) in the order set forth in SECTION 4.10(a);
provided that, prior to the application of such proceeds
pursuant to this subsection (c), the Borrower may use the
proceeds to make repurchases of its Class B common stock to
the extent permitted pursuant to SECTION 8.8.
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<PAGE> 7
1.6. Section 4.1 - Use of Proceeds. Section 4.1 of the Loan Agreement is
hereby amended by adding the following at the end of such section:
provided further, however, that the proceeds of the Interim Term Loans
shall be used for the purpose of the Acquisition of Stock of National
Reproductions Corporation, and to pay fees and expenses related to such
acquisitions.
1.7. Section 4.10 - Application of Principal Payments; Register; Pro Rata
Borrowings. Section 4.10(a) of the Loan Agreement is hereby amended by deleting
such subsection in its entirety and substituting the following in its place:
(a) Except as otherwise specifically set forth in this Agreement, all
payments made by the Borrower shall be applied (i) first, to the payment of
amounts due under SECTION 4.6, (ii) second, to the payment of accrued and
unpaid fees (payable by Borrower pursuant to SECTIONS 3.5, 7.6(C), 11.1,
12.8 or 15.4 hereof or otherwise pursuant to the Loan Documents) and
interest on the Term Notes, (iii) third, to the payment of accrued and
unpaid interest and principal on the Interim Term Notes, (iv) fourth, to
the payment of accrued and unpaid interest and principal on the Acquisition
Revolving Credit Notes, (v) fifth, to the payment of accrued and unpaid
interest on the Revolving Credit Notes, (vi) sixth, to the payment of
unpaid principal on the Term Notes, and (vii) seventh, to the reduction of
the Revolving Credit Commitment. Payments of principal on the Notes shall
be applied to such Loans outstanding as directed by the Borrower or, in the
absence of any such direction, shall be applied first to the payment of
Base Rate Loans and second to the payment of LIBOR Loans in the order of
the soonest to mature. If there is more than one LIBOR Loan maturing on any
one day, then payment shall be applied to the LIBOR Loan bearing the higher
rate of interest. Notwithstanding the foregoing, during the continuance of
an Event of Default the Agent shall apply all such payments to the
Obligations in accordance with the provisions of SECTION 13.1.
1.8. Section 7.16 - Additional Equity Investment. Section 7.16 of the
Loan Agreement is amended by deleting the section in its entirety and
substituting the following in its place:
7.16. Additional Equity Investment. The Borrower shall cause its
shareholders to invest additional equity in the Borrower on or before March
31, 1997, in an amount, if any, necessary to cause the ratio of Funded Debt
to Pro Forma Adjusted EBITDA to be no greater than 2.75 to 1.0 for the four
fiscal quarters ending on March 31, 1997; provided, however, that the
equity investment required by this SECTION 7.16 shall not exceed the
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<PAGE> 8
amount of principal and accrued and unpaid interest outstanding under
the Acquisition Notes as of the date of such equity investment. For
purposes of this ratio, Funded Debt shall mean Funded Debt plus
contingent payments that may become due under stock purchase agreements
for the succeeding twelve (12) months after March 31, 1997. Any equity
investment required pursuant to this SECTION 7.16 shall be in addition
to any equity investment required pursuant to SECTION 7.17.
1.9. Section 7.17 - For Repayment of Interim Term Loan Equity
Investment. A new section 7.17 is hereby added as follows:
7.17. Equity Investment For Repayment of Interim Term Loan.
If the Borrower has not received proceeds from the Equity Offering by
March 31, 1997, the Borrower shall receive from its shareholders, and
the shareholders shall make available, proceeds from the issuance of
Subordinated Indebtedness or additional common Stock of the Borrower in
an amount sufficient to enable the Borrower to pay in full the
outstanding principal and interest of the Interim Term Note.
Subordinated Indebtedness or additional common Stock issued in
compliance with this Section shall be deemed not to be a violation of
the prohibitions on additional Indebtedness and issuance of additional
shares set forth in SECTIONS 8.3 and 9.19 of this Agreement and shall be
excluded from the definition of Funded Debt, although the terms and
provisions of any Subordinated Indebtedness (including without
limitation the subordination provisions) must be satisfactory to the
Agent in form and substance. At a minimum, any additional Subordinated
Indebtedness issued in compliance with this Section shall provide that
no interest or principal payments on such Indebtedness shall be made
prior to payment in full of the Obligations under this Agreement.
1.10. Section 8.2 - Acquisitions. Section 8.2 of the Loan Agreement
is amended by deleting the section in its entirety and substituting the
following in its place:
8.2. Acquisitions. Consummate any Acquisition other than a
Permitted Acquisition or an Additional Acquisition permitted pursuant to
SECTION 8.9; provided, however, that the aggregate Acquisition Amount
for all Permitted Acquisitions and Additional Acquisitions in any fiscal
year may not exceed $2,000,000 in any event, and provided further that
Acquisitions funded by the Acquisition Revolving Loans or the Interim
Term Loans as provided in SECTION 4.1 hereof shall not be included in
the foregoing proviso.
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<PAGE> 9
1.11. Section 8.8 - Restrictions on Dividends. Section 8.8 of the Loan
Agreement is amended by deleting the section in its entirety and substituting
the following in its place:
8.8. Restrictions on Dividends. Declare or pay any dividends (other
than dividends payable solely in its own Stock) upon any of its Stock,
or purchase, redeem, retire, or otherwise acquire, directly or
indirectly, any shares of its Stock or any option, warrant or other
right to acquire shares of its Stock, or make any distribution of cash,
property or assets among the holders of shares of its Stock; provided,
however, that beginning in the fiscal quarter of the Borrower following
Borrower's receipt of proceeds from the Equity Offering, the Borrower
may declare and pay cash dividends and distributions on its Stock so
long as, after giving effect thereto, (i) there exists no Default or
Event of Default, (ii) such cash dividends and distributions do not
exceed, in any fiscal year of the Borrower, the sum of (A) the lesser of
(1) $1,200,000 and (2) ten percent (10%) of the sum of the Unreturned
Preferred Amount and the Unpaid Yield (as such terms are defined in the
Guarantor's certificate of incorporation as in effect on the Closing
Date (with such changes therein as approved in writing by the Required
Lenders)), payable by Guarantor as dividends on its capital stock, and
(B) such amounts not to exceed $250,000, payable by Guarantor to GTCR or
Golder, Thoma, Cressey, Rauner, Inc. as management and administrative
fees and expenses (the sum of the amounts described in clauses (A) and
(B) for any fiscal year being the "Permitted Amount" for such fiscal
year), minus the amount of all payments by the Borrower during such
fiscal year in respect of the principal amount of or accrued interest on
any "Deemed Loan" referred to in Section 1.1(b)(ii) of any Seller Credit
Agreement, and (iii) so long as the amounts paid pursuant to clause (ii)
of this Section are used by the Guarantor for the purposes so described;
provided further, however, that proceeds of the Equity Offering, after
application as provided in SECTION 3A.6(a) and (b), may be used to
repurchase Class B common stock of the Borrower currently held by GTCR.
ARTICLE II
RELEASE
In consideration of the foregoing amendments to the Loan Agreement set
forth herein, the Borrower hereby releases the Lenders, the Agent, their
directors, officers, employees, agents, affiliates and attorneys from any and
all causes of action, suits, claims, demands, liabilities and obligations
whatsoever, in law or in equity, whether the same or whether the facts in which
the same may be based are known or unknown, which it ever had, now has or
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<PAGE> 10
hereafter can, shall or may have for, upon or by reason of any matter, cause or
thing whatsoever up to the date of this Fourth Amendment; provided that this
release shall not apply to any obligations or duties of the Lenders or the
Agent arising under the Loan Agreement, as amended by this Fourth Amendment, or
under the other Loan Documents to be performed after the date of this Fourth
Amendment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
3.1. Effectiveness of Loan Agreement and Loan Documents. The Loan
Agreement and other Loan Documents are in full force and effect and shall
remain in full force and effect following the execution of this Amendment.
3.2. Compliance with Loan Agreement and Loan Documents. The Borrower is
in compliance with all terms and provisions set forth in the Loan Agreement to
be observed or performed, except as permitted or waived by the express terms of
this Amendment.
3.3. Representations in Loan Agreement. The representations and
warranties of the Borrower set forth in the Loan Agreement, except for those
relating to a specific date other than the date hereof, are true and correct in
all material respects on and as of the date hereof as if made on and as of the
date hereof.
3.4. No Event of Default. No Event of Default, nor any event that upon
notice, lapse of time or both would become an Event of Default is continuing
other than those, if any, expressly waived by this Amendment.
ARTICLE IV
CONDITIONS PRECEDENT
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
4.1. Amended and Restated Revolving Credit Notes. On the Fourth
Amendment Closing Date, the Borrower shall execute and deliver to each Lender
an Amended and Restated Revolving Credit Note to evidence such Lender's
Revolving Credit Loans. Each Revolving Credit Note shall (i) be payable to the
order of the appropriate Lender and be dated the Fourth Amendment Closing Date;
(ii) be in the stated principal amount of such Lender's Revolving Credit
Commitment; and (iii) bear interest in accordance with the
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applicable provisions of ARTICLE IV hereof. The amount of principal owing on
each Revolving Credit Note at any given time shall be the aggregate amount of
all Revolving Credit Loans made under such Revolving Credit Note, less all
payments of principal theretofore made by the Borrower and applied to such
Revolving Credit Note in accordance with the terms hereof.
4.2. Interim Terms Notes. On the Fourth Amendment Closing Date, the
Borrower shall execute and deliver to each Lender an Interim Term Note to
evidence such Lender's Interim Term Loans. Each Interim Term Note shall (i) be
payable to the order of the appropriate Lender and be dated the Fourth
Amendment Closing Date; (ii) be in the stated principal amount of such Lender's
Interim Term Loan Commitment; and (iii) bear interest in accordance with the
applicable provisions of ARTICLE IV hereof. The amount of principal owing on
each Interim Term Note at any given time shall be the aggregate amount of all
Interim Term Loans made under such Interim Term Note, less all payments of
principal theretofore made by the Borrower and applied to such Interim Term
Note in accordance with the terms hereof.
4.3. Confirmation Of Guarantee. The Guarantor shall have executed and
delivered to the Agent, for the benefit of the Lenders, an acknowledgement and
consent to this Amendment in form and substance satisfactory to the Agent,
including, without limitation, an acknowledgement that the Guaranty Agreement
is in full force and effect and shall remain in full force and effect following
the execution of this Amendment.
4.4. Confirmation of Subsidiary Guarantees. The Subsidiaries of the
Borrower shall have executed and delivered to the Agent, for the benefit of
the Lenders, an acknowledgement and consent to this Amendment in form and
substance satisfactory to the Agent, including, without limitation an
acknowledgement that the Subsidiary Guaranty Agreement is in full force and
effect and shall remain in full force and effect following the execution of
this Amendment.
4.5. Officer's Certificate. The Agent shall have received a
certificate of the Chief Executive Officer of the Borrower in form and
substance reasonably satisfactory to the Agent.
4.6. Secretary's Certificate. The Agent shall have received a
certificate of the Assistant Secretary of the Borrower certifying (i) that the
charter, articles or certificate of incorporation or other organizational
documents of the Borrower and the bylaws (or equivalent regulations) of the
Borrower have not been amended since the date of the Loan Agreement; (ii) that
attached thereto is a true and complete copy of resolutions adopted by the
Board of Directors of the Borrower authorizing the execution, delivery and
performance of this Amendment; and (iii) as to the incumbency and
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<PAGE> 12
genuineness of the signature of each officer of the Borrower executing this
Amendment or any of the other Loan Documents, as applicable.
4.7. Support Agreement. The Borrower shall have delivered the Support
Agreement executed by Lason Holdings, Inc., Robert A. Yanover, Allen J.
Nesbitt, and GTCR.
4.8. Financing Statements. The Borrower and its Subsidiaries shall
have executed and filed all Financing Statements and all other filings or
recordations necessary to perfect the security interests of the Agent in the
Acquisition funded by the Interim Term Loan.
4.9. Pledge and Security Agreements. The Borrower and its
Subsidiaries shall have executed and delivered to the Agent all subsidiary
pledge agreements, stock certificates and stock powers, and guarantor security
agreements and all other documents necessary to perfect the security interests
of the Agent in the Acquisition funded by the Interim Term Loan.
4.10. Compliance Certificate. The Borrower shall have executed and
delivered to the Agent a certificate demonstrating and certifying the
borrower's compliance, before and after the Acquisition funded by the Interim
Term Loan, with all covenants in the Loan Agreement, certifying that no
defaults exist under the Loan Agreement or will occur as a result of the
Acquisition to be funded by the Interim Term Loan, attaching a signed
acquisition agreement for such Acquisition, and attaching a certificate of good
standing for the acquired entity issued within thirty (30) days of the
Acquisition by the Secretary of State of the state of organization of such
acquired entity.
4.11. Other Documents. Any other documents, including legal opinions,
reasonably requested by the Agent.
4.12. Governmental and Third Party Approvals. All necessary approvals,
authorizations and consents, if any be required, of any Person and of all
Governmental Authorities (including courts) having jurisdiction with respect to
the Collateral and the transactions contemplated by this Agreement shall have
been obtained, except where the failure to so obtain is not reasonably expected
to have a Material Adverse Effect.
4.13. No Material Adverse Change. From and after December 31, 1995,
there shall not have occurred any Material Adverse Change or any event,
condition or state of facts that could reasonably by expected to have a
Material Adverse Effect, other than as specifically contemplated by the
transactions contemplated under this Agreement.
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<PAGE> 13
4.14. No Pending or Threatened Litigation. There shall not be any
material pending or threatened litigation, bankruptcy or insolvency,
injunction, order or claim with respect to the Borrower or the Acquisition of
National Reproductions Corporation.
4.15. Payment of Fees. The Agent and each Lender shall have received the
fees relating to this Amendment as expressly agreed between the Borrower and
the Agent.
ARTICLE V
GENERAL
5.1. Full Force and Effect. As expressly amended hereby, the Loan
Agreement shall continue in full force and effect in accordance with the
provisions thereof, and no change or modification in any of the terms thereof
except as specifically set forth herein has been effected. As used in the Loan
Agreement, "hereinafter," "hereto," "hereof," and words of similar import
shall, unless the context otherwise requires, mean the Loan Agreement as
amended by this Amendment.
5.2. Applicable Law. This Amendment shall be governed by and construed
in accordance with the internal laws and judicial decisions of the State of
North Carolina.
5.3. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
5.4. Expenses. The Borrower agrees to pay all out-of-pocket expenses
incurred by the Lenders in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, all reasonable
attorneys' fees.
5.5. Further Assurance. The Borrower shall execute and deliver to the
Lenders such documents, certificates and opinions as the Lender may reasonably
request to effect the amendment contemplated by this Amendment.
5.6. Headings. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
5.7. Valid Amendment. The parties acknowledge that this Amendment
complies in all respects with SECTION 15.8 of the Loan Agreement, which sets
forth the requirements for amendments thereto.
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[This remainder of this page intentionally left blank.
Signatures begin on the next page.]
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<PAGE> 15
IN WITNESS WHEREOF, the Borrower, the Lenders, and the Agent have
executed this Amendment as of the date hereof.
LASON SYSTEMS, INC.
/s/ Gary L. Monroe
----------------------------
Gary L. Monroe,
Chief Executive Officer
ATTEST:
/s/ Laurence B. Deitch
- -----------------------------
Laurence B. Deitch,
Assistant Secretary
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: ------------------------
Title: ---------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, AS AGENT
By: ------------------------
Title: ---------------------
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<PAGE> 16
Lason Systems, Inc.
Tax I.D. No. 38-3214742
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$13,000,000.00 August 16, 1996
Charlotte, North Carolina
FOR VALUE RECEIVED, LASON SYSTEMS, INC., a Delaware corporation (referred
to as the "Borrower"), hereby promises to pay to the order of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, ( t h e "Lender"), at the
offices of First Union National Bank of North Carolina, (the "Agent"), located
at Capital Markets Group, Corporate Finance, One First Union Center, TW18,
Charlotte, North Carolina 28288-0737 (or at such other place or places as the
Agent may designate) the principal sum of
THIRTEEN MILLION AND 00/100 DOLLARS ($13,000,000.00), or such lesser amount
as may constitute the unpaid principal amount of the Revolving Loans payable to
the Lender, under the terms and conditions of that certain Loan Agreement
dated as of the date hereof, between the Borrower, the Lenders named therein,
and First Union National Bank of North Carolina as Agent as set forth therein
(as the same may be amended, modified, renewed, restated, extended or
supplemented from time to time, the "Loan Agreement"). The Borrower also
promises to pay interest on the aggregate unpaid principal amount of this
Revolving Credit Note at the applicable rate(s) provided in the Loan Agreement.
This Amended and Restated Revolving Credit Note is one of the Amended and
Restated Revolving Credit Notes issued to evidence the Revolving Loans made
pursuant to ARTICLE III of the Loan Agreement. The defined terms in the Loan
Agreement are used herein with the same meaning. All of the terms, conditions
and covenants of the Loan Agreement are expressly made a part of this Amended
and Restated Revolving Credit Note by reference in the same manner and with the
same effect as if set forth herein at length and any holder of this Amended and
Restated Revolving Credit Note is entitled to the benefits of and remedies
provided in the Loan Agreement and any other agreements by and between the
Borrower, the Lenders and the Agent. All provisions of this Amended and
Restated Revolving Credit Note are qualified in their entirety by reference
to the Loan Agreements. Reference is made to the Loan Agreement for provisions
relating to the interest rate, maturity, payment, prepayment and acceleration
of this Amended and Restated Revolving Credit Note.
In the event of an acceleration of the maturity of this Amended and
Restated Revolving Credit Note, this Amended and Restated Revolving Credit Note,
and all other Obligations of the Borrower, shall become immediately due and
payable, without
<PAGE> 17
presentation, demand, protest or notice of any kind, all of which are hereby
waived by the Borrower.
In the event this Amended and Restated Revolving Credit Note is not
paid when due at any stated or accelerated maturity, the Borrower agrees to
pay, in addition to the principal and interest, all costs of collection,
including reasonable attorneys' fees.
This Amended and Restated Revolving Credit Note shall be governed by
and construed in accordance with the internal laws and judicial decisions of
the State of North Carolina. The Borrower hereby submits to the jurisdiction
and venue of the federal and state courts located in Mecklenburg County, North
Carolina, although the Lender shall not be limited to bringing an action in
such courts.
IN WITNESS WHEREOF, the Borrower has caused this Amended and Restated
Revolving Credit Note to be executed under seal by its duly authorized
corporate officers on the day and year first above written.
LASON SYSTEMS, INC.
By: /s/ Gary L. Monroe
-----------------------------
Gary L. Monroe
-----------------------------
Chief Executive Officer
-----------------------------
ATTEST:
/s/ Laurence B. Deitch
- ------------------------------
LAURENCE B. DEITCH
- ------------------------------
Assistant Secretary
- ------------------------------
<PAGE> 18
Lason Systems, Inc.
Tax I.D. No. 38-3214742
INTERIM TERM NOTE
$8,500,000.00 August 16, 1996
Charlotte, North Carolina
FOR VALUE RECEIVED, LASON SYSTEMS, INC., a Delaware corporation (referred
to as the "Borrower"), hereby promises to pay to the order of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA (the "Lender"), at the offices
of First Union National Bank of North Carolina, (the "Agent"), located at
Capital Markets Group, Corporate Finance, One First Union Center, TW18,
Charlotte, North Carolina 28288-0737 (or at such other place or places as the
Agent may designate) the principal sum of
EIGHT MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($8,500,000.00)
under the terms and conditions of that certain Loan Agreement dated as of
January 17, 1995, between the Borrower, the Lenders named therein, and First
Union National Bank of North Carolina as Agent as set forth therein (as the same
may be amended, modified, renewed, restated, extended or supplemented from time
to time, the "Loan Agreement"). The Borrower also promises to pay interest on
the aggregate unpaid principal amount of this Term Note at the applicable
rate(s) provided in the Loan Agreement.
This Interim Term Note is one of the Interim Term Notes issued to evidence
the Term Loans made pursuant to ARTICLE II A of the Loan Agreement. The defined
terms in the Loan Agreement are used herein with the same meaning. All of the
terms, conditions and covenants of the Loan Agreement are expressly made a part
of this Interim Term Note by reference in the same manner and with the same
effect as if set forth herein at length and any holder of this Interim Term Note
is entitled to the benefits of and remedies provided in the Loan Agreement and
any other agreements by and between the Borrower, the Lenders and the Agent.
All provisions of this Interim Term Note are qualified in their entirety by
reference to the Loan Agreement. Reference is made to the Loan Agreement for
provisions relating to the interest rate, maturity, payment, prepayment and
acceleration of this Interim Term Note.
In the event of an acceleration of the maturity of this Interim Term Note,
this Interim Term Note, and all other Obligations of the Borrower, shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
<PAGE> 19
In the event this Interim Term Note is not paid when due at any stated
or accelerated maturity, the Borrower agrees to pay, in addition to the
principal and interest, all costs of collection, including reasonable
attorneys' fees.
This Interim Term Note shall be governed by and construed in accordance
with the internal laws and judicial decisions of the State of North Carolina.
The Borrower hereby submits to the jurisdiction and venue of the federal and
state courts located in Mecklenburg County, North Carolina, although the Lender
shall not be limited to bringing an action in such courts.
IN WITNESS WHEREOF, the Borrower has caused this Interim Term Note to
be executed under seal by its duly authorized corporate officers on the day and
year first above written.
LASON SYSTEMS, INC.
By: /s/ Gary L. Monroe
---------------------------------
Gary L. Monroe
---------------------------------
Chief Executive Officer
---------------------------------
ATTEST:
/s/ Laurence B. Deitch
- ------------------------
LAURENCE B. DEITCH
- ------------------------
Assistant Secretary
- ------------------------
-2-
<PAGE> 1
EXHIBIT 10.31
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made this 26th day
of July, 1996, by and between KENSINGTON CENTER, INC., a Michigan corporation,
the address of which is 377 Amelia Street, Plymouth, Michigan 48170
("Landlord") and LASON SYSTEMS, INC., a Delaware corporation, the address of
which is 28400 Schoolcraft Road, Livonia, Michigan 48150 ("Tenant").
R E C I T A L S:
Landlord and Tenant entered into a Lease dated August 3, 1995 (the
"Lease"), pursuant to which Tenant occupies approximately 56,000 square feet
(the "Existing Premises") at 38000 Amrhein Road, Livonia, Michigan 48151
commonly referred to as Kensington Center.
At this time, Tenant desires to expand into certain space adjacent to
the Existing Premises consisting of 16,000 square feet as shown on the attached
Exhibit "A" (the "Expansion Space"). Landlord is willing to agree to such
expansion provided there is an adjustment to certain of the economic terms of
the Lease. Accordingly, Landlord and Tenant desire to amend the Lease to set
forth the specific details of their agreement with respect to the foregoing, as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual convenants contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
1. Landlord's Work. Once the Expansion Space has been vacated by
the prior tenant, Landlord shall promptly make certain improvements to the
Expansion Space, at Landlord's own cost and expense, as follows:
A. Replace light bulbs in existing fixtures with "white"
light bulbs which have the same candle-power as the
light bulbs in Tenant's production area in the Existing
Premises;
B. Paint ceilings, walls and floor; and
C. Remove and dispose of knockout panels in the demising
wall.
The Expansion Space shall be delivered by Landlord to Tenant on the date that
Landlord has completed the foregoing improvements to the Expansion Space (the
"Delivery Date"), which Delivery Date shall be confirmed by letter from
Landlord to Tenant. The Delivery Date is expected to occur on or before
September 1, 1996; however, if the Delivery Date has not occurred by October 1,
1996 then Tenant shall
<PAGE> 2
have the right to terminate this First Amendment upon written notice to
Landlord whereupon Landlord's and Tenant's obligations under this First
Amendment shall terminate and this First Amendment shall be of no further force
or effect.
2. Tenant's Access. Prior to the Delivery Date, Tenant shall be
permitted access to the Expansion Space for purposes of moving in its equipment
and constructing any improvements, provided such activities shall not
unreasonably interfere with the work to be performed by Landlord.
3. Additional Improvements. Landlord and Tenant agree that the
following work needs to be performed within the Expansion Space:
A. Installation of an air conditioning system;
B. Modification of the electrical system to accommodate Tenant's
equipment;
C. Widening of the over-head truck door; and
D. Boarding-up windows to improve security.
Tenant shall obtain bids for such work from contractors approved by Landlord.
Upon Landlord's approval of the bid amounts (which amounts may include a fee
not to exceed fifteen (15%) percent payable to Landlord, a general contractor
or a construction manager), the work shall be performed by the approved
contractors and paid for by Landlord. Tenant shall reimburse Landlord for the
agreed-upon amount in the following manner:
A. Fifty (50%) percent by check upon presentation of an invoice
after completion of such improvements; and
B. The balance plus interest at eight (8%) percent per annum in
the form of additional rent with the amount amortized over
the then-remaining term of the Lease. The balance may be
prepaid without penalty.
4. Amendment To Description Of The Premises. Effective as of the
Delivery Date, that portion of Paragraph 1 pertaining to the description of the
Premises is amended so that the "Premises" shall be defined as "Tenant's space
consisting of approximately 72,000 square feet".
5. Amendment To Rent. Effective as of the Delivery Date, that portion
of Paragraph 2 pertaining to annual base rent and monthly base rent is amended
and restated as follows:
2
<PAGE> 3
Annual Base Rent Monthly Base Rent
$306,000.00 $25,500.00
6. Amendment To Tenant's Pro Rata Share. Effective as of the Delivery
Date, that portion of Paragraph 2 pertaining to Tenant's Pro Rata Share is
amended so that Tenant's "Pro Rata Share" shall mean eighteen and forty-seven
hundredths (18.47%) percent (i.e., 72,000/389,786).
7. Obligations of Landlord And Tenant. As of the Delivery Date, all
terms and conditions of the Lease applicable to the Existing Premises shall
also be applicable to the Expansion Space, all obligations of Landlord and
Tenant with respect to the Existing Premises shall also be obligations of
Landlord and Tenant with respect to the Expansion Space and all references to
"Premises" in the Lease shall be deemed to include both the Existing Space and
the Expansion Space.
8. Terms. Except as otherwise set forth in this First Amendment,
capitalized terms use in this First Amendment but not defined herein shall have
the meaning ascribed to them in the Lease.
9. Ratification. Except as specifically modified by this First
Amendment, all of the terms and conditions of the Lease are herby ratified and
confirmed by Landlord and Tenant as being in full force and effect.
10. Binding Effect. This First Amendment shall be binding upon, and the
benefits hereof shall inure to, the parties hereto and their respective
successors and assigns.
THIS FIRST AMENDMENT has been executed as of the date and year first
set forth above.
KENSINGTON CENTER, INC., a Michigan
corporation
By: /s/ John M. Allman
--------------------------------
John M. Allman
Its: President
--------------------------------
"Landlord"
3
<PAGE> 4
LASON SYSTEMS, INC., a Delaware
corporation
By: /s/ Richard C. Kowalski
---------------------------
Richard C. Kowalski
Its: Director of Finance
--------------------------
"Tenant"
4
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Lason Systems, Inc.
Delaware Legal Copy, Inc.
Information & Image Technology of America, Inc.
Great Lakes Micrographics Corporation
Micro-Pro, Inc.
MP Services, Inc.
National Reproductions Corp.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1, of our
legended report dated March 31, 1996, except for Note 6, as to which the date is
July 10, 1996, and Note 15, as to which the date is ______________, on our audit
of the consolidated financial statements and financial statement schedule of
Lason, Inc.; of our report dated March 17, 1995, on our audits of the financial
statements of Lason Systems, Inc.; of our report dated June 28, 1996, except for
Note 6, as to which the date is July 16, 1996, on our audit of the financial
statements of Great Lakes Micrographics Corporation; of our report dated July
17, 1996, except for Note 10, as to which the date is August 6, 1996, on our
audits of the financial statements of National Reproductions Corporation. We
also consent to the reference to our Firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Detroit, Michigan
August 30, 1996
