<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LASON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7398 38-3214743
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (248) 597-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GARY L. MONROE
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (248) 597-5800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
LAURENCE B. DEITCH JEFFREY M. STEIN
FRED B. GREEN KING & SPALDING
SEYBURN, KAHN, GINN, 191 PEACHTREE STREET
BESS, DEITCH AND SERLIN, P.C. ATLANTA, GEORGIA 30303
2000 TOWN CENTER, SUITE 1500 (404) 572-4729
SOUTHFIELD, MICHIGAN 48075
(248) 353-7620
</TABLE>
------------------------
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARES TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share.......................... 4,025,000 $51.75 $208,293,750.00 $61,446.66
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c).
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 JULY 30, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
3,500,000 Shares
LASON LOGO
Common Stock
- --------------------------------------------------------------------------------
Of the 3,500,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 2,700,000 shares are being sold by
Lason, Inc. ("Lason" or the "Company") and 800,000 shares are being sold by
certain stockholders of the Company (the "Selling Stockholders"). The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
The Common Stock is included for quotation in The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "LSON." On July 28, 1998,
the last reported sales price for the Common Stock on the Nasdaq National Market
was $51.438 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 8 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED
HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several 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 to be
$750,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters
30-day over-allotment options to purchase up to 525,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price to
Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Stockholders will be $ . See
"Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made through the facilities of the Depository Trust Company, New York, New
York, on or about , 1998.
PRUDENTIAL SECURITIES INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
August , 1998 THE ROBINSON-HUMPHREY COMPANY
<PAGE> 3
LASON LOGO
"THE INFORMATION MANAGEMENT COMPANY"
IMAGE AND DATA CAPTURE
- Electronic Conversion Services
- Micrographic Conversion Services
- High Volume, Quick-Turn Reprographics
- On-Site Facilities Management
- Digital Graphics
DATA MANAGEMENT
- Electronic Document Storage and Retrieval
- Database Management Services
- Internet-Based Services
OUTPUT PROCESSING
- Digital Communication Services
(Priority Gram(TM), PROXYGRAM(TM) and
fax, electronic distribution, print and mail)
- Print On Demand Solutions
[Picture of several of the Company's
employees at computer workstations]
[Picture of multiple computer terminals]
[Picture of multiple computer terminals]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the consolidated financial statements of the Company and
the 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") and the financial statements of
Consolidated Reprographics, a California corporation ("Consolidated
Reprographics"), and the notes thereto, appearing elsewhere in this Prospectus.
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 information set forth herein, unless otherwise indicated, assumes that the
Underwriters' over-allotment options will not be exercised.
THE COMPANY
Lason provides integrated information outsourcing for image and data
capture, data management and output processing services. The investments the
Company has made in imaging and communications technology, personnel, equipment
and systems over the past decade have given it the capabilities and expertise
necessary to meet the growing and increasingly complex information management
requirements of its customers. The Company primarily serves customers in the
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 information
management outsourcing needs with a single vendor. The Company's strategy has
been to offer a wide range of services across a broad geographic area to its
customers and to use technologically advanced solutions to expand its service
offerings. The Company's net revenues have increased from $31.2 million in 1993
to $120.3 million in 1997, representing a compound annual growth rate ("CAGR")
of 40.2% over this five year period. The Company's diluted earnings per share
have increased from $0.33 in 1995 to $0.90 in 1997, representing a CAGR of 65.1%
over this three year period. The Company's net revenues increased 77.5% to $46.6
million for the three months ended March 31, 1998, as compared with the same
period in 1997. The Company's diluted earnings per share increased 38.0% to
$0.29 for the three months ended March 31, 1998, as compared to the same period
in 1997. Currently, the Company employs more than 3,900 people, has operations
in 25 states and Mexico and provides services to over 3,500 customers at 55
Lason multi-functional imaging centers and over 90 facility management sites
located on customers' premises.
The Company completed its initial public offering in October 1996 and a
secondary public offering in August 1997. Since its secondary public offering,
the Company has:
- Completed 13 acquisitions of information management companies which
had aggregate 1997 revenues of approximately $151.0 million;
- Achieved significant internal revenue growth, generating net
revenues in the quarter ended March 31, 1998 that were approximately
17.0% higher than those achieved in the quarter ended March 31,
1997, excluding the results of companies acquired after March 31,
1997;
- Increased the geographic presence of its operations from 15 states
to 25 states and Mexico;
- Introduced Corporate ID, a proprietary Internet-based software
application that allows corporate customers to manage the
procurement of corporate identification materials, enhanced the
capabilities of Visions computer output to laser disk (COLD) and
continued the expansion of its branding strategy by increasing its
emphasis on products such as Document Express (print on demand),
Priority Gram(TM) and PROXYGRAM(TM); and
- Increased the availability under its Credit Agreement (as defined
herein) up to a maximum of $200 million.
3
<PAGE> 5
Lason's information management service offerings can be divided into the
areas of image and data capture, data management and output processing. The
Company's image and data capture services include the scanning and conversion of
documents from a variety of input media to a digital format. The Company also
provides traditional microfilm and microfiche services as well as on-site
facility management services. The Company's data management services include
electronic document storage and retrieval, database management and
Internet-based services, as well as list manipulation, sorting services and
information search solutions so that customers' data can be customized and
updated for specific target market mailings. The Company's Internet-based
services include its recent offering, Corporate ID, a proprietary software
application that allows corporate customers to manage the procurement of
corporate identification materials. The Company's output processing services
include print on demand, business communications and statement processing
services. The Company's newest output processing service offering, 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, proxy solicitations and letters to
consumers and other target audiences by fax, electronic distribution, print and
mail. The Company also provides customized processing services for over 500
collection agencies located throughout the United States.
Lason believes that companies will continue to increase their use of
outsourced information management services. 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. To manage large volumes of
documents efficiently, a customer would be required to make significant
investments in equipment, processes and technology which may only be fully
utilized occasionally. Through outsourcing, companies can avoid these
investments, as well as the risks of obsolescence that arise from rapid changes
in information management technology. As companies continue 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 large
volumes of documents efficiently. In addition, the Company believes that
customers will seek a single vendor capable of furnishing all or many of their
information management needs rather than relying on multiple vendors with
varying areas of expertise.
The information management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. An
important element of the Company's growth strategy is to selectively make
acquisitions of companies with complementary technologies or customer bases to
consolidate its position as a provider of comprehensive information management
services across a broad geographic area.
In addition to acquisitions, a key component of the Company's growth
strategy is to continue to grow internally. The Company believes its internal
growth of approximately 17.0% for the quarter ended March 31, 1998, compared
with the same period in 1997, is in part attributable to comprehensive marketing
programs it has implemented to facilitate the cross-selling of additional
services to its customers. The Company's goal is to become a national, single
source provider of image and data capture, data management and output processing
services for customers in its targeted industries. To achieve this goal, the
Company will continue to implement a focused business strategy based on the
following elements:
- Provide a broad range of services that will allow both existing and
new customers to secure all their information management services
from one source;
- Facilitate the cross-selling of additional services to customers
through its comprehensive marketing program and develop national
brand recognition for the quality and scope of Lason's services;
4
<PAGE> 6
- Make selective acquisitions to broaden its geographic reach,
customer base, management expertise and technological capabilities
and to attain economies of scale in purchasing and facility
utilization;
- Continue to develop additional high value-added applications, such
as Document Express (print on demand), digital imaging services,
Visions computer output to laser disk (COLD) and Corporate ID,
within its core service offerings; and
- Continue to develop scalable applications utilizing an open
architecture and modular approach that will enable the Company to
service the unique needs of various customers across a broad range
of volume requirements.
RECENT DEVELOPMENTS
EARNINGS ANNOUNCEMENT
On July 22, 1998, the Company announced its results of operations for the
three and six month periods ended June 30, 1998. For the quarter ended June 30,
1998, the Company's net revenues increased 128.4% to $62.6 million from $27.4
million for the same period in 1997. Income from operations increased 117.9% to
$7.9 million for the quarter ended June 30, 1998 from $3.7 million for the same
period in 1997. Net income increased 93.5% to $3.8 million for the quarter ended
June 30, 1998 from $2.0 million for the same period in 1997. Diluted earnings
per share increased 41.0% to $0.31 for the quarter ended June 30, 1998 from
$0.22 for the same period in 1997.
For the six months ended June 30, 1998, the Company's net revenues
increased 103.5% to $109.2 million from $53.7 million for the same period in
1997. Income from operations increased 102.7% to $13.9 million for the six
months ended June 30, 1998 from $6.9 million for the same period in 1997. Net
income increased 88.4% to $7.3 million for the six months ended June 30, 1998
from $3.9 million for the same period in 1997. Diluted earnings per share
increased 40.5% to $0.59 for the six months ended June 30, 1998 from $0.42 for
the same period in 1997.
RECENT ACQUISITIONS
In 1998, the Company expanded its efforts to target larger, regional
platform acquisitions in addition to tuck-in acquisitions. The Company has
completed three such larger platform acquisitions in 1998 with aggregate 1997
revenues of $81.0 million. The Company believes that expanding its acquisition
program to include larger regional platform acquisitions enables the Company to
broaden the range of services it provides to its customers, expand into new
geographic areas and increase its customer base, cross-selling opportunities and
operating leverage.
Consolidated Reprographics
On July 29, 1998, the Company acquired all of the outstanding shares of
capital stock of Consolidated Reprographics for a purchase price of $41.0
million, plus additional earn-out payments (the "Consolidated Reprographics
Acquisition"). Consolidated Reprographics, headquartered in Irvine, California,
has five locations in the southern California market and individual facilities
in Arizona and Nevada. Consolidated Reprographics provides digital imaging,
reprographics and document management, as well as facilities management at over
30 customer sites. For the twelve months ended May 31, 1998, Consolidated
Reprographics had net revenues of $28.9 million. The Consolidated Reprographics
Acquisition significantly expanded the Company's management capabilities,
product offerings, customer base and geographic presence in the California
market.
Racom
On February 24, 1998, the Company acquired Racom Corporation and its
affiliates ("Racom") by acquiring all of the outstanding shares of capital stock
of its parent, Southern Microfilm Associates, Inc., for a
5
<PAGE> 7
purchase price of $26.0 million, plus additional earn-out payments (the "Racom
Acquisition"). Racom, headquartered in New Orleans, Louisiana, has 16 imaging
centers located in eight states, primarily in the southwestern United States.
Racom provides image conversion services, facilities management and various
systems integration and support activities. For the twelve months ended December
31, 1997, Racom had net revenues of $24.8 million. The Racom Acquisition added
operations in Arizona, Colorado, Louisiana, Nevada, New Mexico, Texas and Utah,
and expanded the Company's operations in Florida.
API
On March 5, 1998, the Company acquired substantially all of the assets of
API Systems, Inc. ("API") for a purchase price of $25.3 million and the
assumption of certain liabilities, plus additional earn-out payments (the "API
Acquisition"). API, headquartered in New York City, provides business
communications services primarily to the financial and commercial industries in
Connecticut, New Jersey, New York and Pennsylvania. For the twelve months ended
December 31, 1997, API had net revenues of $30.1 million. The API Acquisition,
combined with the Company's existing New York-based Churchill Communications
operation, provides the Company with a significant output processing presence in
the New York metropolitan market.
THE OFFERING
Common Stock Offered by the Company....... 2,700,000 shares
Common Stock Offered by the Selling
Stockholders.............................. 800,000 shares
Common Stock to be Outstanding after the
Offering(1)............................... 14,955,849 shares
Use of Proceeds by the Company............ To repay indebtedness under the
Company's credit agreement (the
"Credit Agreement"), which has
been incurred principally to
finance acquisitions, and for
general corporate purposes,
including future acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbol............. LSON
- -------------------------
(1) Excludes, as of July 28, 1998, an aggregate of 1,590,560 shares of Common
Stock reserved for issuance under the Company's stock incentive plans, of
which options for 1,363,028 shares are currently outstanding with a weighted
average exercise price of $27.40 per share. See "Management-Stock Option
Plans."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact from various events that could
adversely affect the Company's business. See "Risk Factors."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ---------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997 1998 1998(1)
---- ---- ---- ----------- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of postage.......... $ 46,605 $ 69,937 $120,337 $229,316 $ 26,236 $ 46,566 $ 69,942
Cost of revenues.................. 31,227 47,587 80,846 154,604 18,147 29,811 43,060
-------- -------- -------- -------- -------- -------- --------
Gross profit...................... 15,378 22,350 39,491 74,712 8,089 16,755 26,882
Selling, general and
administrative
expenses........................ 9,406 12,699 21,364 44,181 4,349 9,778 16,671
Compensatory stock option
expense......................... 308 936 221 221 54 69 69
Amortization of intangibles....... 817 1,121 2,477 5,681 480 966 1,603
-------- -------- -------- -------- -------- -------- --------
Income from operations............ 4,847 7,594 15,429 24,629 3,206 5,942 8,539
Net interest expense.............. 1,694 1,760 1,249 109 266 646 163
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........ 3,153 5,834 14,180 24,520 2,940 5,296 8,376
Provision for income taxes........ 1,139 2,103 5,110 9,737 1,047 1,830 3,303
-------- -------- -------- -------- -------- -------- --------
Net income........................ $ 2,014 $ 3,731 $ 9,070 $ 14,783 $ 1,893 $ 3,466 $ 5,073
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic........................... $ 0.35 $ 0.59 $ 0.93 $ 1.19 $ 0.22 $ 0.30 $ 0.35
-------- -------- -------- -------- -------- -------- --------
Diluted......................... $ 0.33 $ 0.55 $ 0.90 $ 1.12 $ 0.21 $ 0.29 $ 0.33
======== ======== ======== ======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding:
Basic........................... 5,692 6,361 9,704 12,432 8,694 11,608 14,333
Diluted......................... 6,192 6,764 10,035 13,245 9,062 12,125 15,198
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------
AS
ACTUAL PRO FORMA(2) ADJUSTED(3)
------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 42,940 $ 50,170 $ 57,611
Total assets.............................................. 240,537 307,057 314,498
Long-term debt, less current portion...................... 68,300 125,648 1,207
Total stockholders' equity................................ 135,223 136,034 267,916
</TABLE>
- -------------------------
(1) Gives effect to the acquisitions completed in 1998 (the "1998
Acquisitions"), the sale of 2,700,000 shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom
as if each had occurred as of January 1, 1997. See "Use of Proceeds" and Pro
Forma Financial Information.
(2) Gives effect to the acquisitions completed after March 31, 1998 (the "Post
March 1998 Acquisitions") as if each had occurred as of March 31, 1998. See
Pro Forma Financial Information.
(3) Gives effect to the Post March 1998 Acquisitions, the sale of 2,700,000
shares of Common Stock offered by the Company hereby and the application of
the estimated net proceeds therefrom as if each had occurred as of March 31,
1998. See "Use of Proceeds" and Pro Forma Financial Information.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
words "expect," "believe," "goal," "plan," "intend," "estimate" and similar
expressions and variations thereof used in this Prospectus are intended to
specifically identify forward-looking statements. Those statements appear in a
number of places in this Prospectus and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) potential acquisitions and the
successful integration of such acquisitions; (ii) the use of the proceeds of the
Offering; (iii) the Company's financing plans; (iv) trends affecting the
Company's financial condition or results of operations; (v) the Company's growth
strategy and operating strategy; (vi) trends in the Company's markets; (vii)
trends in the Company's customer base; and (viii) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including without
limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," identifies important factors that could cause such
differences. The Company undertakes no obligation to publicly update or revise
forward looking statements made in this Prospectus to reflect events or
circumstances after the date of this Prospectus or to reflect the occurrence of
unanticipated events.
RISKS OF ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED BUSINESSES. 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. 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 or impairment of intangible assets, created or acquired, some or
all of which could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, the issuance of
Common Stock by the Company in connection with acquisitions may be dilutive to
the holders of the Common Stock. The Company occasionally experiences
competition in the pursuit of its acquisition candidates. Such competition may
result in an increase in the valuations received by candidates in this industry
and, consequently, may affect the prices the Company must pay for these
acquisitions. In addition, there can be no assurance that companies acquired in
the future will be profitable at the time of acquisition, that the companies
recently acquired or acquired in the future will achieve sales and profitability
justifying the Company's investment therein or that the Company will recognize
the synergies expected from such acquisitions. The failure to generate
profitability or to obtain any anticipated synergies from such acquired
businesses could have a material adverse effect on the Company's businesses,
financial condition or results of operations. See "Business -- Acquisition
Strategy."
RELIANCE ON MAJOR CUSTOMERS; RISK OF CUSTOMER LABOR INTERRUPTIONS. For the
years ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1998, General Motors Corporation accounted for 48.6%, 32.0%, 16.8% and
10.1%, respectively; Ford Motor Company accounted for 11.8%, 19.0%, 13.9% and
13.7%, respectively; and Chrysler Corporation accounted for 4.6%, 5.5%, 1.8% and
2.0%, respectively, of the Company's net revenues. For the three months ended
March 31, 1998, on a pro forma basis after giving effect to the 1998
Acquisitions, General Motors Corporation accounted for 7.0%; Ford Motor Company
accounted for 9.4%; and Chrysler Corporation accounted for 1.4%, of the
Company's net revenues. General declines in the automotive industry could cause
a reduction in demand by such customers for the
8
<PAGE> 10
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."
Several of the Company's key customers have large numbers of employees
employed under collective bargaining agreements with the United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW"). The
Company's business, results of operations and financial condition have not been
materially adversely affected by the recent strike by the UAW against General
Motors Corporation, as many of the services the Company performs for General
Motors support future product planning, credit, legal and other aspects of
General Motors' business which do not correlate directly with the number of
vehicles produced. A strike, if prolonged in nature, however, could have a
material adverse effect on the Company's business, financial condition or
results of operations. Similarly, the failure of Ford Motor Company or Chrysler
Corporation to maintain harmonious relationships with the UAW 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.
COMPETITION IN THE COMPANY'S MARKETS. The markets in which the Company's
businesses compete are highly competitive. A significant source of competition
is the in-house document handling capability of the Company's target customer
base. There can be no assurance that these businesses will outsource more of
their image and data capture, data management or output processing 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 IKON Office
Solutions, Inc., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney
Bowes Inc.) and Xerox Document Services, a business group of Xerox Corporation,
with respect to its image and data capture services; DataPlex, Inc., F.Y.I.
Incorporated, IKON Office Solutions, Inc. and ImageMax, Inc. with respect to its
data management services; and Xerox Document Services, Diversified Data &
Communications, Inc. and Vestcom International, Inc. with respect to its output
processing 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.
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY. 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, disruptions in the businesses of the Company's customers,
the timing of the introduction of new services and service enhancements by the
Company or its competitors, 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 generally are
lower during the third and fourth quarters of the year. 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 or 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 -- Results of Operations -- Selected Quarterly Information."
POTENTIAL LIABILITY FOR UNAUTHORIZED DISCLOSURE OF CONFIDENTIAL
INFORMATION. A substantial portion of the Company's business involves the
handling of documents containing confidential and other sensitive
9
<PAGE> 11
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.
RISK OF 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."
SIGNIFICANT INTANGIBLE ASSETS. As of March 31, 1998, the Company had $137.3
million of intangible assets, representing 57.1% of the Company's total assets,
consisting primarily of goodwill ($181.1 million or 57.6% on a pro forma basis
after giving effect to the Post March 1998 Acquisitions, the Offering and the
application of the estimated net proceeds therefrom, as if each had occurred on
March 31, 1998). The Company will incur non-cash charges as a result of
amortization of such assets over their lives. If the value of any such asset is
impaired, the Company could incur a significant non-cash charge in the period of
such impairment, and the market price of the Common Stock could be adversely
affected when the Company reports any such charges. In addition, in the event of
a sale or liquidation of the Company or its assets, there can be no assurance
that the value of such intangible assets would be recovered.
IMPORTANCE OF CONTINUED DEVELOPMENT OF NEW SERVICES. The introduction of
competing services incorporating new technologies or 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 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.
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 contracts, trade secrets
and confidentiality agreements 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 costs to, and diversion
of efforts by, the Company. There can be no assurance that the Company would
prevail in any such litigation. Any inability of the Company to protect its
proprietary rights 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 systems or services
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.
10
<PAGE> 12
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 generally does not have employment agreements
providing for a definite term of employment with its executive officers or key
employees and does not maintain key man life insurance covering any of its
executive officers or key employees. See "Management."
FLUCTUATIONS IN PAPER PRICES. The price of paper increased significantly
during 1995 and may increase in the future. The Company has not been able to
structure its pricing with all of its customers to reflect 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 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 -- Inflation."
RISK OF INADEQUATE FINANCING FOR FUTURE ACQUISITIONS. 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 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations. To the
extent that these software applications contain a source code that is unable to
interpret appropriately the upcoming calendar year 2000, some level of
modification or even possible replacement of such source code or applications
will be necessary. The Company is currently modifying its computer software
programs and operating systems to make them "Year 2000" compliant and intends to
complete its "Year 2000" compliance program in the second quarter of 1999. The
Company anticipates that its expenditures for "Year 2000" compliance will not be
material. However, there can be no assurance that the Company will not incur
unanticipated costs or systems interruptions which could have a material adverse
effect on the Company's business, financial condition or results of operations.
In addition, there can be no assurance that the failure by the Company's
customers or suppliers to be "Year 2000" compliant will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon completion of
the Offering, the Company will have outstanding 14,955,849 shares of Common
Stock (15,360,849 shares if the Underwriters' over-allotment options are
exercised in full), of which the 3,500,000 shares sold in the Offering
(4,025,000 shares if the Underwriters' over-allotment options are exercised in
full) and the 7,918,400 shares sold in the Company's initial public offering
completed in October 1996 and the Company's secondary offering completed in
August 1997 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"). The remaining 3,537,449 shares (the "Restricted Shares") are subject to
certain restrictions described below. Holders of 825,090 of the Restricted
Shares will be eligible to sell a portion of such shares pursuant to Rule 144,
subject to the manner of sale, volume, notice and information requirements of
Rule 144. Notwithstanding the eligibility of certain shares to be sold following
the completion of the Offering, such shares are subject to certain additional
restrictions on transfer pursuant to certain agreements described below. See
"Shares Eligible for Future Sale."
11
<PAGE> 13
The Company and its executive officers and directors and the Selling
Stockholders have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for, Common Stock or other capital stock of the Company, or any
right to purchase or acquire Common Stock or other capital stock of the Company,
for a period of 90 days after the date of this Prospectus (the "Lock-Up
Period"), without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for bona fide gifts or
transfers effected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by such agreements (the "Lock-Up Agreements"). Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the shares subject to such Lock-Up Agreements. See
"Shares Eligible for Future Sale" and "Underwriting."
The Company has filed a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable pursuant to the
Company's 1995 Stock Option Plan. The Company will file a Form S-8 Registration
Statement under the Securities Act to register all shares of Common Stock
issuable pursuant to the Company's 1998 Equity Participation Plan following
completion of the Offering. Shares covered by these registration statements are
or will be eligible for sale in the public markets, subject to the Lock-Up
Agreements. See "Management" and "Shares Eligible for Future Sale."
In connection with the formation of the Company, the Company, certain of
its stockholders, including Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR
Fund IV") and certain members of the Company's management, entered into a
Registration Agreement dated as of January 17, 1995 (the "Registration
Agreement"). Upon the completion of the Offering, pursuant to the Registration
Agreement, such stockholders and their transferees, who will hold in the
aggregate 834,229 (721,622 if the Underwriters' over-allotment options are
exercised in full) 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 Lock-Up Period. The Company is not
obligated, however to effect a demand registration within six months after the
effective date of the Offering. 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 rights and the perception
that 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."
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of 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 affect the market price of the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities. See "Principal and Selling Stockholders," "Shares Eligible for
Future Sale" and "Underwriting."
Following the Offering the Company may issue Common Stock from time to time
in connection with the acquisition of stock or assets of other companies.
Securities issued in such transactions may be exempt from registration under the
Securities Act.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY
PROVISIONS. The Company's Amended and Restated Certificate of Incorporation and
By-Laws 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 contain 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 is also subject to provisions of
the Delaware General Corporation Law that restrict the Company from engaging in
certain business combinations
12
<PAGE> 14
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 has
adopted 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" and "Principal and Selling
Stockholders."
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 affected 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."
POSSIBLE VOLATILITY OF STOCK PRICE. The market price for the Company's
shares may fluctuate based on the Company's operating results or in response to
material announcements by the Company or significant customers or competitors of
the Company, changes in the economic or other conditions impacting the Company's
targeted customer segments or changes in general economic conditions. 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.
13
<PAGE> 15
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, a
Director of and consultant to the Company and then the Vice President of 3PM,
and Robert A. Yanover, a Director of the Company and the founder of 3PM. Annual
revenues at the time of the buyout were approximately $1.0 million, primarily
from small, direct mail projects.
Currently, the Company employs more than 3,900 people, has operations in 25
states and Mexico and provides services to over 3,500 customers at 55 Lason
multi-functional imaging centers and over 90 facility management sites located
on customers' premises. For the year ended December 31, 1997, and the three
months ended March 31, 1998, the Company had net revenues of $120.3 million and
$46.6 million, respectively.
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 on the Board of Directors. See
"Principal and Selling Stockholders" and "Management."
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 (248) 597-5800. The Company's Internet
address is http://www.lason.com.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered by the Company hereby, based on an assumed public offering
price of $51.438 per share are estimated to be approximately $131.9 million
($151.8 million if the Underwriters' over-allotment option with the Company is
exercised in full) after deducting underwriting discounts and commissions and
estimated Offering expenses payable by the Company. The Company will not receive
any of the proceeds from the sale of shares of Common Stock offered by the
Selling Stockholders.
The Company intends to use a portion of the net proceeds to repay all of
its outstanding indebtedness under the Credit Agreement. As of July 29, 1998,
the balance outstanding under the Credit Agreement was approximately $146.3
million, which accrued interest at an annual weighted average interest rate of
7.43% at July 29, 1998. All advances under the Credit Agreement, together with
accrued and unpaid interest, are required to be repaid on June 29, 2003. The
amounts outstanding under the Credit Agreement were used primarily to finance
acquisitions. See "Business -- Acquisition Strategy" and "Management Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Credit Agreement." Any remaining net proceeds will be used
for general corporate purposes, including future acquisitions.
Pending application of the net proceeds as described above, the net
proceeds will be invested in short-term, interest bearing investment grade or
government securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been included for quotation in the Nasdaq
National Market under the symbol LSON since the Company's initial public
offering in October 1996. The following table sets forth for each period
indicated the high and low sales prices for the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996:
Fourth Quarter (from October 9, 1996)..................... $24.125 $14.000
FISCAL 1997:
First Quarter............................................. $25.500 $17.750
Second Quarter............................................ 28.125 16.000
Third Quarter............................................. 29.375 23.375
Fourth Quarter............................................ 30.125 23.125
FISCAL 1998:................................................
First Quarter............................................. $38.750 $25.125
Second Quarter............................................ 54.500 35.500
Third Quarter (through July 28, 1998)..................... 58.500 50.000
</TABLE>
On July 28, 1998, the last reported sales price of the Common Stock on the
Nasdaq National Market was $51.438 per share, and there were approximately 84
holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain any earnings to finance
operations and expansion and, therefore, does not anticipate declaring or 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 Company's Credit Agreement does not permit the
payment of dividends without the consent of the lenders.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998: (i) on an actual basis; (ii) on a pro forma basis to give effect
to the Post March 1998 Acquisitions; and (iii) on such pro forma basis as
adjusted to give effect to the sale of the 2,700,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Pro Forma Financial Information and Consolidated Financial
Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
Short-term debt............................................. $ -- $ -- $ --
======== ======== ========
Long-term debt, less current portion(1)..................... $ 68,300 125,648 1,207
Common Stock with a put option.............................. 1,060 1,060 1,060
Stockholder's 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; 12,031,224, 12,191,692 and 14,891,692
shares issued and outstanding, of which 403,519,
515,563 and 515,563 shares are held in escrow (Actual,
Pro Forma and As Adjusted, respectively)(2)............ 116 116 143
Additional paid-in capital.................................. 117,563 118,374 250,229
Retained earnings........................................... 17,544 17,544 17,544
-------- -------- --------
Total stockholders' equity................................ 135,223 136,034 267,916
-------- -------- --------
Total capitalization.............................. $204,583 $262,742 $270,183
======== ======== ========
</TABLE>
- -------------------------
(1) Reflects borrowings under the Company's Credit Agreement, under which the
Company currently may borrow up to a maximum of $200 million.
(2) Excludes, as of July 29, 1998, an aggregate of 1,590,560 shares of Common
Stock reserved for issuance under the Company's stock incentive plans, of
which options for 1,363,028 shares are currently outstanding with a weighted
average exercise price of $27.40 per share. See "Management -- Stock Options
Plan."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the selected consolidated financial data of
the Company and the Predecessor. The selected consolidated financial data for
the Company as of December 31, 1996 and 1997 and for the years ended December
31, 1995, 1996 and 1997 are derived from the audited consolidated financial
statements included elsewhere in this Prospectus. The selected financial data
for the Company and the Predecessor as of December 31, 1993, 1994 and 1995 and
for the years ended December 31, 1993 and 1994 have been derived from the
audited financial statements of the Company and the Predecessor. The selected
consolidated financial data for the Company as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been derived from the unaudited
consolidated financial statements included elsewhere in this Prospectus. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to fairly present the data for such periods are included.
Data for the three months ended March 31, 1998 are 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 other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------- --------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------------------------------- AS ADJUSTED
1993 1994 1995 1996 1997 1997(1)
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of
postage................. $ 31,151 $ 41,151 $ 46,605 $ 69,937 $120,337 $229,316
Cost of revenues.......... 20,684 27,238 31,227 47,587 80,846 154,604
-------- -------- -------- -------- -------- --------
Gross profit.............. 10,467 13,913 15,378 22,350 39,491 74,712
Selling, general and
administrative
expenses................ 6,980 8,377 9,406 12,699 21,364 44,181
Compensatory stock option
expense................. -- -- 308 936 221 221
Amortization of
intangibles............. 163 266 817 1,121 2,477 5,681
-------- -------- -------- -------- -------- --------
Income from operations.... 3,324 5,270 4,847 7,594 15,429 24,629
Net interest expense...... 105 164 1,694 1,760 1,249 109
-------- -------- -------- -------- -------- --------
Income before income
taxes................... 3,219 5,106 3,153 5,834 14,180 24,520
Provision for income
taxes(2)................ -- -- 1,139 2,103 5,110 9,737
-------- -------- -------- -------- -------- --------
Net income(2)............. $ 3,219 $ 5,106 $ 2,014 $ 3,731 $ 9,070 $ 14,783
======== ======== ======== ======== ======== ========
Earnings per share:
Basic(3)................ $ 0.35 $ 0.59 $ 0.93 $ 1.19
======== ======== ======== ========
Diluted(3).............. $ 0.33 $ 0.55 $ 0.90 $ 1.12
======== ======== ======== ========
Weighted average number of
common and common
equivalent shares
outstanding:
Basic................... 5,692 6,361 9,704 12,432
Diluted................. 6,192 6,764 10,035 13,245
<CAPTION>
COMPANY
---------------------------------
THREE MONTHS ENDED
MARCH 31,
---------------------------------
HISTORICAL PRO FORMA
------------------- AS ADJUSTED
1997 1998 1998(1)
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of
postage................. $ 26,236 $ 46,566 $ 69,942
Cost of revenues.......... 18,147 29,811 43,060
-------- -------- --------
Gross profit.............. 8,089 16,755 26,882
Selling, general and
administrative
expenses................ 4,349 9,778 16,671
Compensatory stock option
expense................. 54 69 69
Amortization of
intangibles............. 480 966 1,603
-------- -------- --------
Income from operations.... 3,206 5,942 8,539
Net interest expense...... 266 646 163
-------- -------- --------
Income before income
taxes................... 2,940 5,296 8,376
Provision for income
taxes(2)................ 1,047 1,830 3,303
-------- -------- --------
Net income(2)............. $ 1,893 $ 3,466 $ 5,073
======== ======== ========
Earnings per share:
Basic(3)................ $ 0.22 $ 0.30 $ 0.35
======== ======== ========
Diluted(3).............. $ 0.21 $ 0.29 $ 0.33
======== ======== ========
Weighted average number of
common and common
equivalent shares
outstanding:
Basic................... 8,694 11,608 14,333
Diluted................. 9,062 12,125 15,198
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------- --------------------------------------------------------------------------
DECEMBER 31, MARCH 31, 1998
------------------------------------------------ ----------------------------------------
HISTORICAL
------------------------------------------------ PRO PRO FORMA
1993 1994 1995 1996 1997 ACTUAL FORMA(4) AS ADJUSTED(5)
---- ---- ---- ---- ---- ------ -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............. $ 3,307 $ 3,218 $ 5,141 $16,653 $ 31,337 $ 42,940 $ 50,170 $ 57,611
Total assets................ 13,877 15,692 37,309 78,546 177,899 240,537 307,057 314,498
Long-term debt, less current
portion................... 320 261 18,777 4,101 13,550 68,300 125,648 1,207
Total stockholders'
equity.................... 6,567 6,623 9,214 57,006 131,545 135,223 136,034 267,916
</TABLE>
- -------------------------
(Footnotes on next page)
17
<PAGE> 19
(1) Gives effect to the 1998 Acquisitions, the sale of 2,700,000 shares of
Common Stock offered by the Company hereby and the application of the
estimated net proceeds therefrom as if each had occurred as of January 1,
1997. See "Use of Proceeds" and Pro Forma Financial Information.
(2) From its inception to January 17, 1995, the Company was an S corporation
and, accordingly, was not subject to federal income taxes.
(3) Earnings per share are not presented for the Predecessor as such information
is not representative of the capital structure of the Company.
(4) Gives effect to the Post March 1998 Acquisitions as if each had occurred as
of March 31, 1998. See Pro Forma Financial Information.
(5) Gives effect to the Post March 1998 Acquisitions, the sale of 2,700,000
shares of Common Stock offered by the Company hereby and the application of
the estimated net proceeds therefrom as if each had occurred as of March 31,
1998. See "Use of Proceeds" and Pro Forma Financial Information.
18
<PAGE> 20
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, the Pro Forma Financial
Information and the other related financial information included in this
Prospectus. The discussion in this section of the Prospectus contains
forward-looking statements that involve risks and uncertainties. When used in
this document, the words "anticipate," "believe," "estimate," and "expect" and
similar expressions generally are intended to identify forward-looking
statements. 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
Lason provides integrated information outsourcing for image and data
capture, data management and output processing services. The investments the
Company has made in imaging and communications technology, personnel, equipment
and systems over the past decade have given it the capabilities and expertise
necessary to meet the growing and increasingly complex information management
requirements of its customers. The Company primarily serves customers in the
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 information
management outsourcing needs with a single vendor.
The Company's strategy has been to offer a wide range of services across a
broad geographic area to its customers and to use technologically advanced
solutions to expand its service offerings. The Company's net revenues have
increased from $31.2 million in 1993 to $120.3 million in 1997, representing a
CAGR of 40.2% over this five year period. The Company's diluted earnings per
share have increased from $0.33 in 1995 to $0.90 in 1997, representing a CAGR of
65.1% over this three year period. The Company's net revenues increased 77.5% to
$46.6 million for the three months ended March 31, 1998, as compared with the
three months ended March 31, 1997. The Company's diluted earnings per share have
increased 38.0% to $0.29 for the three month period ended March 31, 1998, as
compared to the same period in 1997.
The Company's revenues are generally recorded when services are provided.
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, costs of paper products and related supplies,
and building and equipment expenses. Selling, general and administrative
expenses include expenses incurred in connection with acquisitions, 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.
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net revenues represented by certain items in the Company's Statements of
Income and Pro Forma Financial Information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31,
-------------------------------------- ------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997 1998 1998(1)
---- ---- ---- ----------- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of postage................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 67.0 68.0 67.2 67.4 69.2 64.0 61.6
----- ----- ----- ----- ----- ----- -----
Gross profit............................ 33.0 32.0 32.8 32.6 30.8 36.0 38.4
Selling, general and administrative
expenses.............................. 20.2 18.2 17.8 19.3 16.6 21.0 23.8
----- ----- ----- ----- ----- ----- -----
Compensatory stock option expense....... 0.7 1.3 0.2 0.1 0.2 0.1 0.1
Amortization of intangibles............. 1.8 1.6 2.1 2.5 1.8 2.1 2.3
----- ----- ----- ----- ----- ----- -----
Income from operations.................. 10.4 10.9 12.8 10.7 12.2 12.8 12.2
Net interest expense.................... 3.6 2.5 1.0 -- 1.0 1.4 0.2
----- ----- ----- ----- ----- ----- -----
Income before income taxes.............. 6.8 8.3 11.8 11.1 11.2 11.4 12.0
Provision for income taxes.............. 2.4 3.0 4.2 4.2 4.0 3.9 4.7
----- ----- ----- ----- ----- ----- -----
Net income.............................. 4.3% 5.3% 7.5% 6.4% 7.2% 7.4% 7.3%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Gives effect to the 1998 Acquisitions, the sale of 2,700,000 shares of
Common Stock offered by the Company hereby and the application of the
estimated net proceeds therefrom as if each had occurred as of January 1,
1997. See Pro Forma Financial Information.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Net Revenues. Net revenues increased from $26.2 million in the three months
ended March 31, 1997 to $46.6 million in the comparable 1998 period, an increase
of $20.4 million or 77.5%. Of this increase, $17.9 million was due to
acquisitions and $2.5 million was due to growth in the Company's existing
business. The internal growth was primarily the result of a $2.7 million
increase in image and data capture revenue and a $550,000 increase in print on
demand revenue, partially offset by the effects of certain discontinued
services.
Gross Profit. Gross profit increased from $8.1 million in the three months
ended March 31, 1997 to $16.8 million in the comparable 1998 period, an increase
of $8.7 million or 107.1%. The increase was primarily due to an increase in net
revenues and the Company's product mix. Gross profit as a percentage of net
revenues increased from 30.8% for the three months ended March 31, 1997 to 36.0%
in the 1998 comparable period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $4.3 million for the three months ended
March 31, 1997 to $9.8 million in the comparable 1998 period, an increase of
$5.5 million or 124.8%. As a percentage of the Company's net revenues, selling,
general and administrative expenses increased from 16.6% for the three months
ended March 31, 1997 to 21.0% in the comparable 1998 period. The increase was
primarily due to selling, general and administrative expenses incurred by
acquired companies.
Amortization of Intangibles. Amortization of intangibles increased from
$480,000 for the three months ended March 31, 1997 to $966,000 in the comparable
1998 period, an increase of $486,000 or 101.3%. The increase was primarily due
to the increase in goodwill related to business acquisitions completed during
the first quarter of 1998.
Interest Expense. Interest expense increased from $266,000 in the three
months ended March 31, 1997 to $646,000 in the comparable 1998 period, an
increase of $380,000 or 142.9%. The increase was primarily due to higher average
borrowing balances resulting from borrowings used to fund business acquisitions.
20
<PAGE> 22
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net Revenues. From 1996 to 1997, net revenues increased from $69.9 million
to $120.3 million, an increase of $50.4 million or 72.1%. Of this increase,
$39.3 million was due to acquisitions and $11.1 million was due to growth in the
Company's existing businesses. The internal growth was primarily the result of
an $8.5 million increase in output processing revenues, a $2.0 million increase
in Visions computer output laser to disk (COLD) services and a $3.0 million
increase in Document Express print on demand services. Those increases were
partially offset by lower revenue related to the effects of certain discontinued
services.
Gross Profit. From 1996 to 1997, gross profit increased from $22.4 million
to $39.5 million, an increase of $17.1 million or 76.7%. The increase was
primarily due to an increase in net revenues and the Company's product mix.
Gross profit as a percentage of net consolidated revenues was 32.8% for the year
ended December 31, 1997 compared to 32.0% in 1996.
Selling, General and Administrative Expenses. From 1996 to 1997, selling,
general and administrative expenses increased from $12.7 million to $21.4
million, an increase of $8.6 million or 68.2%. Selling, general and
administrative expenses as a percentage of consolidated net revenues was 17.6%
in 1997 versus 17.7% in 1996. The increase was primarily due to expenses
incurred by acquired companies.
Compensatory Stock Option Expense. From 1996 to 1997, compensatory stock
option expense decreased from $936,000 to $221,000, a decrease of $715,000 or
76.4%. The provisions of certain stock option agreements included the immediate
vesting of those options on the effective date of the Company's initial public
offering. Accordingly, the Company recorded a non-cash expense of $653,000
during the fourth quarter of 1996 to record the compensation expenses associated
with the immediate vesting of those stock options.
Amortization of Intangibles. From 1996 to 1997, amortization of intangibles
increased from $1.1 million to $2.5 million, an increase of $1.4 million or
121.0%. The increase was primarily due to the increase in goodwill related to
business acquisitions.
Interest Expense. From 1996 to 1997, interest expense decreased from $l.8
million to $1.2 million, a decrease of $0.6 million or 29.0%. The decrease was
primarily due to lower average borrowings in 1997 compared to 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net Revenues. From 1995 to 1996, net revenues increased from $46.6 million
to $69.9 million, an increase of $23.3 million or 50.0%. The $23.3 million
increase in net revenues included $14.8 million of net revenues related to
businesses acquired during 1996 and $8.5 million principally due to sales growth
in the Company's existing businesses. The breakdown of the $8.5 million in sales
growth from existing businesses and the percentage period over period growth
were as follows: business communications, $5.0 million (71.0%); digital imaging,
$2.2 million (53.0%) and collection letter processing, $1.3 million (24.0%).
Gross Profit. From 1995 to 1996, gross profit increased from $15.4 million
to $22.4 million, an increase of $7.0 million or 45.5%. The increase was
primarily due to an increase in net revenues, partially offset by lower gross
profit margins for businesses acquired in 1996. Gross profit as a percentage of
net revenues was 32.0% for the year ended December 31, 1996 versus 33.0% in
1995.
Selling, General and Administrative Expenses. From 1995 to 1996, selling,
general and administrative expenses increased from $9.4 million to $12.7
million, an increase of $3.2 million or 34.3%. Of this increase, $2.4 million
was attributable to businesses acquired during 1996, $400,000 was due to an
increase in administrative expenses primarily resulting from the hiring of
several key executives in late 1995 and in the first three quarters of 1996, and
$500,000 was due to an increase in advertising, sales commissions and other
selling expenses, related to the higher sales volumes. Selling, general and
administrative expenses as a percentage of net revenues was 18.1% in 1996 versus
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.
21
<PAGE> 23
Compensatory Stock Option Expense. From 1995 to 1996, compensatory stock
option expense increased from $308,000 to $936,000, an increase of $628,000 or
203.8%. The provisions of certain stock option agreements included the immediate
vesting of those options on the effective date of the Company's initial public
offering of Common Stock. Accordingly, the Company recorded a non-cash expense
of $653,000 during the fourth quarter of 1996 to record the compensation
associated with the immediate vesting of those stock options.
Amortization of Intangibles. From 1995 to 1996, amortization of intangibles
increased from $817,000 to $1.1 million, an increase of $283,000 or 37.2%. The
increase was primarily due to amortization of goodwill recorded as a result of
businesses acquired during 1996.
SELECTED QUARTERLY INFORMATION
The following tables set forth certain unaudited quarterly financial data
of the Company for each of the nine quarters beginning January 1, 1996 and ended
March 31, 1998. The information for each of these quarters is prepared on the
same basis as the Consolidated Financial Statements of the Company 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 -- Effect of
Potential Fluctuations in Quarterly Operating Results; Seasonality." The tables
should be read in conjunction with the Consolidated Financial Statements of the
Company and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues................ $13,005 $14,084 $20,659 $22,189 $26,236 $27,422 $30,608 $36,071 $46,566
Cost of revenues............ 8,659 9,037 14,754 15,137 18,147 19,000 20,238 23,461 29,811
Gross profit................ 4,346 5,047 5,905 7,052 8,089 8,422 10,370 12,610 16,755
Selling, general and
administrative expenses... 2,514 2,777 3,500 3,908 4,349 4,144 5,748 7,123 9,778
Income from operations...... 1,576 1,986 1,919 2,113 3,206 3,662 3,900 4,661 5,942
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <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%
Cost of revenues............ 66.6 64.2 71.4 68.2 69.2 69.3 66.1 65.0 64.0
Gross profit................ 33.4 35.8 28.6 31.8 30.8 30.7 33.6 35.0 36.0
Selling, general and
administrative expenses... 19.3 19.7 16.9 17.6 16.6 15.1 18.8 19.7 21.0
Income from operations...... 12.1 14.1 9.3 9.5 12.2 13.3 12.7 12.9 12.8
</TABLE>
The Company's results of operations 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 and the timing and magnitude of costs related to such acquisitions.
See "Risk Factors -- Effect of Potential Fluctuations in Quarterly Operating
Results; Seasonality" 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.
22
<PAGE> 24
OPERATING ACTIVITIES
Cash provided by operating activities was $1.3 million for the year ended
December 31, 1995, compared to cash used in operating activities of $2.1 million
for the year ended December 31, 1996 and cash provided by operating activities
of $3.4 million in 1997. The increase in operating cash flows in 1997 versus
1996 was primarily the result of higher net income, an increase in net revenue
without a corresponding increase in accounts receivable, and an increase in
accrued expenses and other liabilities. The decrease in operating cash flows in
1996 versus 1995 was primarily due to lower accrued expenses and other
liabilities, which more than offset the increase in net income.
Cash provided by operating activities totaled $2.1 million for the three
months ended March 31, 1998 compared to $3.1 million for the comparable period
of 1997. The decrease in operating cash flows in 1998 was primarily due to
increased net income and accrued expenses, offset by the effects of increased
accounts receivable balances, due to the increase in net revenues, and increased
prepaid expenses and other assets.
INVESTING ACTIVITIES
Cash flows used in investing activities totaled $1.8 million, $21.7
million, $68.3 million and $51.9 million for the years ended December 31, 1995,
1996, 1997 and the three months ended March 31, 1998, respectively. These cash
flows have been used primarily to fund the acquisition of businesses and to
invest in capital equipment. Cash used for acquisitions totaled $1.4 million,
$17.1 million, $57.3 million and $47.6 million for the years ended December 31,
1995, 1996, 1997 and the three months ended March 31, 1998, respectively. Cash
used for capital equipment totaled $1.1 million, $4.6 million, $11.8 million and
$4.3 million for the years ended December 31, 1995, 1996, 1997 and the three
months ended March 31, 1998. Investments in capital equipment for 1997 and the
three months ended March 31, 1998 included $3.5 million and $1.3 million,
respectively, for previously leased equipment. In addition, investments in
capital equipment for 1997 and the three months ended March 31, 1998 included
$1.4 million and $355,000, respectively, for the development of technological
systems to meet the needs of its customers and the expansion and enhancement of
the technical infrastructure to support the Company's national information
processing needs. The Company expects that these projects and related costs will
continue as it pursues its acquisition strategy.
FINANCING ACTIVITIES
Cash provided by financing activities was $67.7 million in 1997 compared to
$23.8 million in 1996. In August 1997, the Company completed a secondary public
offering of 2,457,620 shares of Common Stock for net proceeds of $58.0 million,
after deducting underwriting discounts and other offering expenses. The net
proceeds were used to repay debt outstanding under the Company's Credit
Agreement and for general corporate purposes. In October 1996, the Company
completed an initial public offering of 3,450,000 shares of Common Stock for net
proceeds of $53.0 million, after deducting underwriting discounts and other
offering expenses. The net proceeds were primarily used to repay amounts then
outstanding under the Company's Credit Agreement and to redeem shares of Common
Stock held by the Company's largest shareholder. Cash flows provided by
financing activities totaled $48.7 million for the three months ended March 31,
1998 and largely consisted of borrowings under the Company's Credit Agreement.
During the first quarter of 1998, the Company repaid $6.2 million of short-term
promissory notes relating to certain business acquisitions the Company completed
in the fourth quarter of 1997.
CREDIT AGREEMENT
The Company's Credit Agreement provides for revolving credit loans up to a
maximum of $200 million. Borrowings are expected to be used to finance
additional acquisitions of businesses, working capital, capital expenditures and
for other corporate purposes. Borrowings under the Credit Agreement are
collateralized by substantially all of the Company's assets. The Company is not
required to make principal payments prior to 2003. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at either LIBOR plus an applicable margin
(6.9% as of July 29, 1998) or a base percentage rate plus an applicable margin
(8.5% as of July 29, 1998) at the Company's option. The
23
<PAGE> 25
Credit Agreement contains restrictions on the acquisition of stock or assets,
dispositions of assets, incurrence of other liabilities, minimum requirements
for cash flow and certain financial ratios. As of July 29, 1998, $146.3 million
was outstanding under the Credit Agreement. See Pro Forma Financial Information
and Note 4 to the Notes to the Consolidated Financial Statements of the Company.
The Company will use a portion of the net proceeds of the Offering to repay
all of its outstanding indebtedness under the Credit Agreement.
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 by acquisitions for the foreseeable future. To capitalize
on the information management industry consolidation opportunity, the Company
has adopted a more active acquisition strategy. See "Summary -- Recent
Acquisitions" and "Business -- Acquisition Strategy." Since June 1995, the
Company has acquired 28 companies. The Company has to date financed its
acquisitions with borrowings under the Credit Agreement, with shares of its
Common Stock and with cash from operations. Borrowings for acquisitions during
1997 and the first three months of 1998 totaled $55.0 million and $47.6 million,
respectively. In addition, the Company borrowed $34.9 million in July 1998 to
fund the acquisition of Consolidated Reprographics.
FUTURE CAPITAL NEEDS
The Company's liquidity and capital resources have been significantly
affected by acquisitions of businesses and, given the Company's acquisition
strategy, may be significantly affected for the foreseeable future. To date, the
Company has financed its acquisitions with borrowings under its Credit
Agreement, shares of its Common Stock and cash from operations.
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
Management believes that cash flow from operations, in conjunction with
borrowings from its existing and any future credit agreements and possible
issuance of shares of its Common Stock, will be sufficient to meet debt service
requirements, make possible future acquisitions and fund capital expenditures in
the future. However, there can be no assurance in this regard or that the terms
available for any future financing, if required, would be favorable to the
Company.
YEAR 2000 COMPLIANCE
The Company uses a significant number of computer software programs and
operating systems in its internal operations. To the extent that these software
applications contain a source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of such source code or applications will be necessary. The Company
is currently modifying its computer software programs and operating systems to
make them "Year 2000" compliant and intends to complete its "Year 2000"
compliance program in the second quarter of 1999. The Company anticipates that
its expenditures for "Year 2000" compliance will not be material. However, there
can be no assurance that the Company will not incur unanticipated costs or
systems interruptions which could have a material adverse effect on the
Company's business, financial condition or results of operations. In addition,
there can be no assurance that the failure by the Company's customers or
suppliers to be "Year 2000" compliant will not have a material adverse effect on
the Company's business, financial condition or results of operations.
INFLATION
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflation.
Supplies, such as paper and related products, can be subject to significant
price fluctuations. The Company has not been able to structure its pricing with
all of its customers to reflect increases in paper prices. Although the Company
to date has been able to substantially offset any such cost increases through
increased operating efficiencies, there can be no assurance that the Company
will be able to offset any future cost increases through similar efficiencies or
increased charges for its products and services.
24
<PAGE> 26
BUSINESS
Lason provides integrated information outsourcing for image and data
capture, data management and output processing services. The investments the
Company has made in imaging and communications technology, personnel, equipment
and systems over the past decade have given it the capabilities and expertise
necessary to meet the growing and increasingly complex information management
requirements of its customers. The Company primarily serves customers in the
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 information
management outsourcing needs with a single vendor. The Company's strategy has
been to offer a wide range of services across a broad geographic area to its
customers and to use technologically advanced solutions to expand its service
offerings. The Company's net revenues have increased from $31.2 million in 1993
to $120.3 million in 1997, representing a CAGR of 40.2% over this five year
period. The Company's diluted earnings per share have increased from $0.33 in
1995 to $0.90 in 1997, representing a CAGR of 65.1% over this three year period.
The Company's net revenues increased 77.5% to $46.6 million for the three months
ended March 31, 1998, as compared with the same period in 1997. The Company's
diluted earnings per share increased 38.0% to $0.29 for the three month period
ended March 31, 1998, as compared to the same period in 1997. Currently, the
Company employs more than 3,900 people, has operations in 25 states and Mexico
and provides services to over 3,500 customers at 55 Lason multi-functional
imaging centers and over 90 facility management sites located on customers'
premises.
The Company completed its initial public offering in October 1996 and a
secondary public offering in August 1997. Since its secondary public offering,
the Company has:
- Completed 13 acquisitions of information management companies which
had aggregate 1997 revenues of approximately $151.0 million;
- Achieved significant internal revenue growth, generating net
revenues in the quarter ended March 31, 1998 that were approximately
17.0% higher than those achieved in the quarter ended March 31,
1997, excluding the results of companies acquired after March 31,
1997;
- Increased the geographic presence of its operations from 15 states
to 25 states and Mexico;
- Introduced Corporate ID, a proprietary Internet-based software
application that allows corporate customers to manage the
procurement of corporate identification materials, enhanced the
capabilities of Visions computer output to laser disk (COLD) and
continued expansion of its branding strategy by increasing its
emphasis on products such as Document Express (print on demand),
Priority Gram and PROXYGRAM; and
- Increased the availability under its Credit Agreement up to a
maximum of $200 million.
Lason's information management service offerings can be divided into the
areas of image and data capture, data management and output processing. The
Company's image and data capture services include the scanning and conversion of
documents from a variety of input media to a digital format. The Company also
provides traditional microfilm and microfiche services as well as on-site
facility management services. The Company's data management services include
electronic document storage and retrieval, database management and
Internet-based services, as well as list manipulation, sorting services and
information search solutions so that customers' data can be customized and
updated for specific target market mailings. The Company's Internet-based
services include its latest offering, Corporate ID, a proprietary software
application that allows corporate customers to manage the procurement of
corporate identification materials. The Company's output processing services
include print on demand, business communications and statement processing
services. The Company's newest output processing service offering, 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 provides customers
with rapid, reliable and cost-effective methods for making large-scale
distributions of statements, reports, proxy solicitations and letters to
consumers and other target audiences by fax, electronic distribution,
25
<PAGE> 27
print and mail. The Company also provides customized processing services for
over 500 collection agencies located throughout the United States.
MARKET AND INDUSTRY OVERVIEW
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
manufacturers, 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 information 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.
Lason believes that companies will continue to increase their use of
outsourced information management services. To manage complex or large volumes
of documents efficiently, a customer would be required to make significant
investments in equipment, processes and technology which may only be fully
utilized occasionally. Through outsourcing, companies can avoid these
investments, as well as the risks of obsolescence that arise from rapid changes
in information management technology. As companies continue to focus on their
core competencies and maximize asset utilization, they are increasingly turning
to outside parties who have the technological expertise, service focus,
quick-turn capacity and full range of capabilities necessary to manage complex
or large volumes of documents efficiently. In addition, the Company believes
that customers will seek a single vendor capable of furnishing all or many of
their information management needs rather than relying on multiple vendors with
varying areas of expertise.
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 information management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. 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 smaller firms will be receptive to being
acquired by the Company. 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 any
potential growth of the Company.
BUSINESS STRATEGY
The Company's goal is to become a national, single source provider of image
and data capture, data management and output processing services for customers
in its targeted industries. To achieve this goal, the Company will continue to
implement a focused business strategy based on the following elements:
Provide a broad range of services that will allow both existing and
new customers to secure all of their information management services from
one source. The Company's broad range of services and its significant
investment in technology and capacity enable it to compete successfully for
large, complex projects on a national basis. The Company intends to focus
on obtaining additional business by offering its
26
<PAGE> 28
full service capabilities to firms now being serviced by several document
management service companies with a limited range of service offerings and
geographic presence thereby enabling customers to consolidate various
vendor relationships into a single relationship with the Company.
Facilitate the cross-selling of additional services to customers
through its comprehensive marketing program and develop national brand
recognition for the quality and scope of Lason's services. The Company has
leveraged its existing customer relationships to sell its customers the
full range of its information 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
information 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 making Lason more attractive as a
potential acquiror.
Make selective acquisitions to further broaden its geographic reach,
customer base, management expertise and technological capabilities and to
attain economies of scale in purchasing and facility utilization. The
Company's strategy is to continue to serve as a consolidator of the highly
fragmented information management services industry. In order to expand its
geographic presence across the United States, broaden its customer base and
attain economies of scale in purchasing and facility utilization, the
Company intends to acquire additional companies with attractive,
complementary customer bases or technologies. The Company seeks to increase
the utilization of its existing and acquired assets through the
cross-selling of additional services through acquired companies.
Continue to develop additional high value-added applications, such as
Document Express (print on demand), digital imaging services, Visions
computer output to laser disk (COLD) and Corporate ID, 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
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;
digital imaging services, which involve the conversion of paper or film
documents to digital information through optical scanners; Visions computer
output to laser disk (COLD), which writes computer output files to an
optical disk; and Corporate ID, which allows customers to order business
cards via the Internet. By developing these applications, the Company has
enabled its customers to capture, store and process information more
efficiently.
Continue to develop scalable applications utilizing an open
architecture and modular approach that will enable the Company to service
the unique needs of various customers across a broad range of volume
requirements. 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 information 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 technologies 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's acquisition strategy is to selectively make acquisitions of
companies that: (i) have proven operating track records and strong customer
franchises that could benefit from Lason's technology and broad product and
service offerings; (ii) have solid management teams that will join and remain
with Lason's management team after the acquisition; (iii) have an existing
presence in the Company's core
27
<PAGE> 29
competencies to build economies of scale through volume purchasing and facility
utilization; (iv) expand the Company's customer base and thereby increase its
cross-selling opportunities; and (v) broaden the Company's geographic reach.
Since June 1995, the Company has acquired 28 companies involved in records
management, duplication, conversion services, facilities management, item
processing and research, micrographics, litigation support document management
services, electronic sorting of mass mailings, proxy solicitations, and mail
creation and distribution. As a result, the Company believes it has developed a
formula for successfully integrating acquired companies into its financial,
purchasing and operating systems. The Company's long-term strategy is to
establish a network of regional hubs, each capable of providing the full range
of services now provided by the Company's Detroit-area facilities. To implement
this strategy, the Company expanded its efforts to target larger, regional
platform acquisitions in 1998, in addition to tuck-in acquisitions. The Company
believes that expanding its acquisition program to include larger regional
platform acquisitions enables the Company to broaden the range of services it
provides to its customers, expand into new geographic areas and increase its
customer base, cross-selling opportunities and operating leverage. The Company's
three recent platform acquisitions of Consolidated Reprographics, Racom and API
reflect the implementation of this long-term strategy.
Since its secondary public offering in August 1997, the Company has
completed the following principal acquisitions:
<TABLE>
<CAPTION>
DATE OF
COMPANY ACQUISITION SERVICE PROVIDED LOCATIONS
------- ----------- ---------------- ---------
<S> <C> <C> <C>
Consolidated Reprographics............. July 1998 Image and data capture AZ, CA, NV
Boyle Associates, Inc. ................ July 1998 Image and data capture MA, NH
Input Service International, Inc. ..... July 1998 Image and data capture and GA
data management
Document Production TX
Services, Inc. ........................ June 1998 Image and data capture
Litigation Reprographics and Support LA
Services, Inc. ........................ June 1998 Image and data capture
Strategy Manufacturing, Inc. .......... June 1998 Output processing CA
Quality Mailing Service, Inc. ......... May 1998 Data management and output MI
processing
API ................................... March 1998 Output processing NY
Racom.................................. March 1998 Image and data capture AZ, CO,
FL,
LA, NV,
NM,
OK, TX, UT
J.L. Blodgett Associates, Inc. ........ February 1998 Image and data capture Mexico, UT
Litigation Solutions, Inc. ............ December 1997 Image and data capture IL
VIP Imaging, Inc. ..................... November 1997 Output processing CA
Spectrum Document Services, Inc. ...... November 1997 Image and data capture OH
</TABLE>
PRODUCTS AND SERVICES
The Company's strategy is to offer a broad range of information management
services across a wide variety of media types and formats, thereby permitting
customers to consolidate their information management outsourcing needs with a
single vendor. This broad range of information management services and
capabilities enables the Company to provide integrated solutions to its
customers' complex information management needs. Although there is significant
overlap, the Company's service offerings generally can be divided into the areas
of image and data capture, data management and output processing services.
28
<PAGE> 30
IMAGE AND DATA CAPTURE
The Company provides a broad range of image and data capture services that
enable it to meet its customers' information management outsourcing needs,
including electronic conversion services, micrographic conversion services, high
volume and quick-turn reprographics, on-site facilities management and digital
graphics. The Company's experience and capabilities enable it to provide a broad
range of document conversion services with respect to a wide variety of input
and output formats, including digital, film, CD-ROM, optical disk, magnetic
disk, aperture card and hardcopy, including engineering drawings. Image and data
capture represented approximately 49.2%, 47.7%, 41.4%, and 47.0% of the
Company's consolidated net revenues for the years ended December 31, 1995, 1996,
1997 and the three months ended March 31, 1998, respectively.
Electronic Conversion Services. A company implementing a document storage
and retrieval ("DSR") program frequently faces the challenge of converting
hundreds of thousands to millions of paper and/or microfilm documents to digital
format. These paper and microfilm documents can be converted to indexed digital
images or, using OCR technology, into electronically recognizable text. The
Company's 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 Conversion Services. The Company performs traditional
micrographic conversions including the conversion of paper documents into
microfilm images, film processing and computer-based indexing and formatting of
microfilm images. Micrographic services often are selected as a cost competitive
technology 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.
High Volume, Quick-Turn Reprographics. The Company through its imaging
centers provides high volume, quick-turn reprographics services 24 hours a day,
seven days a week. In addition, the Company possesses the capability to handle
reprographic projects involving microfiche and engineering drawings, including
conversion services. 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 as Document Express (print on demand)
services and performing overnight and peak demand reprographics services for the
Company's on-site facilities management customers.
On-Site Facilities Management. The Company can equip, staff and manage most
aspects of a customer's information management needs at a customer's facility.
In addition to copying and printing, Company employees perform file room
maintenance, engineering drawing and record retention, decentralized copier
management, facility mail and courier services and address list maintenance.
Typically, the Company will operate its own satellite production center (called
a Lason Servicenter) on the customer's premises. By working in partnership with
a customer at the customer's facility, the Company and the customer frequently
identify additional ways the Company can help meet the customer's information
management needs both on-site and at the Company's 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. Currently, 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
over 90 facilities.
Digital Graphics. A staff of computer graphics design and printing
professionals use advanced computer technology to provide digital graphics
services, including design and printing of high resolution full color
29
<PAGE> 31
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.
DATA MANAGEMENT
Data management services include electronic document storage and retrieval,
database management and web-based services. Data management services represented
approximately 6.2%, 9.9%, 11.8% and 14.7% of the Company's consolidated net
revenues for the years ended December 31, 1995, 1996 and 1997, and the three
months ended March 31, 1998, respectively.
Electronic Document Storage and Retrieval. The Company has developed a
flexible electronic DSR system, called Visions, that enables Lason's customers
to obtain the benefits of electronic document storage and retrieval without
developing and purchasing their own DSR system. By using Visions, customers can
access large volumes of documents immediately that would be impossible using
conventional filing systems. DSR systems also provide rapid distribution of
archived information to multiple destinations and remove the logistical burden
and cost of archiving paper documents. Lason's Visions system enables it to
store and index a customer's digital documents whether the document was
converted to digital format from paper format or was originally produced in
digital format. Because stored documents can be indexed by several criteria, a
customer can use simple but exacting computer search techniques to rapidly
access individual documents or groups of documents. For example, one customer
utilizes Visions to enable its employees to retrieve particular invoices from
the millions of invoices the customer has stored on the system. Traditionally,
such invoices were written to microfilm and stored in file cabinets. Without a
system such as Visions, accessing and retrieving such invoices was a time
consuming, manual operation. An additional key feature of Visions permits its
storage capacity to be incrementally increased through the addition of modular
storage units.
Database Management Services. The Company's sophisticated database
management systems support data manipulation, item sorting and information
search solutions so that various customers' lists can be customized and updated
for specific target markets and targeted mailings. These database capabilities
save customers money while increasing response rates. These services are
typically offered in conjunction with other services the Company provides.
Internet-Based Services. The Company's Corporate ID system allows customers
and their employees to utilize the Internet to manage and control the
procurement of corporate identification materials. Corporate ID provides fully
automated ordering, approval, tracking, manufacturing, fulfillment and reporting
to all of a customer's designated employees to ensure that all corporate
materials ordered conform to organizational guidelines.
OUTPUT PROCESSING
The Company offers a variety of output processing services to its customers
which enables them to cost-effectively produce and distribute large volumes of
customized documents on short notice. Output processing represented
approximately 44.6%, 42.4%, 46.8% and 38.3% of consolidated net revenues for the
years ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1998, respectively.
Digital Communication Services. Lason's customers benefit from outsourcing
their high volume communications needs to the Company through improved
turn-around time, reduced production constraints and the flexibility and
benefits provided by using the latest software and mail handling processes.
- Priority Gram. The Company's Priority Gram is a nationally
recognized product which numerous large volume mailers have found to be an
effective mode of communication in a variety of applications. Among these
customers are firms involved in debt collection. The Company works with
leading software vendors to provide credit institutions with an effective
system of debt collection communications.
- PROXYGRAM. The Company's PROXYGRAM serves the time sensitive proxy
solicitation sector of the financial services market. PROXYGRAMs solicit,
collect, report and validate shareholders'
30
<PAGE> 32
proxy votes while providing flexibility to shareholders and cost savings
and greater shareholder participation to customers. Outgoing messages to
shareholders contain instructions on how to vote shares by a toll-free
telephone call using a confidential identification number to assure
shareholder verification and validity.
- Fax, Electronic Distribution, Print and Mail. The Company's business
communication services provide customers with rapid, reliable and
cost-effective methods for making large-scale distributions of statements,
reports and letters to customers and other target audiences by fax,
electronic distribution, print and mail. The Company develops customized
programs for its customers to support event driven response requirements,
such as product recall and credit card solicitation campaigns. For example,
the Company currently provides declination letter and incomplete
application letter processing with respect to credit card applications for
a leading credit card company. Such letters can be generated on a daily
basis as the status of the customer's application file requires. By
combining volumes of mail from all of its customers and presorting such
mail to United States Postal Service specifications, the Company is able to
generate significant postal discounts for its customers. Each customer
enjoys the maximum postal discounts allowed for First Class Mail regardless
of the volume of mail sent by that customer. The Company can incorporate
these savings in quotes to customers on its services.
Print on Demand Solutions. The Document Express (print on demand) system
enables customers to cost-effectively produce and distribute large volumes of a
document on 24-hour notice. The customer supplies the Company with either an
electronic copy of a document or a hard copy of the document, which the Company
converts to an electronic copy, which is then stored on the Document Express
system. The customer can then use its own computer system to place a print
order, including production amount and distribution method and location, and the
Company completes the print and distribution process.
The Document Express system offers an alternative to traditional printing
methods for companies which produce documents that are subject to frequent
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 runs
the risk that it will find itself with a costly inventory of outdated and
useless documents. In addition, the flexibility of the Document Express system
provides customers with an ability to increase the quality of their product
offerings by enabling them to make document enhancements (such as corrections or
improvements to product manuals) which would otherwise be prohibitively
expensive. The Company believes that the demand for print on demand services by
manufacturers and financial and insurance institutions will continue to increase
as technological advances create shorter product life cycles and increased
product variation.
Customers frequently use the 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 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 robotics systems, uses the Document Express system to produce the
customized product manuals and technical documentation that accompany each of
its customized robotics applications.
INTEGRATED SOLUTIONS
The Company's wide range of image and data capture, data management and
output processing services and its experienced staff of image and information
management professionals enable the Company to provide integrated solutions to
customers' information management outsourcing needs. The following situations
represent instances in which the Company's various services have been provided
to its customers on an integrated basis.
Many of the litigation support solutions provided by the Company are based
on both its electronic document conversion and its print on demand capabilities.
The rules of discovery permit each party involved in a lawsuit to request
documents gathered in support of the litigation by the other party. A large
manufacturer
31
<PAGE> 33
involved in hundreds of product liability lawsuits 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 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 Document
Express system to place an on-line order to the Company to print the desired
documents and to distribute them to the requesting litigant. Typically, the
Company can fulfill each order by the next day. The Document Express system not
only ensures that every page is properly printed, but also provides such
features as automatically printing identifying information (such as Bates
numbers) on each page, printing confidential watermarks and automatically
shrinking oversized documents to fit on standard-sized pages.
The Company has used both its electronic document conversion and high
volume, quick-turn printing capabilities to provide solutions for banks engaged
in mortgage lending. When one of the nation's largest mortgage lenders decided
to convert from conventional to electronic storage, it confronted the challenge
of converting approximately 60,000 mortgage files, each containing approximately
20 to 27 documents. The bank engaged the Company to perform this electronic
document conversion project. In ten weeks, the Company converted approximately
60,000 mortgage loan files (or approximately five million pages) to digital
images that were stored on CD-ROM 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 hard copies of certain of the original mortgage documents for each
mortgage sold, typically five documents per loan file. The Company was able to
provide the bank with a more attractive solution than manually retrieving and
copying the necessary files by using the CD-ROM it had created to identify the
required documents and retrieve and transfer such documents to a separate CD-ROM
for delivery to the mortgage loan purchaser.
CUSTOMERS
The Company currently has over 3,500 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 largest customers
include Bank of Boston, Blue Cross/Blue Shield, Cummins Engine Company, Inc.,
First Chicago NBD Corporation, Ford Motor Company, General Electric Company,
General Motors Corporation, NationsBank, Sears Roebuck and Co., Shell Oil
Company and Trans Union.
Historically, a majority of the Company's revenues has been from the major
domestic automobile manufacturers. The three major domestic automobile
manufacturers accounted for 65.0%, 56.5%, 32.5% and 25.8% of the Company's
consolidated net revenues for the years ended December 31, 1995, 1996, 1997 and
for the three months ended March 31, 1998, respectively. Other than General
Motors Corporation and Ford Motor Company, which accounted for 16.8% and 13.9%
of the Company's consolidated net revenues, respectively, no customer accounted
for more than 10.0% of the Company's net revenues for the year ended December
31, 1997. For the three months ended March 31, 1998, on a pro forma basis after
giving effect to the 1998 Acquisitions, General Motors Corporation accounted for
7.0%, Ford Motor Company accounted for 9.4%, and Chrysler Corporation accounted
for 1.4% of the Company's net revenues. See "Risk Factors -- Reliance On Major
Customers; Risk of Customer Labor Interruptions."
SALES AND MARKETING
The Company's sales efforts are handled primarily through its in-house
direct sales staff of approximately 160 employees located in 25 states. In
addition to its direct sales force, the Company continues to build a team of
executive-level account managers who focus on large, national organizations
requiring a coordinated sales presence for multiple service offerings. The
Company's executive office includes marketing staff personnel who develop brand
awareness, provide collateral sales materials and assist in implementing
strategic marketing
32
<PAGE> 34
initiatives. The Company markets its products and services through marketing
relationships with value-added resellers, including Canon Inc., Minolta, Danka
Business Systems PLC and Eastman Kodak Company. The Company assists customers
through full-time customer service representatives. Sales representatives and
service representatives are assigned to each major customer project.
Historically, the Company's sales representatives have focused their
efforts on specific service offerings. The Company has maintained this
product-focused expertise, which it continues to augment through cross-sell
training and professional development programs. Additionally, the Company is
increasing its focus on solution selling for the entire range of its product and
service offerings in key vertical, or industry-specific, markets. The Company's
sales approach emphasizes application knowledge, solution selling,
cross-selling, relationship development and high levels of customer service. The
Company intends to maintain executive-level account managers to handle large
accounts requiring expertise and coordination across the Company's entire range
of product and service offerings and locations.
COMPETITION
The markets in which the Company's businesses compete are highly
competitive. A significant source of competition is the in-house document
handling capabilities of the Company's target customer base. There can be no
assurance that these businesses will outsource more of their image and data
capture, data management or output processing 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,
some of 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 IKON Office Solutions, Inc., Pitney Bowes
Management Services, Inc. (a subsidiary of Pitney Bowes Inc.) and Xerox Document
Services, a business group of Xerox Corporation, with respect to its image and
data capture services; DataPlex, Inc., F.Y.I. Incorporated, IKON Office
Solutions, Inc. and ImageMax, Inc. with respect to its data management services;
and Xerox Document Services, Diversified Data & Communications and Vestcom
International, Inc. with respect to its output processing 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.
The Company believes that the principal competitive factors in image and
data capture, data management and output processing services include quality,
accuracy, reliability and security of service, reputation, ease of use, customer
support and service, industry 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 contracts,
trade secrets and confidentiality agreements 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 does not believe that any of its systems or services infringe
on 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.
33
<PAGE> 35
FACILITIES
The Company has 55 locations in 25 states and Mexico totaling in the
aggregate approximately 975,000 square feet. With the exception of one facility,
all of these facilities are leased by the Company.
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.
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.
The Company is not aware of any environmental conditions relating to
present or past waste generation at its 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 29, 1998, the Company had more than 3,900 employees. Included in
the total number of employees are approximately 350 part-time employees. No
employees of the Company are represented by a labor union. The Company considers
its relations with its employees to be good.
34
<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers as of July 29, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary L. Monroe............................ 44 Chairman of the Board, President and Chief
Executive Officer, Director
William J. Rauwerdink..................... 48 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Brian E. Jablonski........................ 42 Executive Vice President of Strategic
Marketing and Sales
John R. Messinger......................... 40 Executive Vice President and President of
the Imaging Services Group
Cary W. Newman............................ 37 Executive Vice President and President of
the Business Communications Group
Fariborz Ghadar........................... 51 Director
Donald M. Gleklen......................... 61 Director
Allen J. Nesbitt.......................... 51 Director
Joseph P. Nolan........................... 33 Director
Bruce V. Rauner........................... 42 Director
Robert A. Yanover......................... 62 Director
</TABLE>
Gary L. Monroe has served as Chairman of the Board of the Company since
April 1998, as President of the Company since April 1997, as Chief Executive
Officer of the Company since February 1996 and as a Director of the Company
since he joined the Company in September 1995. From September 1995 to February
1996, Mr. Monroe served as Executive Vice President of the Company. From May
1992 to September 1995, Mr. Monroe served as President of Kodak Imaging
Services, Inc., a subsidiary of Eastman Kodak Co. From August 1990 to May 1992,
Mr. Monroe served as Director of Finance and Strategic Planning of the Health
Sciences Division of Eastman Kodak Co. Mr. Monroe is also a director of Esquire
Communication Ltd., a publicly traded company focused on the consolidation of
the court reporting industry.
William J. Rauwerdink has served as Executive Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since he joined the
Company in May 1996. From February 1993 to April 1995, Mr. Rauwerdink served as
Executive Vice President, Chief Financial Officer and Treasurer of The MEDSTAT
Group, Inc., a publicly traded company in the healthcare information industry.
Mr. Rauwerdink was a Partner with the Detroit office of the international
accounting and consulting firm of Deloitte & Touche from 1983 to 1993. Mr.
Rauwerdink is a certified public accountant. Mr. Rauwerdink is a director of
Mercy Health Services, Inc., a non-profit multistate health care services
organization. See "-- Certain Legal Proceedings."
Brian E. Jablonski has served as Executive Vice President of Strategic
Marketing and Sales since he joined the Company in July 1996. From 1992 until
June 1996, Mr. Jablonski served as Vice President, Sales and Marketing of Kodak
Imaging Services, Inc., a subsidiary of Eastman Kodak Co. From 1979 to 1992, Mr.
Jablonski held various positions at Eastman Kodak Co., including Branch Business
Manager, District Sales Manager and Director -- Markets Development Electronic
Printing and Publishing.
John R. Messinger has served as an officer of the Company since he joined
the Company in July 1997 and is currently an Executive Vice President and
President of the Company's Imaging Services Group. From November 1995 to July
1997, Mr. Messinger served as President and director of Image Conversion
Services, Inc. From 1983 to November 1995, Mr. Messinger served in various
positions with Anacomp Inc., including Group President, Regional Vice President
and District Manager.
35
<PAGE> 37
Cary W. Newman has served as an officer of the Company since he joined the
Company in January 1996 and is currently an Executive Vice President and
President of the Business Communications Group. From April 1993 to January 1996,
Mr. Newman served as a Vice President and General Manager of National
Reproductions Corp.
Fariborz Ghadar has served as a Director of the Company since January 1997.
Dr. Ghadar has served as the Merrill Lynch William A. Schreyer Chair of Global
Management, Policies and Planning and Director of the Center for Global Business
Study at the Pennsylvania State University Smeal College of Business
Administration since August 1994. From September 1992 to June 1994, Dr. Ghadar
was Professor and Chairman of the International Business Department at the
George Washington School of Business and Public Management. Dr. Ghadar is also
Chairman of the Intrados/International Management Group, a Washington-based
business, offering executive development programs and strategic assessment
services.
Donald M. Gleklen has served as a Director of the Company since August
1995. Mr. Gleklen has served as Chairman and Chief Executive Officer of
Intelihealth, Inc., a provider of healthcare information to consumers, since
July 1996, as President of the Maine Merchant Bank since October 1997 and as
Vice Chairman of the Maine Merchant Bank since March 1998. He was President of
Jocard Financial Services, Inc. from February 1995 to December 1997. From March
1994 to February 1995, Mr. Gleklen served as the special counsel to Robert J.
Brobyn & Associates, Attorneys 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 Nutramax Products, Inc., NewWest Eyeworks, Inc. and Home
Health Corporation of America.
Allen J. Nesbitt has served as a Director of the Company and its
predecessor since its inception. Mr. Nesbitt served as President of the Company
from its inception until his retirement in April 1997. From 1977 to 1985, Mr.
Nesbitt served as Vice President of 3PM, Inc.
Joseph P. Nolan has served as a Director of the Company since July 1996.
Mr. Nolan is a principal of GTCR Golder Rauner, LLC and has been a principal of
Golder, Thoma, Cressey, Rauner, Inc. ("GTCR") since February 1994. GTCR is a
general partner of GTCR Fund IV. From May 1990 to January 1994, Mr. Nolan was
Vice President Corporate Finance at Dean Witter Reynolds Inc. Mr. Nolan is also
a director of Province Healthcare, Inc. and Esquire Communications Ltd.
Bruce V. Rauner has served as a Director of the Company since January 1995.
Mr. Rauner is a managing principal of GTCR Golder Rauner, LLC and has been a
principal of GTCR since 1981. Mr. Rauner is also a director of Coinmach Laundry
Corporation, Metamor Worldwide, Inc., Polymer Group, Inc., Province Healthcare,
Inc. and Esquire Communications Ltd.
Robert A. Yanover served as Chairman of the Board of the Company and its
predecessor, from the inception of the Company until April 1998. Mr. Yanover has
served as a director of the Company and its predecessor since its inception. Mr.
Yanover also serves as President of Computer Leasing Company of Michigan, Inc.
See "Certain Relationships and Related Transactions -- Certain Affiliate
Transactions." Mr. Yanover is the founder and former president of 3PM, Inc.
The Board currently consists of seven 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 are elected to serve for
three-year terms or until their successors are duly elected and qualified.
Messrs. Nolan, Nesbitt and Ghadar are members of the class whose term expires in
2001, Messrs. Yanover and Gleklen are members of the class whose term expires in
1999, and Messrs. Monroe and Rauner are members of the class whose term expires
in 2000. 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. There are three committees of the Board: the
Compensation Committee, the Option Committee and the Audit Committee. The
Compensation Committee, which is comprised of Messrs. Gleklen and Rauner,
determines the Company's executive compensation policies, including the
salaries, compensation and benefits of executive officers and employees of the
Company. The Option Committee, which is comprised of Messrs. Gleklen, Nolan and
Rauner, is responsible for administer-
36
<PAGE> 38
ing and granting options in accordance with the Company's 1995 Stock Option Plan
and 1998 Equity Participation Plan. The Audit Committee, which is comprised of
Messrs. Gleklen, Nolan and Yanover, among other duties, selects the Company's
independent accountants and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting policies and its system of internal
accounting controls.
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and as to each
of the other two most highly compensated executive officers whose salary plus
bonus exceeded $100,000 during the last fiscal year, information concerning all
compensation paid for services to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
AWARDS PAYOUTS
----------------------- ----------------------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION AWARD OPTIONS(#) PAYOUTS (3)
------------------ ---- --------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary L. Monroe................... 1997 $190,866 $21,875 -- -- -- -- $11,866
Chairman of the Board, 1996 175,000 65,945 -- -- 20,000 -- 3,243
President and Chief 1995 46,723 -- -- -- 170,452 -- 40,000
Executive Officer
William J. Rauwerdink............ 1997 $139,049 $16,875 -- -- -- -- $ 2,437
Executive Vice President 1996 85,673 11,670 -- -- 70,000 -- 232
Chief Financial Officer, 1995 -- -- -- -- -- -- --
Treasurer and Secretary
Brian E. Jablonski............... 1997 $139,049 $16,875 -- -- -- -- $ 2,309
Executive Vice President of 1996 64,904 -- -- -- 75,000 -- 50,102
Strategic Marketing and Sales 1995 -- -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Salary includes amounts deferred, if any, pursuant to the Company's 401(k)
plan.
(2) Includes bonus amounts earned in the prior fiscal year by the executive
officers.
(3) "All Other Compensation" for 1997 is comprised of: (i) contributions made by
the Company to the accounts of (or accrued by the Company on behalf) of each
of the named officers under the Company's 401(k) Plan as follows: Mr. Monroe
$3,166; Mr. Rauwerdink $2,118; and Mr. Jablonski $2,118; (ii) premiums paid
for excess life insurance as follows: Mr. Monroe $204; Mr. Rauwerdink $319;
and Mr. Jablonski $191.
OPTION GRANTS IN FISCAL YEAR 1997
There were no individual grants of stock options made during 1997 to any
executive officer named in the Summary Compensation Table.
37
<PAGE> 39
AGGREGATE OPTION EXERCISES IN 1997 AND 1997 YEAR END OPTION VALUES
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above who hold options, certain information
regarding the exercise of stock options during the year ended December 31, 1997
and the value of options held at year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END YEAR-END(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gary L. Monroe................ 38,090 $912,014 136,362/16,000 $3,510,746/$158,000
William J. Rauwerdink......... -- -- 17,668/41,332 $373,223/$805,602
Brian E. Jablonski............ 4,800 $104,640 26,202/43,998 $573,085/$868,100
</TABLE>
- -------------------------
(1) Market value of underlying securities at exercise date or year end, as the
case may be, less the exercise price.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Monroe. The Company and Mr. Monroe are parties to an employment
agreement which expires August 7, 1999 (the "Monroe Employment Agreement"). 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. In June 1997, Mr. Monroe's annual salary was
increased to $200,000. Commencing August 7, 1998, Mr. Monroe's annual salary
will increase to $220,000. The Monroe Employment Agreement also provides that if
Mr. Monroe's employment is terminated or his duties 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 payable for the greater of one year or
the remaining term of the agreement.
Mr. Rauwerdink. On April 30, 1996, the Company made a written offer of
employment to Mr. Rauwerdink, which Mr. Rauwerdink accepted. Pursuant to the
offer, the Company 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 and agreed to
provide him severance payments equal to 90 days salary and bonus if the Company
were to terminate his employment without cause. In October 1997, Mr.
Rauwerdink's salary was increased to $148,500.
Mr. Jablonski. On June 12, 1996, the Company made a written offer of
employment to Mr. Jablonski, which Mr. Jablonski accepted. Pursuant to the
offer, the Company 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. In October 1997, Mr. Jablonski's salary was increased to
$148,500.
All Employee Stock Option Agreements that the Company has entered into with
each of Messrs. Monroe, Rauwerdink and Jablonski provide that all unvested stock
options granted to each such executive will vest and become exercisable upon
consummation of a sale of the Company if the executive is employed by the
Company on the date of such sale.
The Company entered into a Stock Option Agreement with Mr. Gleklen, a
director of the Company, on August 7, 1995 under which Mr. Gleklen was granted
an option to purchase 12,500 shares of the Company's Common Stock for a price of
$0.40 per share. One-fifth of the shares covered by the option vest and become
exercisable on each of the first five anniversaries of the grant date. The
Option expires on the earlier to occur
38
<PAGE> 40
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 option agreement. Notwithstanding the foregoing, all shares
covered by the option agreement 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 expiration of his current
term as a director in 1999.
The Company entered into a Stock Option Agreement with Dr. Ghadar, a
director of the Company, on January 15, 1997, under which Dr. Ghadar was granted
an option to purchase 5,000 shares of the Company's Common Stock for a price of
$19.75 per share. One-fifth of the shares covered by the option vest and become
exercisable on each of the first five anniversaries of the grant date if Mr.
Ghadar is still a director of the Company on such dates. Notwithstanding the
foregoing, all unvested options granted to Dr. Ghadar vest and become
exercisable upon the consummation of a sale of the Company if Dr. Ghadar is
still a director of the Company on such date. The option expires on January 15,
2004.
STOCK OPTION PLANS
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
1,000,000 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 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 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. 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 may not amend the 1995 Stock Option Plan to cause any outstanding ISOs
to no longer qualify as ISOs. In addition, the Board may 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.
1998 Equity Participation Plan. The Company's 1998 Equity Participation
Plan (the "1998 Plan") was adopted by the Board and approved by the Company's
stockholders in 1998. The 1998 Plan provides for the issuance of options and
restricted stock to participants, covering 900,000 shares of Common Stock,
subject to certain adjustments reflecting changes in the Company's
capitalization. Officers, consultants and employees and non-employee directors
are eligible to participate in the 1998 Plan. The 1998 Plan is administered by
the Option Committee; provided that the Company's Board of Directors, acting by
a majority of its members in office, administers the 1998 Plan with respect to
awards of options or restricted stock granted to non-employee directors. The
maximum number of shares of Common Stock which may be subject to a stock option
and/or restricted stock award under the 1998 Plan to any individual in any
calendar year shall not exceed 250,000 shares of Common Stock.
Options granted or to be granted under the 1998 Plan may either be ISO's or
non-statutory stock options ("NSOs"). The Option Committee or the Board of
Directors, as applicable, will determine whether stock options are to be ISOs or
NSOs and whether such stock options are to qualify as performance-based
39
<PAGE> 41
compensation as described in Section 162(m)(4)(C) of the Code. The option
exercise price for each share covered by the option may be less than the fair
market value of a share of Common Stock on the date of grant; however, in the
case of ISOs or in the case of a grant to the Chief Executive Officer and the
four other highest compensated executive officers, the price shall be no less
than 100% of the fair market value of a share of Common Stock at the time such
option is granted. The term of an option shall be determined by the Option
Committee provided, however, that, in the case of the ISOs, the term will not be
more than 10 years from the date the ISO is granted. The period during which the
right to exercise an option in whole or in part vests will be set by the Option
Committee.
Restricted stock may be awarded to any participant whom the Option
Committee or the Board of Directors, as applicable, determines should receive
such an award. The Option Committee or the Board of Directors, as applicable,
may determine the purchase price, if any, and other terms and conditions
applicable to the restricted stock. The Option Committee or the Board of
Directors, as applicable, may impose such conditions on the issuance of the
restricted stock as deemed appropriate. The Option Committee will determine
whether such stock options are to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code. The shares of restricted stock
may be placed into escrow by the Option Committee or the Board of Directors, as
applicable, and held until all the restrictions imposed under the restricted
stock agreement have been satisfied or removed.
The Board and the Option Committee generally have the power and authority
to amend the 1998 Plan at any time without the approval of the Company's
stockholders, provided that, without the approval of the Company's stockholders,
the Board or the Option Committee may not amend the 1998 Plan to increase the
limits of the maximum number of shares to be awarded any individual or alter or
impair the rights or obligations under any award previously made. On May 29,
1998, the Option Committee awarded Messrs. Monroe, Rauwerdink, Jablonski,
Messinger and Newman options for 200,000, 100,000, 40,000, 70,000 and 40,000
shares of Common Stock at an exercise price of $40.50 per share.
401(K) PLAN
Lason sponsors a 401(k) profit-sharing plan and trust (the "401(k) Plan").
Each employee who is at least 21 years of age or older who has worked for the
Company for 12 months and performed 1,000 "Hours of Service" (as such term is
defined in the 401(k) Plan), or has an adjusted service date with the equivalent
or greater term of service, is eligible to participate in the 401(k) Plan.
Eligible participants may contribute not less than 2% and up to 15% of their
pretax compensation to the 401(k) Plan. The 401(k) Plan is contributory, and the
Company, at its discretion, can match up to 33% of eligible participant
contributions not to exceed 9% of the participant's earnings. The Company's
matching contributions for the years ended December 31, 1995, 1996 and 1997
totaled approximately $172,000, $201,000 and $337,000, respectively.
1997 MANAGEMENT BONUS PLAN
The Company established a Management Bonus Plan for the 1997 fiscal year
(the "1997 Bonus Plan"). Participants in the 1997 Bonus Plan were selected by
the Company's President and Chief Executive Officer. Each participant in the
1997 Bonus Plan was 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 was principally involved exceeded a predetermined
financial target with respect to a quarter. If 85% or more of the target was
obtained for a quarter, a pro rata portion of the bonus was payable, and if less
than 85% of the target was obtained, no bonus was payable with respect to that
quarter. Bonuses that were not obtained in any quarter were not carried over to
any subsequent quarter. For the year ended December 31, 1997, Messrs. Monroe,
Rauwerdink and Jablonski were awarded bonuses of $21,875, $16,875 and $16,875,
respectively. Bonuses aggregating $201,207 were awarded to all eligible
participants under the 1997 Bonus Plan.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company receives $1,000 for
attendance at each meeting of the Board and for each committee meeting attended
on a day other than a Board meeting. Directors are
40
<PAGE> 42
reimbursed for out-of-pocket expenses incurred in connection with attending
meetings. Directors may also be awarded options pursuant to the 1995 Stock
Option Plan and the 1998 Equity Participation Plan. See "-- Stock Option
Plans -- 1995 Stock Option Plan" and "-- 1998 Equity Participation Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended December 31, 1997, compensation of executive officers of
the Company was determined by the Board, which included Messrs. Monroe and
Yanover, who each abstained on voting with respect to compensation for himself.
The 1995 Stock Option Plan and the 1998 Equity Participation Plan are
administered by the Option Committee comprised of Messrs. Gleklen, Nolan and
Rauner.
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 8% of Mr. Rauwerdink's total holdings in his new
employer's common stock.
41
<PAGE> 43
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 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 ( the "Recapitalization"). In connection with the
Recapitalization, the J. Yanover Trust, the R. Yanover Trust, and the Nesbitt
Trust (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 and the Nesbitt
Trust purchased 66,074, 402,987 and 469,064 shares, respectively, of the
Company's Class A-1 Common Stock for a price of $1.00 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 1,000,001
shares of the Company's Class B Common Stock for an aggregate purchase price of
$10.0 million.
SELLER CREDIT AGREEMENTS
In connection with the Recapitalization, Lason Systems entered into 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 and (ii)
Mr. Nesbitt and the Nesbitt Trust, pursuant to which Lason Systems loaned
$609,778 and $609,791 (each, a "Loan") to Messrs. Yanover and Nesbitt (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. Under the Seller Credit Agreements, each Borrower was 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 and
Nesbitt under their respective Seller Credit Agreements were secured by a pledge
of 469,061 and 469,064 shares of Class A-1 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 was to the
shares of Common Stock pledged with respect to such Seller Credit Agreement.
During the year ended December 31, 1996, the largest aggregate amount of
indebtedness outstanding of Messrs. Yanover and Nesbitt (including interest) to
the Company was $649,141 and $649,155, respectively. Of these respective
amounts, prior to the end of 1996, Messrs. Yanover and Nesbitt paid 50% to the
Company and the Company forgave the other 50%, so that no indebtedness of
Messrs. Yanover and Nesbitt was outstanding at December 31, 1996.
REGISTRATION AGREEMENT
In connection with the Recapitalization, the Company and the Designated
Stockholders, GTCR Fund IV, Mr. Yanover and Mr. Nesbitt (the "1995
Stockholders") entered into the Registration Agreement. Pursuant to the
Registration Agreement, the 1995 Stockholders and their transferees, who upon
the completion of the Offering will hold in the aggregate 3,161,562 shares of
Common Stock, are entitled to certain registration rights. The holders of at
least a majority of the shares of Common Stock held by the GTCR Fund IV (the
"GTCR Registrable Shares") and the holders of at least a majority of the shares
of Common Stock held 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, 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
42
<PAGE> 44
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
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).
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 43.3% of
Mart and is its managing partner. Mr. Nesbitt owns 33.3% of Mart and is one of
its partners. For the years ended December 31, 1995, 1996 and 1997, the Company
paid $191,100, $191,100, $150,150, 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 50.0%
of Computer Leasing and serves as its president. For the years ended December
31, 1995, 1996 and 1997, the Company paid $57,100, $184,390 and $116,500,
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, 1995, 1996 and 1997, and for the three months ended March 31, 1998,
the Company paid Hatteras $980,500, $1,425,358, $1,700,000 and $693,000,
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 $75,200, $76,859, $48,960,
respectively, for the years ended December 31, 1995, 1996 and 1997. Such
services were sold at the Company's then current prices. Also effective December
1, 1997, the Company sold certain assets to Hatteras at their fair market value,
as determined by management, for $570,412, payable $350,000 at closing, with the
balance of $220,412 to be paid (together with interest at 8.0% per annum),
$125,000 on December 31, 1998 and $95,412 on December 31, 1999. The Company
purchased the assets in July, 1996 for approximately $387,000.
The Company contracts temporary employment services from Unlimited Staffing
Solutions, Inc., a company which is owned by the wife of Mr. Newman. The Company
paid $2,905, $735,000 and $797,000 for the years ended December 31, 1995, 1996
and 1997, respectively, for such services.
Messrs. Monroe, Rauwerdink, Messinger, Newman and Jablonski, executive
officers of the Company, are indebted to the Company in principal amounts of
$650,000, $325,000, $227,500, $130,000 and $130,000, respectively, pursuant to
the terms of ten-year secured promissory notes dated June 5, 1998, which provide
for extensions of credit up to maximum principal amounts of $2,600,000,
$1,300,000, $910,000, $520,000 and $520,000, respectively. The notes provide
that funds may be advanced under the notes on the date of execution and on each
of the three anniversary dates thereafter and/or upon the occurrence of a
"change in control" of the Company, as defined in the Company's 1998 Equity
Participation Plan, which occurs prior to the fourth anniversary of the notes;
provided that the price per share of the Company's Common Stock at all such
times that credit is extended under the notes exceeds $27.50 per share. The
notes are secured by each executive officer's unexercised stock options granted
on May 29, 1998, and any of the Company's Common Stock acquired upon exercise of
such options; provided that some of such collateral may be released under
certain circumstances if the notes are adequately secured after such release of
collateral, and all of such collateral is to be released, in any event, upon the
fourth anniversary of each note if it is not in default and has not matured. All
advances under a note will be forgiven in the event of a change in control of
the Company; provided that the note is not in default and has not matured prior
to such change in control event. Interest accrues under
43
<PAGE> 45
each note at the applicable federal rate, as in effect on June 5, 1998, and as
it may change on each anniversary of the note.
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. Additional transactions of the nature described above may take place
in the ordinary course of business.
THE RECAPITALIZATION
Immediately prior to the Company's initial public offering of Common Stock
on October 9, 1996, 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,
was converted into one share of Common Stock, and each share of Class B Common
Stock, all of which was held by GTCR Fund IV, was converted into approximately
1.3 shares of Common Stock. Each share of Common Stock was then split into 2.5
shares of Common Stock. Concurrent with the consummation of its initial public
offering of Common Stock, the Company used a portion of the proceeds of such
offering to redeem 692,047 shares of Common Stock owned by GTCR Fund IV at an
aggregate price of approximately $11.8 million. GTCR Fund IV acquired its
interest in the Company in January, 1995 for $10.0 million, or approximately
$3.13 per share of Common Stock.
44
<PAGE> 46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 29, 1998 by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) each current executive officer and director of the Company, (iii)
each of the Selling Stockholders, and (iv) all executive 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 shares of Common Stock shown as beneficially owned by it or him.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) THE OFFERING(1)
------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
GTCR Fund IV(2).................................. 766,959 6.3% 450,000 316,959 2.1%
Dresdner RCM Global Investors, LLC(3)............ 829,300 6.8 0 829,300 5.5
=======
EXECUTIVE OFFICERS AND DIRECTORS
Gary L. Monroe(4)................................ 111,362 * 25,000 86,362 *
William J. Rauwerdink(4)......................... 33,337 * 0 33,337 *
John R. Messinger(4)............................. 30,659 * 0 30,659 *
Brian E. Jablonski(4)............................ 39,004 * 15,000 24,004 *
Cary W. Newman(4)................................ 37,000 * 10,000 27,000 *
Fariborz Ghadar(5)............................... 1,000 * 0 1,000 *
Donald M. Gleklen(6)............................. 12,500 * 0 12,500 *
Allen J. Nesbitt(7).............................. 351,790 2.9 100,000 251,790 1.7
Joseph P. Nolan(2)............................... 5,009 * 0 5,009 *
Bruce V. Rauner(2)............................... -- * 0 0 *
Robert A. Yanover(8)............................. 301,183 2.5 129,500 171,683 1.1
-------
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
All Executive Officers and Directors as a group
(11 persons)(9)................................ 1,689,803 13.5 279,500 889,803 5.9%
OTHER SELLING STOCKHOLDERS
The Joseph Jonathan Yanover and Jennifer D.
Yanover Irrevocable Trust dated January 5, 1993
(the "J and J Trust").......................... 164,297 1.3% 70,500 93,797 *
-------
800,000
=======
</TABLE>
- -------------------------
* Indicates less than 1%.
(1) The number of shares of Common Stock outstanding before the Offering is
12,255,849, and the number of shares of Common Stock outstanding after the
Offering is 14,955,849 (15,360,849 if the Underwriters' over-allotment
options are exercised in full). Shares of Common Stock subject to options
that are exercisable within 60 days after the date of the Offering are
deemed beneficially owned by the person holding such options for the purpose
of computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage of any other person.
If the Underwriters' over-allotment options are exercised in full, GTCR Fund
IV, Mr. Monroe, Mr. Jablonski, Mr. Newman, Mr. Nesbitt, Mr. Yanover and the
J and J Trust, have agreed to sell 67,500, 3,750, 2,250, 1,500, 15,000,
19,425 and 10,575 shares of Common Stock, respectively.
(2) Includes 766,959 shares of Common Stock held by GTCR Fund IV, of which GTCR
IV, L.P. is the general partner. 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.
45
<PAGE> 47
(3) RCM Limited, L.P., a California limited partnership, is the Managing Agent
of Dresdner RCM Global Investors LLC ("Dresdner RCM"). RCM General
Corporation, a California corporation is the General Partner of RCM Limited
L.P. The address of Dresdner RCM is Four Embarcadero Center, San Francisco,
California 94111. Dresdner Bank AG, an international banking organization
headquartered in Frankfurt, Germany, is the parent of its wholly-owned
subsidiary, Dresdner RCM. The address of Dresdner Bank is Jurgen-Ponto-Platz
1, 60301 Frankfurt, Germany.
(4) Includes 111,362, 23,337, 3,000, 39,004, and 32,000 shares of Messrs.
Monroe, Rauwerdink, Messinger, Jablonski and Newman, respectively, issuable
upon exercise of options. The address of Messrs. Monroe, Rauwerdink,
Messinger, Jablonski and Newman is 1305 Stephenson Highway, Troy, Michigan
48083.
(5) Includes 1,000 shares of Common Stock issuable upon the exercise of options.
The address of this holder is 555 Orlando Avenue, State College,
Pennsylvania 16803.
(6) Includes 7,500 shares of Common Stock issuable upon the exercise of options.
The address of this director is 212 Jeffrey Lane, Newtown Square,
Pennsylvania 19073.
(7) Includes 351,790 shares of Common Stock held by the Allen J. Nesbitt Living
Trust dated December 7, 1994. The address of this holder is 48847
Meadowcourt, Plymouth, Michigan 48170.
(8) Includes 301,183 shares of Common Stock held by Yanover Associates Limited
Partnership. The address of this holder is 133 Quayside Drive, Jupiter,
Florida 33477.
(9) Includes the shares of Common Stock described in footnotes (2), (4), (5),
(6), (7), and (8) above.
46
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, and 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"). As of July 29, 1998, there were 12,255,849 shares
of Common Stock outstanding and 84 holders of record. No shares of Preferred
Stock are outstanding. 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
and by the provisions of applicable law.
COMMON STOCK
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." The shares of Common Stock are not redeemable or convertible, and the
holders thereof will have no preemptive rights 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. The Common Stock is currently included for quotation in the Nasdaq
National Market under the trading symbol "LSON."
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, financing 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 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 or as a result of a newly
created directorship. 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 requires 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
47
<PAGE> 49
Certificate of Incorporation and Bylaws requires that special meetings of the
stockholders of the Company be called only by the affirmative vote of at least
two members of the Board or by certain officers. 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.
The Bylaws 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 120 days nor more than 150 days prior to the first
anniversary of the annual meeting for the preceding year. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions 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 by the
stockholders without the affirmative vote of at least 80% of the outstanding
shares of the voting stock of the Company.
The Company is 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.
For purposes of the Delaware General Corporation Law, 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 -- Anti-Takeover Effect of
Certain Charter, By-Law and Statutory 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. This provision 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. In addition, the By-Laws provide that the Company shall
indemnify directors and officers of the Company to the fullest extent permitted
by such law. This provision may not be amended, altered or repealed by the
stockholders 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 is The First Chicago
Trust Company.
48
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 14,955,849 shares of
Common Stock outstanding. Of these shares, the 3,500,000 shares offered hereby
(4,025,000 if the Underwriters' over-allotment options are exercised in full),
the 7,918,400 shares sold in the Company's initial public offering and its
secondary public offering in August 1997 will be freely tradeable without
restriction or further registration under the Securities Act unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 3,537,449 shares outstanding are Restricted
Shares, as follows: (i) 663,083 shares held by "affiliates" whom have already
held their shares for more than one year; (ii) 162,007 shares held by
non-affiliates whom have already held their shares for more than one year; and
(iii) 728,514 shares held by non-affiliates who have not held their shares for
more than one year. In addition, 1,590,560 shares of Common Stock are reserved
under the Company's 1995 Stock Option Plan and 1998 Equity Participation Plan
for the exercise of stock options granted by the Company, of which options to
purchase approximately 1,363,028 shares have been granted under such plans.
The Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
the exemption provided by Rule 144. Rule 144 imposes certain restrictions and
limitations on resale. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule), who has beneficially owned Restricted Shares for
at least one year would be entitled to sell, within any three-month period, a
number of such shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 149,558 shares after the
Offering), or the reported average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Shares under Rule 144 are
also subject to certain manner of sale restrictions and notice requirements and
to the availability of current public information concerning the Company. A
person (or persons whose shares are aggregated) who is not an "affiliate" of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned such shares for at least two years, is currently entitled to
sell such shares under Rule 144(k) without regard to the availability of current
public information, volume limitations, manner of sales provisions or notice
requirements. 663,083 Restricted Shares held by affiliates are eligible for sale
in the public market pursuant to Rule 144, but are subject to the "Lock-Up"
Agreements. Currently 825,090 Restricted Shares may be sold pursuant to Rule
144.
The Company, its executive officers and directors and the Selling
Stockholders have agreed that they will not, directly or indirectly, officer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any other securities convertible into, or
exercisable or exchangeable for, Common Stock or other capital stock of the
Company or any right to purchase or acquire Common Stock or other capital stock
of the Company, for a period of 90 days after the date of this Prospectus,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except for bona fide gifts or transfers effected by
such stockholders other than on any securities exchange or in the
over-the-counter market to donees or transferees that agree to be bound by such
agreements. Prudential Securities Incorporated may, in its sole discretion, at
any time and without notice, release all or any portion of the shares subject to
such Lock-Up Agreements.
Sales of substantial amounts of Common Stock, or the perception that such
sale could occur, could adversely affect market prices for the Common Stock and
could impair the Company's future ability to obtain capital through offerings of
equity securities.
In connection with the Recapitalization, the Company and the 1995
Stockholders entered into the Registration Agreement. Upon the completion of the
Offering, pursuant to the Registration Agreement, the 1995 Stockholders and
their transferees, who will hold in the aggregate 834,229 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 period
ending 90 days after the date of this Prospectus. Such rights could be used to
force the Company to file a registration statement with respect to the Common
Stock owned
49
<PAGE> 51
by such persons. The existence of the Registration Agreement and the perception
that sales of Common Stock could occur thereunder could adversely affect the
market price of the Common Stock and could impair the Company's ability to raise
capital through the sale of equity securities. See "Recent Acquisitions" and
"Certain Relationships and Related Transactions -- Registration Agreement."
50
<PAGE> 52
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, BancAmerica Robertson Stephens, William Blair &
Company, L.L.C., Jefferies & Company, Inc., PaineWebber Incorporated and The
Robinson-Humphrey Company, LLC are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..........................
BancAmerica Robertson Stephens..............................
William Blair & Company, L.L.C. ............................
Jefferies & Company, Inc. ..................................
PaineWebber Incorporated ...................................
The Robinson-Humphrey Company, LLC..........................
---------
Total....................................................... 3,500,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the Offering, the public offering price
and the concessions may be changed by the Representatives.
The Company and certain of the Selling Stockholders have granted the
Underwriters options, exercisable for 30 days from the date of this Prospectus,
to purchase up to 525,000 additional shares of Common Stock at the public
offering price, less underwriting discounts and commissions, as set forth on the
cover page of this Prospectus. The Underwriters may exercise such options solely
for the purpose of covering over-allotments incurred in the sale of the shares
of Common Stock offered hereby. To the extent such options are exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
.
The Company, its executive officers and directors and the Selling
Stockholders have agreed not to, directly or indirectly, offer, sell, offer to
sell, contact to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any securities convertible into, or
exercisable or exchangeable for, any share of Common Stock or other capital
stock of the Company or any right to purchase or acquire Common Stock or other
capital stock of the Company, for a period of 90 days after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, other than pursuant to the exercise
of currently outstanding stock options and except for bona fide gifts or
transfers effected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by such agreements. Prudential Securities Incorporated may, in its sole
discretion, at any time and without notice, release all or any portion of the
shares subject to such Lock-Up Agreements.
51
<PAGE> 53
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
In connection with this Offering, certain Underwriters (and selling group
members, if any) or their respective affiliates who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the Common Stock of the Company on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Exchange Act during the business day
prior to the pricing of the Offering before the commencement of offers and sales
of Common Stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price in excess of the highest independent bid
for such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
525,000 shares of Common Stock, by exercising the Underwriters' over-allotment
options referred to previously. In addition, Prudential Securities Incorporated,
on behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or any dealer participating in the Offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchase for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required and, if they are
undertaken, then they may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered by the Company and the Selling Stockholders will be passed upon by
Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C., Southfield, Michigan.
Laurence B. Deitch, a shareholder of Seyburn, Kahn, Ginn, Bess, Deitch and
Serlin, P.C., owns 1,000 shares of the Company's Common Stock. Certain legal
matters will be passed on for the Underwriters by King & Spalding, Atlanta,
Georgia.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997 of the Company
appearing in this Prospectus and Registration Statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report appearing elsewhere herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing. The
financial statements of Consolidated Reprographics for the fiscal year ended
August 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by PricewaterhouseCoopers LLP, independent accountants, as set
forth in their report appearing elsewhere herein and are included in reliance on
such report given upon the authority of such firm as experts in accounting and
auditing.
52
<PAGE> 54
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission.
The Company has filed with the Commission a Registration Statement of Form
S-1 (herein, together with all amendments, exhibits and schedules, referred to
as the "Registration Statement"), under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement for further information with respect to the Company and
the Common Stock offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each such
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference.
Reports and other information filed by the Company with the Commission and
copies of the Registration Statement can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and are also available for inspection and
copying at the following regional offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material also may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates,
and through the Commission's Internet address at "http://www.sec.gov."
53
<PAGE> 55
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 March 31, 1998................................... F-3
Unaudited Pro Forma Condensed Consolidated Statements of
Income for the Three Months ended March 31, 1998....... F-4
Unaudited Pro Forma Condensed Consolidated Statements of
Income for the Year ended December 31, 1997............ F-5
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information.................................. F-6
LASON, INC.
Report of Independent Accountants......................... F-9
Consolidated Balance Sheets as of December 31, 1996 and
1997
and March 31, 1998 (Unaudited)......................... F-10
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (Unaudited)....... F-11
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1998 (Unaudited)...... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (Unaudited)....... F-13
Notes to Consolidated Financial Statements................ F-14
CONSOLIDATED REPROGRAPHICS
Report of Independent Accountants......................... F-25
Balance Sheets as of August 31, 1997 and May 31, 1998
(Unaudited)............................................ F-26
Statement of Operations for the year ended August 31, 1997
and for the nine months ended May 31, 1997 and 1998
(Unaudited)............................................ F-27
Statement of Shareholders' Equity......................... F-28
Statements of Cash Flows for the year ended August 31,
1997 and for the nine months ended May 31, 1997 and
1998 (Unaudited).......................................
Notes to Financial Statements............................. F-29
</TABLE>
F-1
<PAGE> 56
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,
Inc. (the "Company") as of March 31, 1998 and the balance sheet as of May 31,
1998 of Consolidated Reprographics and gives effect to (i) such acquisition, and
(ii) the application of the net proceeds from the sale of 2,700,000 shares of
common stock offered by the Company hereby (the "Offering") at an assumed
offering price per share of $51.438 (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 March 31,
1998. The following unaudited pro forma condensed consolidated statements of
income for the three months ended March 31, 1998 and for the year ended December
31, 1997 give effect to each of the above transactions and to the 1998
Acquisitions (See "Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information") as if each had occurred as of January 1, 1997. 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 of Lason and the Notes thereto and the
financial statements of Consolidated Reprographics 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, 1997 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> 57
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA ADJUSTMENTS
CONSOLIDATED OTHER FOR AS ADJUSTED FOR THE
LASON REPROGRAPHICS(1) ACQUISITIONS ACQUISITIONS FOR ACQUISITIONS OFFERING
----- ---------------- ------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets.................. $ 70,611 $ 6,285 $ 6,879 $ 1,295C $ 85,070 $ 7,441B
Property and equipment, net..... 32,072 4,171 3,416 39,659
Intangible assets, net.......... 137,301 353 -- 43,478A 181,132
Other assets.................... 553 538 105 1,196
-------- ------- ------- ------- -------- ----------
Total assets.............. $240,537 $11,347 $10,400 $44,773 $307,057 $ 7,441
======== ======= ======= ======= ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current portion, long-term
debt.......................... $ -- $ 1,443 $ 1,556 $(2,999)A $ --
Other current liabilities....... 27,671 3,567 2,408 1,254A 34,900
-------- ------- ------- ------- -------- ----------
Total current
liabilities............. 27,671 5,010 3,964 (1,745) 34,900
Long-term debt, less current
portion....................... 68,300 4,334 3,004 50,010A,D 125,648 $ (124,441)B
Other liabilities............... 8,283 1,060 72 9,415
-------- ------- ------- ------- -------- ----------
Total liabilities......... 104,254 10,404 7,040 48,265 169,963 (124,441)
Common stock with a put
option........................ 1,060 1,060
Common stock.................... 116 20 90 (110)A 116 27B
Additional paid in capital...... 117,563 -- 219 592A 118,374 131,855B
Retained earnings............... 17,544 923 3,051 (3,974)A 17,544
-------- ------- ------- ------- -------- ----------
Total stockholders'
equity.................. 135,223 943 3,360 (3,492) 136,034 131,882
-------- ------- ------- ------- -------- ----------
Total liabilities and
stockholders' equity.... $240,537 $11,347 $10,400 $44,773 $307,057 $ 7,441
======== ======= ======= ======= ======== ==========
<CAPTION>
PRO FORMA AS
ADJUSTED FOR
ACQUISITIONS
AND THE
OFFERING
------------
<S> <C>
ASSETS
Current assets.................. $ 92,511
Property and equipment, net..... 39,659
Intangible assets, net.......... 181,132
Other assets.................... 1,196
--------
Total assets.............. $314,498
========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current portion, long-term
debt.......................... $ --
Other current liabilities....... 34,900
--------
Total current
liabilities............. 34,900
Long-term debt, less current
portion....................... 1,207
Other liabilities............... 9,415
--------
Total liabilities......... 45,572
Common stock with a put
option........................ 1,060
Common stock.................... 143
Additional paid in capital...... 250,229
Retained earnings............... 17,544
--------
Total stockholders'
equity.................. 267,916
--------
Total liabilities and
stockholders' equity.... $314,498
========
</TABLE>
- -------------------------
(1) Balance Sheet as of May 31, 1998, as Consolidated Reprographics has an
August 31 fiscal year end.
The accompanying Notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-3
<PAGE> 58
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED COMPLETED AS ADJUSTED
LASON REPROGRAPHICS ACQUISITIONS ADJUSTMENTS LASON
----- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net of postage............... $46,566 $8,302 $15,074 $69,942
Cost of revenues....................... 29,811 5,636 7,613 43,060
------- ------ ------- -------
Gross profit...................... 16,755 2,666 7,461 26,882
Selling, general and administrative
expenses............................. 9,778 1,200 5,818 $ (125)H 16,671
Compensatory stock option expense...... 69 -- -- 69
Amortization of intangibles............ 966 82 1 554E 1,603
------- ------ ------- ------ -------
Income from operations............ 5,942 1,384 1,642 (429) 8,539
Net interest expense.............. 646 203 367 (1,053)F 163
------- ------ ------- ------ -------
Income before provision for income
taxes................................ 5,296 1,181 1,275 624 8,376
Provision for income taxes............. 1,830 537 21 915G 3,303
------- ------ ------- ------ -------
Pro forma net income................... $ 3,466 $ 644 $ 1,254 $ (291) $ 5,073
======= ====== ======= ====== =======
Pro forma earnings per share:
Basic............................. I $ 0.35
=======
Diluted........................... I $ 0.33
=======
Proforma weighted average common shares
and dilutive securities:
Basic............................. I 14,333
-------
Diluted........................... I 15,198
-------
</TABLE>
The accompanying Notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-4
<PAGE> 59
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PROFORMA
CONSOLIDATED COMPLETED AS ADJUSTED
LASON REPROGRAPHICS ACQUISITIONS ADJUSTMENTS LASON
----- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net of postage............. $120,337 $25,377 $83,602 $229,316
Cost of revenues..................... 80,846 17,804 55,954 154,604
-------- ------- ------- --------
Gross profit....................... 39,491 7,573 27,648 74,712
Selling, general and administrative
expenses........................... 21,364 3,876 22,118 $(3,177)H 44,181
Compensatory stock option expense.... 221 -- -- 221
Amortization of intangibles.......... 2,477 407 8 2,789E 5,681
-------- ------- ------- ------- --------
Income from operations............. 15,429 3,290 5,522 388 24,629
Net interest expense................. 1,249 534 892 (2,566)F 109
-------- ------- ------- ------- --------
Income before provision for income
taxes.............................. 14,180 2,756 4,630 2,954 24,520
Provision for income taxes........... 5,110 1,146 434 3,047G 9,737
-------- ------- ------- ------- --------
Net income........................... $ 9,070 $ 1,610 $ 4,196 $ (93) $ 14,783
======== ======= ======= ======= ========
Pro forma earnings per share:
Basic.............................. I $ 1.19
========
Diluted............................ I $ 1.12
========
Pro forma weighted average common
shares
and dilutive securities:
Basic.............................. I 12,432
--------
Diluted............................ I 13,245
--------
</TABLE>
The accompanying Notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-5
<PAGE> 60
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial statements include
the financial information of thirteen companies acquired during the period from
January 1, 1998 through July 29, 1998. The most significant of these
acquisitions is as follows:
In February 1998 the Company acquired Racom Corporation and its affiliates
by acquiring 100% of the outstanding common stock of its parent, Southern
Microfilm Associates, Inc. ("Racom") for $20.9 million in cash and 188,382
shares of the Company's Common Stock valued at approximately $5.1 million. The
shares of common stock are being held in escrow as collateral to indemnify the
Company if contingencies set forth in the purchase agreement occur within 12
months from the date of acquisition.
In March 1998, the Company acquired substantially all of the assets of API
Systems, Inc. ("API") for $21.5 million in cash and 117,702 shares of the
Company's Common Stock valued at approximately $3.8 million. Substantially all
of the shares of common stock are being held in escrow as collateral to
indemnify the Company if contingencies set forth in the purchase agreement occur
within 12 months from the date of acquisition.
In May 1998, the Company acquired 100% of the outstanding common stock of
Quality Mailing Services, Inc. ("QMS") for $3.8 million in cash and 2,799 shares
of the Company's Common Stock valued at approximately $111,000.
In June 1998, the Company acquired substantially all of the assets of
Strategy Manufacturing, Inc. ("SMI") for $3.6 million in cash and 17,431 shares
of the Company's Common Stock valued at approximately $700,000. Of the cash
purchase price, $250,000 is being held in escrow to indemnify the Company if
contingencies set forth in the purchase agreement occur within 12 months from
the date of acquisition.
Also in June 1998, the Company acquired 100% of the outstanding common
stock of Litigation Reprographics & Support Services, Inc. ("Litigation
Reprographics") for $3.7 million in cash and 16,124 shares of the Company's
Common Stock valued at approximately $658,000. All of the shares of Common Stock
issued in connection with the acquisition of Litigation Reprographics are being
held in escrow to indemnify the Company if contingencies set forth in the
purchase agreement occur within 12 months from the date of acquisition.
Also in June 1998, the Company acquired 100% of the outstanding common
stock of Document Production Services, Inc. ("Document Production") for $2.1
million in cash and 12,070 shares of the Company's Common Stock valued at
approximately $523,000. All of the shares of Common Stock issued in connection
with the acquisition of Document Production are being held in escrow to
indemnify the Company if contingencies set forth in the purchase agreement occur
within 24 months from the date of acquisition.
In July 1998, the Company purchased 100% of the outstanding common stock of
Consolidated Reprographics for $34.9 million in cash and 112,044 shares of the
Company's Common Stock valued at approximately $6.1 million. All of the shares
of Common Stock issued in connection with the acquisition of Consolidated
Reprographics are being held in escrow to indemnify the Company if contingencies
set forth in the purchase agreement occur within 18 months from the date of
acquisition.
All of the purchase price contingencies will be recorded as an adjustment
of the purchase price when the related contingency is resolved. In addition,
certain of the purchase agreements provide for increased purchase price if
operating income exceeds a targeted level. For the 1998 acquisitions listed
above, the maximum amount of additional purchase price which may be recorded
should such targets be achieved is $59.4 million.
BALANCE SHEET
The excess of the purchase price and liabilities assumed over the estimated
fair value of the net assets acquired for each acquisition has been allocated to
tangible and intangible assets based on Lason's estimate of
F-6
<PAGE> 61
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONTINUED
the fair market value of the net assets acquired. The allocations of the excess
purchase price, as illustrated below, may change upon final appraisal of the
fair market value of the net assets acquired.
Acquisitions completed subsequent to March 31, 1998:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Estimated fair value of the net assets acquired............. $20,022
Allocation of the purchase price in excess of acquired
assets:
Goodwill.................................................. 43,478
-------
63,450
Plus: Liabilities assumed................................... 11,467
-------
Total purchase price........................................ $74,967
=======
</TABLE>
The acquisitions completed subsequent to March 31, 1998 were financed using
approximately $50.7 million of borrowings under the Company's credit agreements,
and $811,000 from the issuance of shares of Common Stock.
The accompanying unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 has been prepared as if the acquisitions consummated
subsequent to March 31, 1998 had all been completed as of March 31, 1998 and
includes the following adjustments:
(A) A pro forma adjustment has been made to:
- Record goodwill related to the acquisitions;
- Reflect the repayment of the existing borrowings of the acquired
companies with proceeds from the company's credit agreement;
- Record the additional debt related to the acquisitions;
- Present the issuance of 28,568 shares of common stock valued at
approximately $811,000 related to the acquisitions;
- Eliminate the historical equity balances; and
- Record additional estimated costs of acquisition.
(B) A pro forma adjustment has been recorded to present the
application of the net proceeds of the Offering assuming underwriters
discounts and additional offering expenses of $7.0 million.
(C) A pro forma adjustment has been recorded for refundable income
taxes related to available tax deductions resulting from the exercise of
Consolidated Reprographics employee stock options prior to the acquisition
of Consolidated Reprographics.
(D) A pro forma adjustment has been recorded to eliminate a $3.7
million note payable to a former shareholder of Consolidated Reprographics
that was not assumed by Lason in the acquisition.
STATEMENT OF INCOME
The accompanying unaudited pro forma condensed consolidated statements of
income for the three months ended March 31, 1998 and for the year ended December
31, 1997 presents the results as though each acquisition had been consummated on
January 1, 1997. All acquisitions, except Consolidated Reprographics
F-7
<PAGE> 62
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- CONTINUED
and Racom, had a December 31 fiscal year end. Consolidated Reprographics' year
end was August 31 and Racom's was June 30. Accordingly, Consolidated
Reprographics' results of operations have been adjusted and are included for the
12 months ended November 30, 1997 and for the three months ended May 31, 1998.
Also Racom's results of operations have been adjusted and are included for the
12 months ended December 31, 1997 and the three months ended March 31, 1998.
The accompanying unaudited pro forma condensed consolidated statements of
income for the three months ended March 31, 1998 and the year ended December 31,
1997 have been prepared by combining historical results of operations for the
Company and, where applicable, the acquisitions for such respective periods and
include the following adjustments:
(E) Adjustments for the three months ended March 31, 1998 and for the
year ended December 31, 1997 have been made to increase amortization
expense by $554,000 and $2.8 million, respectively, related to the purchase
price allocated primarily to goodwill, as if the acquisition had occurred
January 1, 1997. Goodwill is amortized over 30 years.
(F) Adjustments for the three months ended March 31, 1998 and for the
year ended December 31, 1997 have been made to eliminate interest expense
of $1.1 million and $2.6 million respectively, on debt retired using a
portion of the estimated net proceeds of $124.4 million.
(G) Certain of the acquired companies 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 acquired
companies were subjected to federal and state income taxes for the periods
presented based on the statutory tax rate then in effect. Additionally the
pro forma adjustments have been tax effected at a 35.0% federal statutory
rate.
(H) Adjustments for the three months ended March 31, 1998 and for the
year ended December 31, 1997 have been made to reduce selling, general and
administrative expenses by approximately $125,000 and $3.2 million,
respectively, to eliminate certain compensation expenses to former
S-Corporation shareholders that would not have been incurred had the
acquisitions occurred as of January 1, 1997. Such compensation reductions
are based on signed employment agreements. Additional cost savings that the
Company expects to realize through the integration of the acquisitions into
Lason's operations have not been included.
(I) Pro forma basic earnings per share is computed by dividing pro
forma net income by the weighted average common shares outstanding. Pro
forma diluted earnings per share is computed by dividing the net income by
the weighted average common shares outstanding plus the diluted share of
contingently issuable shares and potential shares from stock options.
The pro forma weighted average common shares presented as outstanding at
January 1, 1997, include the 2,700,000 shares of Common Stock being sold by the
Company in the Offering and the 510,476 shares of Common Stock issued in
consideration with respect to the acquisition of Racom, API, QMS, SMI,
Litigation Reprographics, Document Production and Consolidated Reprographics.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Pro forma basic shares outstanding..................... 14,333,387 12,432,250
========== ==========
Pro forma diluted shares outstanding................... 15,198,152 13,245,401
========== ==========
</TABLE>
F-8
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lason, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Lason, Inc. (the "Company") and subsidiaries. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lason, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, 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 16, 1998
F-9
<PAGE> 64
LASON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 79 $ 2,925 $ 1,822
Accounts receivable (net).................................. 24,546 43,815 55,110
Supplies................................................... 2,273 3,964 5,514
Prepaid expenses and other................................. 3,940 8,946 8,165
-------- -------- --------
Total current assets.................................. 30,838 59,650 70,611
Computer equipment and software............................ 2,735 5,489 5,660
Production and office equipment............................ 5,416 18,171 25,576
Leasehold improvements..................................... 1,010 2,460 2,548
Other...................................................... 644 902 1,567
-------- -------- --------
9,805 27,022 35,351
Less: Accumulated depreciation........................... (2,184) (4,447) (3,279)
-------- -------- --------
Net property and equipment............................... 7,621 22,575 32,072
Deferred income taxes...................................... 2,571 1,034 553
Goodwill (net of accumulated amortization of $1,482, $3,660
and $4,478 at December 31, 1996, December 31, 1997 and
March 31, 1998, respectively)............................ 35,911 89,895 131,072
Other intangibles (net of accumulated amortization of $274,
$573 and $658 at December 31, 1996, December 31, 1997 and
March 31, 1998, respectively)............................ 1,605 4,745 6,229
-------- -------- --------
TOTAL ASSETS..................................... $ 78,546 $177,899 $240,537
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses........................................... $ 4,199 $ 6,984 $ 8,832
Accounts payable........................................... 4,751 6,590 6,861
Notes payable.............................................. -- 6,462 244
Customer deposits.......................................... 3,706 2,810 3,920
Deferred income taxes...................................... 1,529 1,753 1,656
Other...................................................... -- 3,714 6,158
-------- -------- --------
Total current liabilities............................. 14,185 28,313 27,671
Revolving credit line borrowings........................... 4,101 13,550 68,300
Other liabilities.......................................... 2,194 3,431 8,283
-------- -------- --------
TOTAL LIABILITIES................................ 20,480 45,294 104,254
-------- -------- --------
Common stock with a put option............................. 1,060 1,060 1,060
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 20,000,000 shares authorized,
11,637,640, 8,610,246 and 12,031,224 shares issued and
outstanding.............................................. 86 115 116
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding.................. -- -- --
Additional paid-in capital................................. 51,912 117,352 117,563
Retained earnings.......................................... 5,008 14,078 17,544
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY............................ 57,006 131,545 135,223
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 78,546 $177,899 $240,537
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 65
LASON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net of postage of $20,672, $29,672,
and $42,444 for the year ended December 31,
1995, 1996, 1997, and the three months ended
March 31, 1997 and 1998, respectively....... $46,605 $69,937 $120,337 $26,236 $46,566
Cost of revenues.............................. 31,227 47,587 80,846 18,147 29,811
------- ------- -------- ------- -------
Gross profit................................ 15,378 22,350 39,491 8,089 16,755
Selling, general and administrative
expenses.................................... 9,406 12,699 21,364 4,349 9,778
Compensatory stock option expense............. 308 936 221 54 69
Amortization of intangibles................... 817 1,121 2,477 480 966
------- ------- -------- ------- -------
Income from operations...................... 4,847 7,594 15,429 3,206 5,942
Net interest expense.......................... 1,694 1,760 1,249 266 646
------- ------- -------- ------- -------
Income before income taxes.................. 3,153 5,834 14,180 2,940 5,296
Provision for income taxes.................... 1,139 2,103 5,110 1,047 1,830
------- ------- -------- ------- -------
Net income.................................. $ 2,014 $ 3,731 $ 9,070 $ 1,893 $ 3,466
======= ======= ======== ======= =======
Basic earnings per share...................... $ 0.35 $ 0.59 $ 0.93 $ 0.22 $ 0.30
======= ======= ======== ======= =======
Diluted earnings per share.................... $ 0.33 $ 0.55 $ 0.90 $ 0.21 $ 0.29
======= ======= ======== ======= =======
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 66
LASON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN LOANS TO RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
------ ------ ---------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances January 1, 1995.......... 5,692,040 $ 57 $ 8,135 $(1,300) $ -- $ 6,892
Net income........................ -- -- -- -- 2,014 2,014
Compensatory stock option
expense......................... -- -- 308 -- -- 308
Forgiveness of stockholder
loans........................... -- -- -- 44 (44) --
---------- ---- -------- ------- ------- --------
Balances at December 31, 1995..... 5,692,040 57 8,443 (1,256) 1,970 9,214
Net income........................ -- -- -- -- 3,731 3,731
Issuance of shares of common
stock........................... 3,450,000 35 52,979 -- -- 53,014
Redemption of shares of common
stock........................... (692,047) (7) (11,758) -- -- (11,765)
Issuance of shares of common stock
for acquisitions................ 136,465 1 1,260 -- -- 1,261
Employee stock options
exercised....................... 23,788 -- 52 -- -- 52
Increase in stockholder loans..... -- -- -- (65) -- (65)
Compensatory stock option
expense......................... -- -- 936 -- -- 936
Repayment of stockholder loans.... -- -- -- 628 -- 628
Forgiveness of stockholder
loans........................... -- -- -- 693 (693) --
---------- ---- -------- ------- ------- --------
Balances at December 31, 1996..... 8,610,246 86 51,912 -- 5,008 57,006
Net income........................ -- -- -- -- 9,070 9,070
Issuance of shares of common
stock........................... 2,457,620 25 58,044 -- -- 58,069
Compensatory stock option
expense......................... -- -- 221 -- -- 221
Issuance of shares of common stock
for acquisitions................ 251,559 2 6,046 -- -- 6,048
Employee stock options
exercised....................... 231,524 2 1,129 -- -- 1,131
---------- ---- -------- ------- ------- --------
Balances at December 31, 1997..... 11,550,949 115 117,352 -- 14,078 131,545
Net income........................ -- -- -- -- 3,466 3,466
Compensatory stock option
expense......................... -- -- 69 -- -- 69
Employee stock options
exercised....................... 33,225 -- 142 -- -- 142
Issuance of shares of common stock
for acquisitions................ 43,531 1 -- -- -- 1
---------- ---- -------- ------- ------- --------
Balances at March 31, 1998........ 11,627,705 $116 $117,563 $ -- $17,544 $135,223
========== ==== ======== ======= ======= ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 67
LASON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income....................................... $ 2,014 $ 3,731 $ 9,070 $ 1,893 $ 3,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 1,817 2,327 4,941 947 2,057
Compensatory stock option expense.............. 308 936 221 54 69
(Gain) loss on disposal of fixed assets........ 23 (20) (256) -- 384
Deferred income taxes.......................... 781 1,119 1,761 (318)
Changes in operating assets and liabilities net
of effects from acquisitions:
Accounts receivable............................ (2,695) (9,282) (7,120) 1,549 (2,149)
Supplies....................................... (384) (562) (1,119) 13 (284)
Prepaid expenses and other..................... (698) (3,019) (3,571) 1,882 (2,016)
Accounts payable............................... 397 (174) (1,073) (1,699) (1,996)
Customer deposits.............................. (31) 2,792 (896) (719) 145
Accrued expenses and other liabilities......... (277) 69 1,478 (523) 2,408
-------- --------- --------- -------- --------
Cash flows provided (used) by operating
activities..................................... 1,255 (2,083) 3,436 3,079 2,084
-------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of
cash acquired.................................. (1,430) (17,137) (57,274) (16,683) (47,610)
Additions to fixed assets and software
development costs.............................. (1,126) (4,611) (11,799) (2,253) (4,250)
Proceeds from sales of fixed assets.............. 713 54 820 122 --
-------- --------- --------- -------- --------
Net cash used in investing activities.......... (1,843) (21,694) (68,253) (18,814) (51,860)
-------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit........... 35,883 112,199 137,793 41,843 131,250
Repayments on revolving line of credit........... (34,607) (115,375) (128,344) (23,444) (76,500)
Net proceeds from issuance of shares of common
stock.......................................... -- 53,014 58,069 -- --
Proceeds from exercise of employee stock
options........................................ -- -- 145 46 141
Repayments of notes payable...................... -- -- -- -- (6,218)
Borrowings on acquisition facility............... -- 17,312 -- -- --
Repayments on acquisition credit facility........ -- (17,312) -- -- --
Principal payments on long-term debt............. (1,500) (13,500) -- -- --
Redemption of shares of common stock............. -- (11,765) -- -- --
Proceeds from settlement of shareholder loans.... -- 628 -- -- --
Principal payments on lease liabilities and other
debt........................................... -- (1,448) -- -- --
-------- --------- --------- -------- --------
Net cash provided (used) by financing
activities................................... (224) 23,753 67,663 18,445 48,673
-------- --------- --------- -------- --------
Net increase (decrease) in cash and
equivalents.................................... (812) (24) 2,846 (271) (1,103)
Cash and cash equivalents at beginning of
period......................................... 915 103 79 79 2,925
-------- --------- --------- -------- --------
Cash and cash equivalents at end of period....... $ 103 $ 79 $ 2,925 2,789 1,822
======== ========= ========= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest..................................... $ 1,329 $ 2,141 $ 1,139
Income taxes................................. 1,000 1,617 3,693
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 68
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CAPITALIZATION
Lason, Inc. (together with it's subsidiaries, the "Company"), a Delaware
corporation, was incorporated on January 5, 1995. The Company's initial equity
was comprised of $10 million of Class B common stock and approximately $1
million of Class A-1 common stock. The Company contributed the capital to Lason
Acquisition Corporation, a non-operating wholly-owned subsidiary. On January 17,
1995 the cash, in addition to $21 million of bank borrowings, was used to
acquire the assets and assume certain liabilities of Lason Systems, Inc.
("Predecessor") and provide working capital. Subsequent to the acquisition,
Lason Acquisition Corporation changed its name to Lason Systems, Inc. ("Lason")
and continued the business operations of the Predecessor. Prior to the
acquisition, three shareholders collectively acquired 93.8 percent of the Class
A-1 common stock which represented a 46.9 percent aggregate interest of all
outstanding classes of common stock in Lason at the time. The continuing
shareholders' residual interest in the Company was recorded at historical cost
resulting in an $8.6 million reduction in goodwill and stockholders' equity.
In the fourth quarter of 1996, the Company completed an initial public
offering ("IPO") of 3,450,000 shares of common stock, for net proceeds of
approximately $53.0 million, after deducting underwriting discounts and other
offering expenses. Approximately $41.2 million of the net proceeds was used to
repay outstanding debt under the Company's credit agreement and approximately
$11.8 million was used to redeem 692,047 shares of common stock held by the
Company's largest shareholder. In August 1997, the Company completed a secondary
offering of shares of common stock. See Note 5.
In connection with and immediately prior to the consummation of the IPO,
each share of Class A common stock was converted into one share of common stock,
each share of Class B common stock was converted into approximately 1.3 shares
of common stock, and the Company's Board of Directors approved a 2.5 for 1
common stock split. The Company's 1995 consolidated financial statements have
been restated for this recapitalization. The authorized capital stock of the
Company now consists of 20,000,000 shares of common stock, par value $0.01 per
share and 5,000,000 shares of preferred stock, par value $0.01 per share.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS 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, data base management,
and direct mailing, among others. The Company primarily serves customers in the
manufacturing, financial services, healthcare and professional services
industries.
Transactions with various divisions of one domestic automotive manufacturer
accounted for approximately 49 percent, 32 percent and 17 percent of the
Company's consolidated net revenues for the years ended December 31, 1995, 1996
and 1997, respectively. Receivables from that customer were approximately $7.2
million, and $2.6 million as of December 31, 1996 and 1997, respectively.
Transactions with various divisions of another domestic automotive manufacturer
totaled approximately 12 percent, 19 percent and 14 percent of the Company's
consolidated net revenues for the years ended December 31, 1995, 1996 and 1997,
respectively. In addition, the Company had receivables outstanding from this
second customer of approximately $3.8 million and $7.1 million as of December
31, 1996 and 1997, respectively.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the
F-14
<PAGE> 69
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
consolidated financial statements and the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates. Certain amounts in the prior year consolidated financial statements
have been reclassified to conform with the current year presentation.
REVENUE RECOGNITION
Revenues are recorded when the services are provided. Revenues are
presented in the consolidated statements of income net of postage because the
cost of such postage is passed through to the customer.
CASH EQUIVALENTS
The company classifies as cash and cash equivalents amounts on deposit with
banks and cash invested temporarily in various instruments with maturities of
three months or less at the time of purchase.
SUPPLIES
Supplies are valued at cost, which approximates market, with cost
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment, including significant improvements, are recorded at
cost. Expenditures for normal repairs and maintenance are charged to operations
as incurred. Adjustments of the asset and related accumulated depreciation
accounts are made for retirements of property and equipment with the resulting
gain or loss included in operations.
Assets placed in service prior to January 1, 1996, are depreciated using an
accelerated method over the estimated useful lives of the assets which range
from 5 to 7 years. Assets placed in service after December 31, 1995, are
depreciated using a straight-line method over the estimated lives of the related
assets which range from 5 to 15 years.
INTANGIBLE ASSETS
Goodwill is amortized using a straight-line method over 30 years.
Covenants-not-to-compete are amortized using a straight-line method over the
term of the agreement, generally 4 years. Deferred financing costs are amortized
using the interest method over the term of the associated credit agreement.
The Company capitalizes direct internal and external costs associated with
the development of technological systems, primarily computer software, to meet
the needs of its customers. Such costs, which are included in other intangible
assets, are amortized using a straight-line method over the lesser of five years
or the economic life of the related services. In addition, the Company
capitalizes certain direct internal and external costs associated with upgrading
and enhancing its information systems to support its national information
processing needs. Capitalization of such costs begins when the preliminary
planning stage for each project is completed and management has formally
authorized its funding, and ends when the project is substantially complete.
These costs are amortized using a straight-line method over five years. Research
and development costs and other computer software and hardware maintenance costs
are charged to expense as incurred.
Annually, the Company evaluates the carrying value of intangibles to
determine if there has been an impairment in value. The methodology used for
this evaluation includes a review of annual operating performance, along with a
review of anticipated results for future years. The Company determined that
there had been no impairment in the net carrying amount of intangibles as of
December 31, 1997.
F-15
<PAGE> 70
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosures about the fair
value of financial instruments whether or not such instruments are recognized in
the balance sheet. Due to the short-term nature of the Company's financial
instruments, other than debt, fair values are not materially different from
their carrying values. Based on the borrowing rates available to the Company,
the carrying value of debt approximated fair value as of December 31, 1996 and
1997.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share", was issued in March 1997 and is
effective for financial statements issued after December 15, 1997. This
Statement establishes standards for computing and presenting earnings per share
("EPS") and supersedes Accounting Principles Board Opinion No. 15 and its
related interpretations. The Statement replaces the presentation of primary EPS
with a presentation of basic EPS. Basic EPS excludes dilution, whereas diluted
EPS includes the potential dilution that could occur if securities or other
contracts to issue shares of common stock were to be exercised or converted into
shares of common stock. All prior period EPS amounts have been restated to
reflect the provisions of SFAS No. 128.
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. The 1995
and 1996 basic earnings per share amounts are based on the weighted average
number of common shares outstanding, retroactively adjusted for the effect of a
2.5 for 1 common stock split effective October 15, 1996 (see Note 1).
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic and diluted earnings per share calculations
for the years ended December 31, 1995, 1996 and 1997 (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- -----------------------
NET PER NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS........................ $2,014 5,692 $0.35 $3,731 6,361 $0.59 $9,070 9,704 $0.93
EFFECT OF DILUTIVE SECURITIES
Contingently issuable shares of
common stock................... -- -- -- -- -- -- -- 24 --
Potential shares of common stock
from stock options
outstanding.................... -- 500 -- -- 403 -- -- 307 --
------ ----- ----- ------ ----- ----- ------ ------ -----
DILUTED EPS...................... $2,014 6,192 $0.33 $3,731 6,764 $0.55 $9,070 10,035 $0.90
====== ===== ===== ====== ===== ===== ====== ====== =====
</TABLE>
The weighted average common shares and common share equivalents outstanding
used to compute the dilutive effect of common stock options outstanding was
computed using the treasury stock method prescribed by SFAS No. 128. EPS
calculations include, as outstanding to the date of redemption (October 15,
1996), 692,047 shares of common stock which would have been sold at the initial
offering price of $17.00 per share to fund the redemption of such common stock
owned by the former Class B shareholders.
F-16
<PAGE> 71
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. ACQUISITIONS
From June 1995 through December 31, 1997, the Company, through certain of
its subsidiaries, completed the acquisition of either substantially all of the
assets or a controlling stock ownership interest in a substantial number of
companies. Acquisitions completed in 1997 included the following:
In January 1997, Lason acquired all of the outstanding common stock of
Churchill Communications Corporation for $7.5 million in cash and 72,499 shares
of the Company's common stock valued at approximately $1.5 million.
In March 1997, Lason acquired all of the outstanding common stock of
Automated Enterprises, Inc. ("AEI") for $5.9 million in cash and 31,008 shares
of the Company's common stock valued at approximately $655,000. The stock
purchase agreement provides for an additional payment to the selling shareholder
if AEI's financial performance for the year ended December 31, 1997 and the year
ending December 31, 1998 exceed specified targets. Under terms of the agreement,
the selling shareholder can require the Company to accelerate the payment of
$1.6 million in full payment of the Company's additional payment obligation.
In July 1997, Lason acquired all of the outstanding common stock of Image
Conversion Systems, Inc. ("ICS") for approximately $18.9 million in cash and
47,441 shares of the Company's common stock valued at approximately $1.1
million. Of the total cash payment, approximately $10.5 million was used to
repay the outstanding debt of ICS and approximately $8.4 million was paid to the
selling shareholders.
The shares of common stock issued in connection with the acquisition of ICS
are (i) being held in escrow as collateral to indemnify the Company if
contingencies set forth in the purchase agreement occur within twelve months
from the date of the acquisition, and (ii) subject to forfeiture if ICS does not
achieve targeted operating income in 1997 and in 1998. Further, if the operating
income of ICS for such periods exceeds a targeted level, the purchase price may
be increased by up to approximately $3.0 million.
In November 1997, Lason acquired all of the common stock of Spectrum
Document Services, Inc. ("Spectrum") for $481,000 in cash, a $2.7 million
short-term promissory note due January 10, 1998 and a $300,000 promissory note,
due January 10, 1999. The payment of the $300,000 promissory note is contingent
on Spectrum generating a targeted operating cash flow for the twelve month
period ending October 31, 1998.
Also in November 1997, Lason acquired substantially all of the assets of
VIP Imaging Inc. ("VIP") for $14.5 million in cash and 147,260 shares of the
Company's common stock valued at approximately $4.0 million. With respect to the
cash portion of the purchase price, $250,000 is being held in escrow and will be
increased or decreased on a dollar-for-dollar basis to the extent net working
capital, as defined by the asset purchase agreement, as of the closing date
exceeds or falls below $4.756 million. With respect to the shares of common
stock issued in connection with the VIP acquisition, 36,815 of such shares are
being held in escrow as collateral to indemnify the Company if contingencies set
forth in the purchase agreement occur. In addition, the purchase price may be
increased up to $1.0 million if certain earnings and sales targets are met in
the first 13-month period and subsequent 12-month period following the closing
date of the acquisition.
Also during 1997 the Company, through certain of its subsidiaries, acquired
all of the common stock of Alpha Imaging, Inc.; Alpha Micro Graphics Supply,
Inc.; Premier Copy Group, Inc.; Corporate Copies, Inc.; American Micro-Image,
Inc.; Tri-City Micrographics, Inc.; Litigation Solutions, Inc.; and Data
Reduction Inc.; and substantially all of the assets of Florida Data Bank, Inc.
and Image Data Corporation, for an aggregate purchase price of approximately
$13.0 million consisting of $8.7 million in cash, $3.4 million of short-term
promissory notes due January 5, 1998 and 37,607 shares of the Company's common
stock valued at approximately $891,000.
All purchase price contingencies, if any, will be recorded as an adjustment
to the purchase price when the contingency is resolved.
F-17
<PAGE> 72
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Generally, shares of common stock issued or to be issued in connection with
the acquisitions, are subject to lock-up agreements ranging from twelve to
twenty-four months. The lock-up agreements restrict the owners' ability to sell
the shares of common stock.
Each of the acquisitions was accounted for as a purchase. The results of
operations for the year ended December 31, 1997 include the results of
operations for each of the acquired companies since the date of their respective
acquisition.
The aggregate purchase price for the acquisitions completed for the year
ended December 31, 1997, excluding liabilities assumed and including common
stock held in escrow, was approximately $71.0 million. The purchase price was
allocated to the assets acquired and liabilities assumed based on the related
fair values at the date of acquisition. The excess of the aggregate purchase
price over the fair values of assets acquired and liabilities assumed has been
allocated to goodwill and is being amortized on a straight-line method over 30
years.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired............................... $ 23,500
Goodwill.................................................... 54,329
Cash paid in consideration for companies acquired........... (55,891)
Stock issued in consideration for companies acquired........ (6,048)
Promissory notes issued in consideration for companies
acquired.................................................. (6,085)
--------
Liabilities assumed......................................... $ 9,805
========
</TABLE>
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed during 1997 had occurred at the beginning
of each year presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues............................................. $127,924 $159,374
Income before income taxes........................... 10,487 15,187
Net income........................................... 6,280 9,486
Basic earnings per share............................. $ 0.95 $ 0.96
Diluted earnings per share........................... 0.88 0.93
</TABLE>
4. LONG-TERM DEBT
Lason has a credit agreement with a bank group providing for revolving
credit loans up to $80 million. Borrowings will be used to finance additional
acquisitions of businesses, working capital, capital expenditures and for other
corporate purposes. Borrowings under the credit agreement are collateralized by
substantially all of Lason's assets. Lason is not required to make principal
payments prior to 2001, the term of the loan. Interest on amounts outstanding is
calculated based on interest rates determined at the time of borrowing.
Borrowings bear interest at rates ranging from LIBOR plus a maximum of 2.25% to
a base percentage rate plus a maximum of 1.25%, depending on the Company's
leverage ratio. The credit agreement contains covenants which, among other
things, place restrictions on the acquisition and disposal of assets, payment of
dividends and incurrence of liabilities and sets minimum requirements for free
cash flow and certain financial ratios. As of December 31, 1997, the loan
agreement prohibits Lason from advancing funds or paying dividends to the
Company. Borrowings outstanding under the credit agreement totaled $4.1 million
and $13.6 million as of December 31, 1996 and 1997, respectively.
F-18
<PAGE> 73
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
As of December 31, 1997, Lason was in violation of certain non-financial
covenants. In February 1998, Lason obtained waivers of such non-financial
covenant violations.
5. STOCKHOLDERS' EQUITY
In August 1997, the Company completed a secondary offering of 2,457,620
shares of common stock for net proceeds of approximately $58.0 million, after
deducting underwriting discounts and other offering expenses. The net proceeds
were used to repay debt outstanding under the Company's credit agreement and for
general corporate purposes.
In connection with the transaction described in Note 1, Lason loaned
certain shareholders, who were also shareholders in the Predecessor,
approximately $1.3 million in 1995 which was used to pay their tax liability
resulting from the sale of the assets of the Predecessor. In conjunction with
the completion of the IPO in 1996, 50 percent of the then outstanding amounts of
the shareholder loans were forgiven by the Company and charged to retained
earnings. At the same time, the remaining 50 percent of shareholder loans
outstanding were repaid to the Company, along with the related accrued interest
to the date of settlement.
As of December 31, 1997, 86,691 shares of Common Stock are reflected as
outstanding on the consolidated balance sheet and are held in escrow as
collateral to indemnify the Company if contingencies set forth in certain
acquisition purchase agreements occur.
6. INCOME TAXES
The Company and its qualifying subsidiaries file a consolidated Federal
income tax return. The Federal income tax provision is computed on the
consolidated taxable income of the Company and those subsidiaries.
The components of the consolidated income tax provision are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current provision
Federal.......................................... $ 358 $ 972 $3,011
State............................................ -- 12 338
------ ------ ------
Total current provision............................ $ 358 $ 984 $3,349
====== ====== ======
Deferred provision
Federal.......................................... $ 781 $1,092 $1,684
State............................................ -- 27 77
------ ------ ------
Total deferred provision........................... $ 781 $1,119 $1,761
====== ====== ======
Total income tax provision......................... $1,139 $2,103 $5,110
====== ====== ======
</TABLE>
F-19
<PAGE> 74
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred income taxes represent the net tax effects of temporary
differences between the carrying value amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax return
purposes. Significant components of the Company's deferred Federal income tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets related to:
Goodwill.................................................. $2,624 $2,317
Depreciation.............................................. 63 --
Compensatory stock option expense......................... 435 361
Allowance for doubtful accounts........................... 54 146
Covenant-not-to-compete amortization...................... 30 43
Other..................................................... -- 7
------ ------
Total deferred tax assets................................. $3,206 $2,874
====== ======
Deferred tax liabilities related to:
Prepaid expenses.......................................... $ 787 $1,059
Goodwill.................................................. 486 965
Supplies.................................................. 795 840
Depreciation.............................................. -- 418
Capitalized software development costs.................... 96 284
Other..................................................... -- 27
------ ------
Total deferred tax liabilities............................ $2,164 $3,593
====== ======
</TABLE>
The difference between the Company's statutory Federal income tax rate and
its effective Federal income tax rate of 36.1 percent, 35.6 percent and 35.7
percent for the years ended December 31, 1995, 1996 and 1997, respectively,
results primarily from travel and entertainment expenses and certain goodwill
amortization that is not deductible for Federal income tax purposes.
7. STOCK OPTION PLAN
SFAS No. 123 "Accounting for Stock Based Compensation" was issued in
October 1995 and was effective for fiscal years beginning after December 15,
1995. That standard requires significantly more disclosure regarding employee
stock options and encourages companies to recognize compensation expense for
stock-based awards based on the fair value of such awards on the date of grant.
Alternatively, companies may continue to account for such transactions under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees", provided that disclosures are made regarding the net income and
earnings per share impact as if the value recognition and measurement criteria
of SFAS No. 123 had been adopted. The Company has elected to continue to account
for employee stock options under APB No. 25.
The Company's 1995 stock option plan was adopted by the Board of Directors
and approved by the Company's shareholders in January 1995. A committee composed
of non-employee members of the Board of Directors determines which key employees
will participate in the Plan. Under the Plan, the Company may grant up to
1,000,000 shares of common stock.
For certain options granted during 1996 and 1995, the exercise price was
less than the fair value of the Company's stock on the date of grant and,
accordingly, compensation expense is recognized over the vesting period for such
difference. For certain other options granted in 1997 and 1996, the exercise
price equaled the market price on the date of grant and, therefore, no
compensation expense was recognized. Options generally
F-20
<PAGE> 75
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
vest over a period which ranges from 3 to 5 years from the date of grant and
each option's maximum term is generally 7 years from the grant date.
The provisions of certain stock option agreements provided for immediate
vesting of those options on the effective date of the IPO. Accordingly, the
Company recorded a non-cash expense of $653,000 during the fourth quarter of
1996 to recognize the compensation associated with the immediate vesting of
those stock options. Total compensation expense recorded for the years ended
December 31, 1995, 1996 and 1997 was approximately $308,000, $936,000 and
$221,000, respectively.
Had compensation expense for the Company's stock option plan been
determined based on the fair value at the grant dates for awards, consistent
with the provisions of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income
As reported......................................... $2,014 $3,731 $9,070
Pro forma........................................... 1,957 3,582 8,159
Basic earnings per share
As reported......................................... $ 0.35 $ 0.59 $ 0.93
Pro forma........................................... 0.32 0.56 0.84
Diluted earnings per share
As reported......................................... $ 0.33 $ 0.55 $ 0.90
Pro forma........................................... 0.32 0.53 0.81
</TABLE>
For purposes of computing the pro forma amounts above, the fair value of
each option granted was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1995, 1996
and 1997, respectively: dividend yield of 0.0 percent for all three years;
expected volatility of 74 percent for 1995 and 1996 and 59 percent for 1997;
risk free interest rates of 6.39 percent, 5.98 percent and 6.12 percent,
respectively; and expected lives of 2.43 years, 4.02 years and 4.17 years,
respectively.
A summary of the status of the Company's stock option plan is as follows
for each of the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- -------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... -- $ -- 419,326 $ 0.40 755,243 $ 5.33
Granted
Price = fair
value............ -- -- 210,500 16.75 167,996 23.66
Price < fair
value............ 419,326 0.40 166,250 2.40 -- --
Exercised............. -- -- (23,788) 0.40 (231,524) 0.66
Canceled.............. -- -- (17,045) 0.40 (28,397) 16.90
------- ------- --------
Outstanding at end of
year................ 419,326 $0.40 755,243 $ 5.33 663,318 $11.14
======= ======= ========
Options exercisable at
end of year......... 56,818 388,765 262,413
Weighted-average fair
value of options
granted during
year................ $2.51 $8.95 $12.00
</TABLE>
F-21
<PAGE> 76
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes information about stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE NUMBER
RANGES OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- --------------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 0.40 - $ 3.19 212,672 5.16 $ 0.40 187,172 $ 0.40
3.20 - 16.74 112,950 5.48 4.37 33,241 4.00
16.75 - 17.74 182,500 5.96 16.75 36,500 16.75
17.75 - 28.25 155,196 6.53 24.18 5,500 19.85
------- -------
663,318 5.75 $11.14 262,413 $ 3.54
======= ==== ====== ======= ======
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing plan and trust (the "Plan"). Each
employee who is 21 years of age or older who has worked for the Company for
twelve months and performed 1,000 hours of service or, has an adjusted service
date with the equivalent or greater term of service, is eligible to participate
in the Plan. Eligible participants may contribute not less than 2 percent and up
to 15 percent of their pretax compensation to the Plan. The Plan is contributory
and the Company, at its discretion, can match up to 33 percent of eligible
participant contributions not to exceed 9 percent of the participant's earnings.
The Company's match contribution for the years ended December 31, 1995, 1996,
and 1997 totaled approximately $172,000, $201,000, $337,000, respectively.
9. LEASE COMMITMENTS
The Company has various operating lease agreements related primarily to
equipment and buildings. As of December 31, 1997, future minimum rental payments
required under noncancelable operating leases with initial or remaining lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 6,418
1999........................................................ 4,914
2000........................................................ 3,681
2001........................................................ 2,283
2002........................................................ 1,141
-------
Total....................................................... $18,437
=======
</TABLE>
In addition, the Company has a number of equipment leases that are on a
month-to-month basis.
Total rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $5.2 million, $6.4 million and $9.2 million, respectively.
10. RELATED PARTY TRANSACTIONS
The Company purchases printing services from a company owned by the wife of
it's former president and a principal shareholder of the Company. For the years
ended December 31, 1995, 1996 and 1997 the Company paid approximately $981,000,
$1.4 million and $1.7 million, for such printing services. As of December 31,
1996 and 1997, $114,389 and $103,800 was due to that company, respectively, for
printing services, and is included in accounts payable in the consolidated
balance sheets. In December 1997, the Company sold certain assets to this
company and recognized a gain on the sale of approximately $183,000.
The Company leases property and a building from a general partnership in
which the Company's Chairman is the managing partner. Another principal
shareholder of the Company owns 33.33 percent of such
F-22
<PAGE> 77
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
partnership and is one of its partners. The Company paid $191,100, $191,100 and
$150,150 in rent to that partnership for the years ended December 31, 1995, 1996
and 1997, respectively.
The Company leases certain equipment from a company in which the Company's
Chairman is a 50 percent owner and its president. For the years ended December
31, 1995, 1996 and 1997 the Company paid $57,100, $184,390 and $116,500,
respectively, in rent for such operating leases.
The Company contracts temporary employment services from a company which is
owned by the wife of a senior member of management. The Company paid $2,905,
$735,670 and $797,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, for such services.
The Company believes that all the above transactions were on terms that
were reasonable and competitive. Additional transactions of the nature described
may take place in the ordinary course of business in the future.
11. COMMITMENTS AND CONTINGENCIES
Various claims have been made against the Company in the normal course of
business. Management believes that none of these legal proceedings will have a
material adverse effect on the Company's business, financial condition or
results of operations.
12. SUBSEQUENT EVENTS
During the first quarter of 1998, the Company, through certain of its
subsidiaries, acquired either substantially all of the assets or 100% of the
common stock of several companies for an aggregate purchase price, excluding
liabilities assumed, of approximately $54.7 million, consisting of $45.3 million
in cash, funded by bank borrowings, and 320,359 shares of the Company's common
stock valued at approximately $9.4 million.
F-23
<PAGE> 78
CONSOLIDATED REPROGRAPHICS
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1997
F-24
<PAGE> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Consolidated Reprographics:
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholders' equity, and of cash flows present fairly, in all
material respects, the financial position of Consolidated Reprographics at
August 31, 1997, and the results of its operations and its cash flows for the
period then ended, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Detroit, Michigan
July 17, 1998
F-25
<PAGE> 80
CONSOLIDATED REPROGRAPHICS
BALANCE SHEET
AS OF AUGUST 31, 1997 AND MAY 31, 1998
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
---------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 495,108 $ 862,768
Accounts receivable, net of allowance of $280,597 and
$360,220 as of August 31, 1997 and May 31, 1998,
respectively............................................ 3,413,426 4,554,151
Supplies, net of reserve of $34,448 and $143,038 as of
August 31, 1997 and May 31, 1998, respectively.......... 632,263 534,073
Prepaid expenses and other................................ 417,371 334,243
Deferred income tax assets................................ 197,410 254,473
----------- -----------
Total current assets.................................... 5,155,578 6,539,708
Related party note receivable, net of current portion....... 148,927 143,694
Property and equipment, at cost:
Reprographic equipment.................................... 6,193,577 8,102,247
Computer and office equipment............................. 1,731,902 1,821,447
Leasehold improvements.................................... 1,026,414 1,125,782
Automobiles............................................... 108,332 30,000
Construction in progress.................................. 399,833 38,706
----------- -----------
9,460,058 11,118,182
Less accumulated depreciation and amortization.......... 6,878,834 6,947,289
----------- -----------
2,581,224 4,170,893
----------- -----------
Other assets:
Goodwill, net of accumulated amortization of $156,019 and
$197,318 as of August 31, 1997 and May 31, 1998,
respectively............................................ 394,637 353,337
Deferred charges.......................................... 270,759 58,876
Deposits and other........................................ 52,272 50,798
Deferred income tax assets................................ 23,157 29,390
----------- -----------
740,825 492,401
----------- -----------
$ 8,626,554 $11,346,696
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,421,064 $ 1,821,308
Accrued liabilities:
Salaries, wages and accrued vacation.................... 411,844 374,426
Other accrued liabilities............................... 839,385 1,372,191
Current portion of long-term debt......................... 1,411,058 1,443,107
----------- -----------
Total current liabilities............................... 4,083,351 5,011,032
----------- -----------
Long-term debt, net of current portion...................... 4,094,415 4,333,665
Other liabilities........................................... 1,146,869 1,059,354
Commitments and contingencies............................... -- --
Shareholders' equity:
Capital stock:
Redeemable preferred stock, no par value: authorized,
issued and outstanding, 200 shares..................... 180 180
Common stock, no par value: authorized, 50,000 shares;
issued and outstanding, 1,025 shares................... 19,575 19,575
Retained earnings......................................... (717,836) 922,890
----------- -----------
Total shareholders' equity.............................. (698,081) 942,645
----------- -----------
$ 8,626,554 $11,346,696
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 81
CONSOLIDATED REPROGRAPHICS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997 AND
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1998
<TABLE>
<CAPTION>
MAY 31,
AUGUST 31, -------------------------
1997 1997 1998
---------- ---- ----
(UNAUDITED)
-----------
<S> <C> <C> <C>
Net sales............................................. $24,504,172 $17,953,666 $22,390,217
Cost of sales......................................... 17,382,245 12,724,423 15,241,757
----------- ----------- -----------
Gross profit..................................... 7,121,927 5,229,243 7,148,460
Operating expenses:
Marketing and selling............................... 1,970,087 1,413,282 1,698,899
General and administrative.......................... 1,750,912 1,447,231 1,803,392
Amortization expense................................ 407,066 305,299 245,299
----------- ----------- -----------
Total operating expense.......................... 4,128,065 3,165,812 3,747,590
----------- ----------- -----------
Income from operations........................... 2,993,862 2,063,431 3,400,870
----------- ----------- -----------
Other expense:
Interest expense.................................... 659,820 506,180 480,124
Other income and expense, net....................... 2,413 6,314 50,263
----------- ----------- -----------
662,233 512,494 530,387
----------- ----------- -----------
Income before provision for income taxes......... 2,331,629 1,550,937 2,870,483
Provision for income taxes............................ 1,050,036 728,577 1,229,757
----------- ----------- -----------
Net income....................................... $ 1,281,593 $ 822,360 $ 1,640,726
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 82
CONSOLIDATED REPROGRAPHICS
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1997 AND
FOR THE NINE MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK
---------------- ----------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1996.......... 200 $180 1,025 $19,575 $(1,999,429) $(1,979,674)
Net income.......................... 1,281,593 1,281,593
--- ---- ----- ------- ----------- -----------
Balance, August 31, 1997............ 200 180 1,025 19,575 (717,836) (698,081)
Net income (unaudited).............. 1,640,726 1,640,726
--- ---- ----- ------- ----------- -----------
Balance, May 31, 1998 (unaudited)... 200 $180 1,025 $19,575 $ 922,890 $ 942,645
=== ==== ===== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 83
CONSOLIDATED REPROGRAPHICS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1997 AND FOR THE NINE MONTHS ENDED MAY 31, 1997
AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31,
AUGUST 31, -------------------------
1997 1997 1998
---------- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 1,281,593 $ 822,360 $ 1,640,726
Depreciation and amortization....................... 1,489,165 934,850 1,334,356
Deferred income taxes............................... 26,938 33,238 (57,063)
Loss on disposal of assets.......................... 10,878 16,628 63,824
Changes in assets and liabilities
Increase in receivables.......................... (607,384) (722,740) (1,141,725)
(Increase) decrease in supplies.................. (172,082) (46,137) 98,190
(Increase) decrease in deposits and other
assets......................................... (77,540) (108,526) 337,785
Increase in accounts payable..................... 420,310 208,060 400,244
Increase in accrued liabilities.................. 39,774 239,209 407,873
----------- ----------- -----------
Net cash provided by operating activities........ 2,411,652 1,376,942 3,084,210
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment..................... 19,649 15,109 27,872
Purchase of machinery and equipment................. (1,183,011) (465,078) (2,943,219)
Purchase of leasehold improvements.................. (203,953) (198,510) (72,502)
----------- ----------- -----------
Net cash used in investing activities............ (1,367,315) (648,479) (2,987,849)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt........................ 629,047 591,725 1,602,394
Repayment of long-term debt......................... (1,627,218) (1,405,625) (1,331,095)
----------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... (998,171) (813,900) 271,299
----------- ----------- -----------
Net increase (decrease) in cash....................... 46,166 (85,437) 367,660
Cash, beginning of period............................. 448,942 448,942 495,108
----------- ----------- -----------
Cash, end of year..................................... $ 495,108 $ 363,505 $ 862,768
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................... $ 548,773
===========
Income taxes paid, net........................... $ 1,069,033
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 84
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. COMPANY OPERATIONS AND ORGANIZATION: Consolidated Reprographics (the
"Company") is a California corporation, incorporated on April 1, 1969. The
Company provides reprographic and related services in Southern California and
Nevada.
B. CONCENTRATION OF CREDIT RISK: The Company grants credit to its
customers, primarily architects, engineers, contractors and the technology
sector on terms consistent with industry standards. Over 90 percent of the
Company's sales come from the Southern California area.
The Company maintains its cash balances in one financial institution. The
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. At August 31, 1997 the Company's uninsured cash balances totaled
$335,935.
C. REVENUE RECOGNITION: Revenues are recorded when the services are
provided.
D. SUPPLIES: Inventory consists of materials, primarily paper, used in
production and is valued at cost, which approximates market, as determined by
the first-in, first-out method.
E. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed using the straight-line and double-declining balance
methods over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
---------
<S> <C>
Reprographic equipment...................................... 5 years
Computer equipment.......................................... 5 years
Leasehold improvements...................................... 7 years
Auto and truck.............................................. 5 years
</TABLE>
Total depreciation expense for the period ended August 31, 1997 was
$1,082,099. Adjustments of the asset and related accumulated depreciation
accounts are made for retirements of property and equipment with the resulting
gain.
F. INTANGIBLES: The Company amortizes goodwill on a straight line basis
over 10 years. The goodwill is reduced for the tax benefits of realized acquired
net operating loss carryforwards that were not recorded as a deferred tax asset
at the date of acquisition due to the uncertainty of realization. Additionally,
noncompete covenants are amortized on a straight line basis over 2 to 5 years.
Amortization expense for the period ended August 31, 1997 was $407,066.
G. INCOME TAXES: Deferred income tax assets and liabilities are computed
annually for differences between the financial reporting basis and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
H. USE OF ESTIMATES: 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
I. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows,
the Company considers all highly liquid investment instruments with an original
maturity of three months or less to be cash equivalents.
F-30
<PAGE> 85
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
J. FAIR VALUE OF FINANCIAL INSTRUMENTS: Due to the short-term nature of the
Company's financial instruments, other than debt, fair values do not materially
differ from their carrying values. Based on the borrowing rates available to the
Company, the carrying value of debt approximated fair value as of August 31,
1997.
K. IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews it property and
equipment, certain identifiable intangibles and goodwill for possible
impairment. As of August 31, 1997, no impairment reserve was deemed necessary.
2. EMPLOYEE BENEFIT PLAN
Effective March 3, 1997, the Company amended its profit sharing plan and
trust. The plan is now a 401(k) plan. The Company has discretionary matching
contribution equal to a uniform percentage of the amount of salary reduction
deferred. For the period ended August 31, 1997, the employer match portion was
$47,276. As of August 31, 1997, the entire amount of the company match remained
unpaid.
3. LONG-TERM DEBT
Notes and contracts comprising long-term debt are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1997
----------
<S> <C>
Line of credit, maximum $1,000,000, collateralized by all
company assets, principal due January 15, 1998, plus
interest payable monthly at the bank's reference rate plus
.75 percent (9.25 percent at August 31, 1997)............. $ 500,000
Contract payable, unsecured, quarterly principal payments of
$25,000, maturing December 31, 1998 (subordinated to line
of credit, secured note payable and note payable,
shareholder).............................................. 150,000
Note payable, collateralized by all company assets, payable
in equal monthly installments of $7,222, plus interest
payable at the bank's reference rate plus 1.25 percent
(9.75 percent at August 31, 1997)......................... 36,111
Note payable, unsecured, noninterest bearing, payable on
demand.................................................... 200,000
Note payable, unsecured, quarterly principal payments of
$10,000, plus interest payable quarterly at 10 percent,
maturing December 31, 1999 (subordinated to line of
credit, secured note payable and note payable,
shareholder).............................................. 100,000
Contract payable, unsecured, quarterly principal payments of
$16,667, maturing December 31, 1997 (subordinated to line
of credit, secured note payable and note payable,
shareholder).............................................. 33,333
Note payable, shareholder, collateralized by all company
assets, monthly principal payments of $55,269 (including
10 percent interest), maturing July 1, 2006 (subordinated
to line of credit and secured note payable)............... 3,880,420
Various capital leases, collateralized by equipment, payable
in monthly payments, including stated interest rates
ranging from 6.9 percent to 22.5 percent (the majority
have stated rates of 10.0 percent or less), with various
maturity dates through the year ended June 1, 2001........ 605,609
----------
5,505,473
Less current portion........................................ 1,411,058
----------
Long-term debt, net of current portion................. $4,094,415
==========
</TABLE>
F-31
<PAGE> 86
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Maturities of long-term debt (excluding capital leases, see Note 4) as of
August 31, 1997, are as follows:
<TABLE>
<S> <C>
Year ending August 31:
1998...................................................... $1,172,475
1999...................................................... 405,698
2000...................................................... 368,755
2001...................................................... 385,275
2002...................................................... 425,618
Thereafter................................................ 2,142,043
----------
Total.................................................. $4,899,864
==========
</TABLE>
As of August 31, 1997, the Company's line of credit requires the
maintenance of certain financial ratios. The covenants include a minimum current
ratio of not less than .95, total debt to tangible net worth of not greater than
2.1 and an earnings before interest, taxes, depreciation and amortization
("EBITDA") coverage ratio of not less than 1.75. The Company is in compliance
with the covenants as of August 31, 1997.
4. LEASES
The Company rents certain equipment under operating leases. Rent expense
for the period August 31, 1997 was $1,197,180.
The following schedule presents the Company's minimum future lease payments
as of August 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending August 31:
1998...................................................... $1,042,632 $238,582
1999...................................................... 751,544 200,336
2000...................................................... 495,328 166,691
2001...................................................... 403,927 --
2002...................................................... 320,880 --
Thereafter................................................ 460,605 --
---------- --------
Total.................................................. $3,474,916 $605,609
========== ========
</TABLE>
The following represents the cost and accumulated amortization of assets
under capital leases as of August 31, 1997:
<TABLE>
<S> <C>
Original cost of assets..................................... $1,185,993
Accumulated amortization.................................... (739,795)
----------
Net cost of assets under capitalized leases............... $ 446,198
==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company rents its headquarters facility from shareholders of the
Company. The rent expense on the facility was $124,397 for the period August 31,
1997.
During the fiscal year ended 1997, the Company held a note receivable from
two shareholders. The outstanding balance on the note was $154,711 on August 31,
1997. The Company received payments of $5,289 for the fiscal year ended 1997.
The note is due August 1, 2012. Principal payments are due monthly and bear
interest at 9 percent.
F-32
<PAGE> 87
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The Company is party to a consulting agreement and covenant-not-to-compete
with a shareholder, as detailed in Note 8.
6. INCOME TAXES
Income tax expense for the period ended August 31, 1997, consists of the
following:
<TABLE>
<S> <C>
Current income tax provision:
Federal................................................... $ 771,712
State..................................................... 251,386
----------
Total current income tax provision..................... 1,023,098
----------
Deferred tax provision:
Federal................................................... 40,368
State..................................................... (13,430)
Total deferred tax provision........................... 26,938
----------
Total income tax provision............................. $1,050,036
==========
</TABLE>
At August 31, 1997, the Company has approximately $130,609 of net operating
loss carryforwards available to reduce future taxable income which expire August
31, 2009. The tax benefit, if realized for tax return purposes, will be recorded
as an adjustment of goodwill.
Differences between the Company's statutory federal income tax rate and its
effective tax rate of 35 percent results primarily from travel and entertainment
and certain goodwill amortization not deductible for federal income taxes.
Deferred tax asset results primarily from vacation expense that cannot be
deducted for tax purposes in the current year, overhead costs capitalized in
accordance with tax laws, a bad debt reserve and discount reserve for book
purposes and the use of accelerated methods of depreciation for tax purposes.
<TABLE>
<CAPTION>
AUGUST 31,
1997
----------
<S> <C>
Deferred taxes:
Bad debt.................................................. $121,499
Net operating loss carryforward........................... 44,407
Depreciation.............................................. 14,951
Vacation.................................................. 34,383
Other..................................................... 5,327
--------
Net deferred tax asset............................ $220,567
========
</TABLE>
7. STOCK OPTIONS
Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" (SFAS No. 123) was issued in October 1995 and was effective
for fiscal years beginning after December 15, 1995. That standard requires
certain disclosures regarding stock based awards to employees and encourages
companies to recognize compensation expense based on the fair value of such
awards on the date of grant. Alternatively, companies may continue to account
for such transactions under Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB No. 25) The Company has elected
to continue to account for employee stock options under APB No. 25.
Stock options were granted to four employees and officers of the Company by
the majority shareholder. The exercise price equalled fair value at the date of
grant, therefore no compensation expense was recognized.
F-33
<PAGE> 88
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The options vest at the end of fifteen years. The stock option agreements
provide for accelerated vesting in the instance of an initial public offering of
the Company's stock or the sale of more the fifty percent of the Company's
stock.
Had compensation expense for the employee stock options been determined
based on the fair value at the grant dates of the awards consistent with the
provisions of SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AUGUST 31, 1997
------------------
<S> <C>
Net income
as reported............................................... $1,281,593
Pro forma................................................. 1,253,780
</TABLE>
For purposes of computing the pro forma amounts above, the fair value of
each option granted was estimated using a minimum value formula using the
following weighted average assumptions for grants in 1996 and 1997, dividend
yield 0.0 percent for both years, risk free interest rates of 6.87 percent and
6.49 percent, respectively. The weighted average remaining expected life is 10
years. A summary of the status of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------ ---------------
<S> <C> <C>
Outstanding at beginning of the year........................ 82 $9,756
Granted..................................................... 25 9,756
Exercised................................................... --
---
Outstanding at end of year.................................. 107
===
</TABLE>
8. STOCK REPURCHASE, MAJORITY SHAREHOLDER
On July 1, 1996, pursuant to a stock redemption agreement, the Company
purchased 2,392 shares from the majority shareholder and his spouse. An employee
of the Company also purchased 75 shares from the majority shareholder and his
spouse. The remaining shareholders executed and delivered guaranties and stock
pledge agreements to the sellers. The Company also authorized and issued 200
shares of preferred stock to the former majority shareholders in exchange for
their remaining 200 shares of common stock in accordance with the stock
redemption agreement.
The Company purchased the shares by executing and signing a secured note
payable in the amount of $4,182,265 (see Note 3) to the majority shareholder and
his spouse. Additionally, the Company provided for a cash down payment by
obtaining a line of credit in the amount of $1,000,000 (see Note 3).
In connection with the stock repurchase, the Company agreed to pay to the
former stockholder a total of $2,137,200 in equal monthly and bi-monthly
payments ending in July 2006. A portion of this consideration was allocated to a
non-compete agreement. The present value of this liability using an effective
interest rate of 9.0 % is $1,160,951 as of August 31, 1997 which is recorded in
other liabilities.
Pursuant to the stock redemption agreement, the Company amended its
Articles of Incorporation in July 1996 to reflect the authorization of 200
shares of preferred stock. Preferred shareholders shall not participate in
dividends and have no voting rights. Preferred stock can be converted to common
stock in the event of a public offering. Preferred stock is redeemable at the
earlier of either the sale of 50 percent or more of the Company to someone other
than a current shareholder or January 1, 2007. Upon liquidation, dissolution or
the winding-up of the Company, preferred shareholders will be paid before common
shareholders.
There were no stock repurchases for the year ended August 31, 1997.
F-34
<PAGE> 89
CONSOLIDATED REPROGRAPHICS
NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
9. STOCK REPURCHASE, MINORITY SHAREHOLDER
During the fiscal year ended August 31, 1996, the Company completed the
purchase of 267 common shares from a minority shareholder.
10. SUBSEQUENT EVENTS
Effective April 1, 1998, the Company amended its debt covenants to allow
them to purchase up to $3,550,000 of fixed assets a year.
On July 29, 1998, Lason, Inc. acquired all of the common stock of the
Company.
F-35
<PAGE> 90
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Investment in subsidiaries.................................. $56,573 $131,184
Deferred tax asset.......................................... 433 361
------- --------
Total assets........................................... $57,006 $131,545
======= ========
LIABILITIES
Total liabilities........................................... -- --
STOCKHOLDERS' EQUITY
Common stock................................................ $ 86 $ 115
Additional paid in capital.................................. 51,986 117,498
Retained earnings........................................... 4,934 13,932
------- --------
Total stockholders' equity............................. 57,006 131,545
------- --------
Total liabilities and stockholders' equity............. $57,006 $131,545
======= ========
</TABLE>
S-1
<PAGE> 91
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE..................................................... $ -- $ -- $ --
OPERATING EXPENSES
Compensatory stock option expense........................... 308 936 221
------ ------ ------
Operating loss.............................................. (308) (936) (221)
Equity in net income of subsidiaries........................ 2,217 4,339 9,219
------ ------ ------
Income before taxes......................................... 1,909 3,403 8,998
Income tax benefit.......................................... (105) (328) (72)
------ ------ ------
Net Income................................................ $2,014 $3,731 $9,070
====== ====== ======
</TABLE>
S-2
<PAGE> 92
SCHEDULE I
LASON, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES....................... $ -- $ -- $ --
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary.................................... (10,900) (41,236) (65,248)
-------- -------- --------
Net cash used in investing activities....................... (10,900) (41,236) (65,248)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares of common stock.......................... 10,900 53,001 65,248
Redemption of shares of common stock........................ -- (11,765) --
-------- -------- --------
Net cash provided by financing activities................... 10,900 41,236 65,248
-------- -------- --------
Change in cash.............................................. -- -- --
Cash at beginning of year................................... -- -- --
Cash at end of year......................................... $ -- $ -- $ --
======== ======== ========
</TABLE>
S-3
<PAGE> 93
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS, OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
The Company............................... 14
Use of Proceeds........................... 15
Price Range of Common Stock............... 15
Dividend Policy........................... 15
Capitalization............................ 16
Selected Consolidated Financial Data...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
Business.................................. 25
Management................................ 35
Certain Relationships and Related
Transactions............................ 42
Principal and Selling Stockholders........ 45
Description of Capital Stock.............. 47
Shares Eligible for Future Sale........... 49
Underwriting.............................. 51
Legal Matters............................. 52
Experts................................... 52
Available Information..................... 53
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
3,500,000 Shares
LASON LOGO
Common Stock
------------------------
PROSPECTUS
------------------------
PRUDENTIAL SECURITIES INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
WILLIAM BLAIR & COMPANY
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
August , 1998
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 94
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, none of which shall be
borne by the Selling Stockholders and all of which shall be paid solely by the
Company, of the issuance and distribution of the securities being registered
other than underwriting compensation. All amounts are estimates except the
Securities and Exchange Commission registration fee, the National Association of
Securities Dealers, Inc. fee and the Nasdaq National Market fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 61,447
National Association of Securities Dealers, Inc. fee........ 21,330
Nasdaq National Market fee.................................. *
Blue sky fees and expenses (including attorneys' fees and
expenses)................................................. *
Printing and engraving expenses............................. *
Transfer agent and registrar's fees and expenses............ *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Miscellaneous expenses...................................... *
--------
Total..................................................... $750,000**
========
</TABLE>
- -------------------------
* To be filed by amendment.
** Estimated.
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. Pursuant to
Section 145, the Company may purchase insurance on behalf of its present and
former directors and officers against any liability asserted against or incurred
by them in such capacity or arising out of their status as such, including
liabilities under the Securities Act.
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
II-1
<PAGE> 95
(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 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 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 2,718, 10,872, 3,433, 8,153, 5,433,
8,153, 18,530, 5,528 and 8,894 shares of 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., 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 $46,217,
$184,828, $92,361, $138,611, $92,361, $138,612, $315,018, $100,783, and
$151,210, respectively, in connection with the acquisition by the Company of
Information and Image Technology of America, Inc.
On July 17, 1996, the Company issued 31,176 of 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.
On January 31, 1997, the Company issued to Mark Roter 72,499 shares of
Common Stock in payment of a portion of the purchase price in stock equal to
$1,500,000 in connection with the acquisition by the Company of Churchill
Communications Corporation.
On February 5, 1997, the Company issued to the Arnold E. Good Living Trust,
Ronald C. Browder, Jr., the Marvin M. Good Living Trust and to Ronald C. Browder
Jr. and Jennifer M. Browder, 17, 10, 7,124 and 4,366 shares of Common Stock in
payment of a portion of the purchase price in stock equal to $350, $206,
II-2
<PAGE> 96
$146,754 and $89,940, respectively, in connection with the acquisition by the
Company of Alpha Imaging, Inc. and Alpha Micro Graphics Supply, Inc.
On March 27, 1997, the Company issued to the Jerry and Mary Owen Family
Limited Partnership, 31,008 shares of Common Stock in payment of a portion of
the purchase price in stock equal to $654,894 in connection with the acquisition
by the Company of Automated Enterprises, Inc.
On June 27, 1997, the Company issued to Louis J. Civale, Jr. and to John
Civale, 2,672 and 1,781 shares of Common Stock in payment of a portion of the
purchase price in stock equal to $63,059 and $42,032, respectively, in
connection with the acquisition of American Micro Image, Inc.
On July 29, 1997, the Company issued to John R. Messinger, Michael Riley,
Daniel Bailey, John E. Hendricks, Donald Ferling, Geoffrey Gitelson, Mario
Disantis, John Elder, Sheryl Hehn, Glen Dedering, Peter Goodrich and Thomas
Joyce, 21,272, 8,598, 8,598, 3,512, 1,037, 1,060, 1,060, 1,020, 563, 202, 124,
and 395 shares of Common Stock in payment of a portion of the purchase price of
stock equal to $521,169, $210,661, $210,661, $86,041, $25,406, $25,982, $25,982,
$24,970, $13,804, $4,958, $3,034 and $9,679, respectively, in connection with
the acquisition of Image Conversion Systems, Inc. ("ICS"). In May 1998, as
additional consideration for their shares, certain of the ICS shareholders
received an additional 14,954 shares of the Company's Common Stock valued at
$400,000 upon achievement of certain target levels of operations.
On October 15, 1997, the Company issued to Anthony Giammara 1,267 shares of
Common Stock in payment of a portion of the purchase price in stock equal to
$34,977 in connection with the acquisition of the assets of Image Data Co., Inc.
On November 25, 1997, the Company issued to The Valdez Family Trust and The
Lou Lee Family Trust 73,630 and 73,630 shares, respectively, of Common Stock in
payment of a portion of the purchase price in stock equal to $499,993 and
$499,993, respectively, in connection with the acquisition of the assets of VIP
Litho, Inc.
On December 10, 1997, the Company issued to Robert Dowling 13,634 shares of
Common Stock in payment of a portion of the purchase price in stock equal to
$391,978 in connection with the acquisition of Litigation Solutions, Inc.
On December 11, 1997, the Company issued to Florida Data Bank, Inc. 4,869
shares of Common Stock in payment of a portion of the purchase price in stock
equal to $139,984 in connection with the acquisition of the assets of Florida
Data Bank, Inc.
On or about January 5, 1998, the Company issued to Thomas N. Taube, Jr.
4,302 shares of Common Stock in payment of a portion of the purchase price in
stock equal to $119,945 in connection with the acquisition of T.N. Taube
Corporation.
On February 5, 1998, the Company issued to Bruce A. Duff 40,000 shares of
Common Stock in payment of a portion of the purchase price in stock equal to
$1,000,000 in connection with the acquisition by the Company of the remaining
35% of the outstanding shares of Delaware Legal Copy, Inc. ("Delaware Legal").
On May 29, 1998, the Company issued Mr. Duff, as additional consideration for
his shares of Delaware Legal, 2,497 shares of the Company's Common Stock, valued
at $66,670 upon achievement of certain target levels of operation.
On February 25, 1998, the Company issued to Aleck S. Kogan and Yana Kogan
8,833 shares of Common Stock in payment of a portion of the purchase price in
stock equal to $280,000 in connection with substantially all of the assets of
Professional Copy Service, a sole proprietorship.
On February 27, 1998, the Company issued to J.L. Blodgett Associates, Inc.
5,442 shares of Common Stock in payment of a portion of the purchase price in
stock equal to $159,995 in connection with the purchase of the assets of J.L.
Blodgett Associates, Inc.
On March 2, 1998, the Company issued to Robert J. Rathe, Jr., Stuart Rathe
and Brain Rathe 62,794, 62,794 and 62,794 shares, respectively, of Common Stock
in payment of a portion of the purchase price in
II-3
<PAGE> 97
stock equal to $1,733,312, $1,733,312 and $1,733,312, respectively, in
connection with the acquisition of Southern Microfilm Associates, Inc.
On March 5, 1998, the Company issued to Steven Fruchter, Philip Fruchter,
Laurence Braun and The Edward Andrews Group 38,057, 38,057, 38,057 and 3,531
shares, respectively, of Common Stock in payment of a portion of the purchase
price in stock equal to $1,212,496, $1,212,496, $1,212,496 and $112,498,
respectively, in connection with the purchase of the assets of API Systems, Inc.
On May 27, 1998, the Company issued to Craig Erlich 2,797 shares of Common
Stock in payment of a portion of the purchase price in stock equal to $110,980
in connection with the acquisition of Quality Mailing Service, Inc.
On June 3, 1998, the Company issued to SHC Distribution Corporation 17,431
shares of Common Stock in payment of a portion of the purchase price in stock
equal to $699,964 in connection with the acquisition of Strategy Manufacturing,
Inc.
On June 10, 1998, the Company issued to Robert Wurtzel and Sean Cummings
8,062 and 8,062 shares, respectively, of Common Stock in payment of a portion of
the purchase price in stock equal to $328,880 and $328,880, respectively, in
connection with the acquisition of Litigation Reprographics and Support
Services, Inc.
On June 15, 1998, the Company issued to Scott E. Shaeffer, D. Bobbitt Noel,
Jr., Daniel A. Hyde, Carrie Welsh, P. Ferguson McNeil, Kent W. Robinson and
Dixon Montague 10,863, 101, 201, 201, 201, 201 and 302 shares, respectively, of
Common Stock in payment of a portion of the purchase price in stock equal to
$470,694, $4,376, $8,709, $8,709, $8,709, $8,709 and $13,086, respectively, in
connection with the acquisition of Document Production Services, Inc.
On July 1, 1998, the Company issued to Albert H. Wiggins, Jr. 14,420 shares
of Common Stock in payment of a portion of the purchase price in stock equal to
$711,086 in connection with the acquisition of Input Service International, Inc.
On July 10, 1998, the Company issued to John E. and Michelle L. Krui and
Dale E. Bussa 3,036 and 337 shares, respectively, of Common Stock in payment of
a portion of the purchase price in stock equal to $161,933 and $17,975,
respectively, in connection with the acquisition of Microfilm Systems, Inc.
On July 13, 1998, the Company issued to Richard J. Boyle, Sr., Richard J.
Boyle, Jr., Thomas M. Boyle and George Yankopoulos 4,889, 1,252, 1,252 and 105
shares, respectively, of Common Stock in payment of a portion of the purchase
price in stock equal to $260,767, $66,779, $66,779 and $5,600, respectively, in
connection with the acquisition of Boyle Associates, Inc.
On July 29, 1998, the Company issued to Arthur G. Lundeen, Mark W. Sipes,
Richard C. French, James M. Chamberlain, Philip B. Siegel, Eric Hazell and
Charles Lauderdale 58,657, 17,142, 12,908, 11,979, 6,196, 2,581 and 2,581
shares, respectively, of Common Stock in payment of a portion of the purchase
price in stock equal to $3,219,539, $940,882, $708,488, $657,498, $340,083,
$141,665 and $141,665, respectively, in connection with the acquisition of
Consolidated Reprographics.
The issuance of securities described in the 24 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.(1)
2.2 Asset Purchase Agreement dated December 28, 1995 by and
among Lason Systems, Inc. and Mail-Away Corporation.(1)
</TABLE>
II-4
<PAGE> 98
<TABLE>
<C> <S>
2.3 Asset Purchase Agreement dated February 1, 1996 by and among
Lason Systems, Inc. and Diversified Support Services,
Inc.(1)
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).(1)
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).(1)
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).(1)
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).(1)
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).(1)
2.9 Agreement of Purchase and Sale of Stock with respect to the
acquisition of Image Conversion Systems, Inc. dated July 17,
1997.(6)
2.10 Asset Purchase Agreement with respect to the VIP
Acquisition.(9)
2.11 Stock Purchase Agreement with respect to the Racom
Acquisition.(10)
2.12 Asset Purchase Agreement with respect to the API
Acquisition.(11)
2.13 Agreement for the Purchase and Sale of Stock dated July 24,
1998 by and among Lason, Inc., Consolidated Reprographics
and the Shareholders, as defined therein.+
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.(1)
3.2 Form of Revised Amended and Restated By-Laws.(2)
4.1 Form of certificate representing Common Stock of the
Company.(1)
4.2 Second Amended and Restated Credit Agreement dated as of
June 29, 1998 among the Company, the Lenders named therein
(the "Lenders"), First Union National Bank, as Agent,
Comerica Bank and NBD Bank, as Co-Agents.+
4.3 Second Amended and Restated Pledge Agreement dated as of
June 29, 1998 by the Company in Favor of First Union
National Bank, as agent for the Lenders.+
4.4 Second Amended and Restated Pledge and Security Agreement
dated as of June 29, 1998 by certain subsidiaries of the
Company in favor of First Union National Bank.+
4.5 Second Amended and Restated Subsidiary Guaranty Agreement
dated June 29, 1998 by certain subsidiaries of the Company
in favor of the Lenders and First Union National Bank, as
agent.+
5.1 Form of Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and
Serlin, P.C. 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.(1)
10.2 Purchase Agreement dated January 17, 1995 by and between the
Company and GTCR Fund IV.(1)
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.(1)
10.4 Stockholders Agreement dated January 17, 1995 by and among
the Company and certain of its stockholders.(1)
10.5 Registration Agreement dated January 17, 1995 by and among
the Company and the 1995 Stockholders.(1)
10.6 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the J. Yanover Trust, the R. Yanover
Trust and Mr. Yanover.(1)
10.7 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the Nesbitt Trust and Mr. Nesbitt.(1)
10.8 Employment Agreement between Lason Systems, Inc. and Gary
Monroe.(1)
10.9 Offer of employment dated April 30, 1996 from Lason Systems,
Inc. to Mr. Rauwerdink.(1)
10.10 Offer of employment dated June 12, 1996 from Lason Systems,
Inc. to Mr. Jablonski.(1)
10.11 1995 Stock Option Plan of the Company.(1)
</TABLE>
II-5
<PAGE> 99
<TABLE>
<C> <S>
10.12 Employee Stock Option Agreements dated January 17, 1995 by and among the Company and each of Donald L.
Elland, Richard C. Kowalski, Gregory C. 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.(1)
10.13 Employee Stock Option Agreement dated December 21, 1995 by and between the Company and Mr. Monroe.(1)
10.14 Stock Option Agreement dated August 7, 1995 by and between the Company and Mr. Gleklen.(1)
10.15 Employee Stock Option Agreement by and between the Company and Mr. Rauwerdink.(1)
10.16 Employee Stock Option Agreement by and between the Company and Mr. Jablonski.(1)
10.17 1996 Lason Management Bonus Plan.(1)
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.19 Amendments to Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.20 Lease Agreement dated as of September 3, 1985 by and between Lason Systems, Inc. and Mart Associates as
amended.(1)
10.21 Lease Agreement dated August 3, 1995 by and between Lason Systems, Inc. and Kensington Center, Inc.(1)
10.22 Lease Agreement by and between Lason Systems, Inc. and The Prudential Insurance Company of America.(1)
10.23 First Amendment to Lease dated as of July 26, 1996, by and between Kensington Center, Inc. and Lason
Systems, Inc.(1)
10.24 Form of Recapitalization Agreement among the Company and certain of its stockholders, including Plan of
Recapitalization.(1)
10.25 Form of Termination Agreement between Lason Systems, Inc. and each of the Borrowers.(1)
10.26 Form of Redemption Agreement between the Company and Golder Thoma, Cressey, Rauner Fund IV, L.P.(1)
10.27 Amendment to Employee Stock Option Agreement by and between the Company and Mr. Gleklen.(1)
10.28 Agreement of Purchase and Sale of Stock with respect to Churchill Acquisition.(3)
10.29 Employee Stock Option Agreement by and between the Company and Mr. Rauwerdink dated December 17, 1996.(4)
10.30 Employee Stock Option Agreement by and between the Company and Mr. Jablonski dated December 17, 1996.(4)
10.31 Employee Stock Option Agreement by and between the Company and Mr. Monroe dated December 17, 1996.(5)
10.32 Employee Stock Option Agreement by and between the Company and Mr. Ghadar dated January 15, 1997.(5)
10.33 Amendment to Stock Option Agreement between the Company and William J. Rauwerdink dated October 7,
1997.(8)
10.34 Amendment to Stock Option Agreement between the Company and Brian E. Jablonski dated October 7, 1997.(8)
10.35 Employment Agreement between Image Conversion Systems and John R. Messinger dated July 29, 1997.(12)
10.36 Stock Option Agreement between Lason, Inc. and John R. Messinger dated July 29, 1997.(12)
10.37 Stock Option Agreement between Lason, Inc. and Cary W. Newman dated December 14, 1995.(12)
10.38 Stock Option Agreement between Lason, Inc. and Cary W. Newman dated December 17, 1996.(12)
10.39 Form of Secured Promissory Note dated June 5, 1998 issued by each of Messrs. Monroe, Rauwerdink,
Messinger, Newman and Jablonski in favor of the Company.+
10.40 Form of Pledge and Security Agreement dated June 5, 1998 between the Company and each of Messrs. Monroe,
Rauwerdink, Messinger, Newman and Jablonski for the Secured Promissory Notes described in Exhibit 10.39.+
10.41 Letter Agreement between Gary L. Monroe and the Company dated July 29, 1998 amending and extending
Employment Agreement.
21.0 Subsidiaries of the Company.(13)
</TABLE>
II-6
<PAGE> 100
<TABLE>
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP +
23.2 Consent of PricewaterhouseCoopers LLP +
23.3 Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin,
P.C. (included in opinion filed as Exhibit 5.1)+
24.1 Powers of Attorney (included on signature page included in
Part II).+
</TABLE>
- -------------------------
+ filed herewith
* To be filed by amendment.
(1) Incorporated herein by reference to registrant's Form S-1 filed on October
7, 1996, Commission File No. 333-09799.
(2) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1997, Commission File No. 0-21407.
(3) Incorporated herein by reference to registrant's Form 8-K filed on February
18, 1997, Commission File No. 0-21407.
(4) Incorporated herein by reference to registrant's Form S-8 filed on December
23, 1996, Commission File No. 333-18551.
(5) Incorporated herein by reference to registrant's Form 10-K filed on
March 31, 1997, Commission File No. 0-21407.
(6) Incorporated herein by reference to registrant's Form 8-K filed on
August 4, 1997, Commission File No. 0-21407.
(7) Incorporated herein by reference to registrant's Form S-1 filed on August
15, 1997.
(8) Incorporated herein by reference to registrant's Form 10-Q filed on
November 15, 1997, Commission File No. 0-21407.
(9) Incorporated herein by reference to registrant's Form 8-K filed on December
10, 1997, Commission File No. 0-21407.
(10) Incorporated herein by reference to registrant's Form 8-K filed on March
17, 1998, Commission File No. 0-21407.
(11) Incorporated herein by reference to registrant's Form 8-K filed on March
20, 1998, Commission File No. 0-21407.
(12) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1998, Commission File No. 0-21407.
(13) Incorporated herein by reference to registrant's Form 10-K filed on March
31, 1998.
(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.
II-7
<PAGE> 101
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-8
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Troy, State of Michigan
on July 29, 1998.
LASON, INC.
By: /s/ WILLIAM J. RAUWERDINK
------------------------------------
WILLIAM J. RAUWERDINK
Executive Vice President, Chief
Financial Officer, Treasurer &
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Monroe and William J. Rauwerdink, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Lason, Inc.), to sign and file any and all amendments (including post-effective
amendments) to this Registration Statement, or any registration statement
relating to this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed on July 29, 1998,
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ GARY L. MONROE Chairman of the Board, President Chief Executive
- ------------------------------------------ Officer (Principal Executive Officer) and Director
Gary L. Monroe
/s/ WILLIAM J. RAUWERDINK Executive Vice President, Chief Financial Officer,
- ------------------------------------------ Treasurer and Secretary (Principal Financial and
William J. Rauwerdink Accounting Officer)
/s/ FARIBORZ GHADAR Director
- ------------------------------------------
Fariborz Ghadar
/s/ DONALD M. GLEKLEN Director
- ------------------------------------------
Donald M. Gleklen
/s/ ALLEN J. NESBITT Director
- ------------------------------------------
Allen J. Nesbitt
/s/ JOSEPH P. NOLAN Director
- ------------------------------------------
Joseph P. Nolan
/s/ BRUCE V. RAUNER Director
- ------------------------------------------
Bruce V. Rauner
/s/ ROBERT A. YANOVER Director
- ------------------------------------------
Robert A. Yanover
</TABLE>
II-9
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<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.(1)
2.2 Asset Purchase Agreement dated December 28, 1995 by and
among Lason Systems, Inc. and Mail-Away Corporation.(1)
2.3 Asset Purchase Agreement dated February 1, 1996 by and among
Lason Systems, Inc. and Diversified Support Services,
Inc.(1)
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).(1)
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).(1)
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).(1)
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).(1)
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).(1)
2.9 Agreement of Purchase and Sale of Stock with respect to the
acquisition of Image Conversion Systems, Inc. dated July 17,
1997.(6)
2.10 Asset Purchase Agreement with respect to the VIP
Acquisition.(9)
2.11 Stock Purchase Agreement with respect to the Racom
Acquisition.(10)
2.12 Asset Purchase Agreement with respect to the API
Acquisition.(11)
2.13 Agreement for the Purchase and Sale of Stock dated July 24,
1998 by and among Lason, Inc., Consolidated Reprographics
and the Shareholders, as defined therein.+
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.(1)
3.2 Form of Revised Amended and Restated By-Laws.(2)
4.1 Form of certificate representing Common Stock of the
Company.(1)
4.2 Second Amended and Restated Credit Agreement dated as of
June 29, 1998 among the Company, the Lenders named therein
(the "Lenders"), First Union National Bank, as Agent,
Comerica Bank and NBD Bank, as Co-Agents.+
4.3 Second Amended and Restated Pledge Agreement dated as of
June 29, 1998 by the Company in Favor of First Union
National Bank, as agent for the Lenders.+
4.4 Second Amended and Restated Pledge and Security Agreement
dated as of June 29, 1998 by certain subsidiaries of the
Company in favor of First Union National Bank.+
4.5 Second Amended and Restated Subsidiary Guaranty Agreement
dated June 29, 1998 by certain subsidiaries of the Company
in favor of the Lenders and First Union National Bank, as
agent.+
5.1 Form of Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and
Serlin, P.C. 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.(1)
10.2 Purchase Agreement dated January 17, 1995 by and between the
Company and GTCR Fund IV.(1)
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.(1)
10.4 Stockholders Agreement dated January 17, 1995 by and among
the Company and certain of its stockholders.(1)
10.5 Registration Agreement dated January 17, 1995 by and among
the Company and the 1995 Stockholders.(1)
</TABLE>
<PAGE> 104
<TABLE>
<C> <S>
10.6 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the J. Yanover Trust, the R. Yanover
Trust and Mr. Yanover.(1)
10.7 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the Nesbitt Trust and Mr. Nesbitt.(1)
10.8 Employment Agreement between Lason Systems, Inc. and Gary
Monroe.(1)
10.9 Offer of employment dated April 30, 1996 from Lason Systems,
Inc. to Mr. Rauwerdink.(1)
10.10 Offer of employment dated June 12, 1996 from Lason Systems,
Inc. to Mr. Jablonski.(1)
10.11 1995 Stock Option Plan of the Company.(1)
10.12 Employee Stock Option Agreements dated January 17, 1995 by
and among the Company and each of Donald L. Elland, Richard
C. Kowalski, Gregory C. 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.(1)
10.13 Employee Stock Option Agreement dated December 21, 1995 by
and between the Company and Mr. Monroe.(1)
10.14 Stock Option Agreement dated August 7, 1995 by and between
the Company and Mr. Gleklen.(1)
10.15 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink.(1)
10.16 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski.(1)
10.17 1996 Lason Management Bonus Plan.(1)
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.19 Amendments to Lason Systems, Inc. 401(k) Profit Sharing Plan
& Trust.(1)
10.20 Lease Agreement dated as of September 3, 1985 by and between
Lason Systems, Inc. and Mart Associates as amended.(1)
10.21 Lease Agreement dated August 3, 1995 by and between Lason
Systems, Inc. and Kensington Center, Inc.(1)
10.22 Lease Agreement by and between Lason Systems, Inc. and The
Prudential Insurance Company of America.(1)
10.23 First Amendment to Lease dated as of July 26, 1996, by and
between Kensington Center, Inc. and Lason Systems, Inc.(1)
10.24 Form of Recapitalization Agreement among the Company and
certain of its stockholders, including Plan of
Recapitalization.(1)
10.25 Form of Termination Agreement between Lason Systems, Inc.
and each of the Borrowers.(1)
10.26 Form of Redemption Agreement between the Company and Golder
Thoma, Cressey, Rauner Fund IV, L.P.(1)
10.27 Amendment to Employee Stock Option Agreement by and between
the Company and Mr. Gleklen.(1)
10.28 Agreement of Purchase and Sale of Stock with respect to
Churchill Acquisition.(3)
10.29 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink dated December 17, 1996.(4)
10.30 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski dated December 17, 1996.(4)
10.31 Employee Stock Option Agreement by and between the Company
and Mr. Monroe dated December 17, 1996.(5)
10.32 Employee Stock Option Agreement by and between the Company
and Mr. Ghadar dated January 15, 1997.(5)
10.33 Amendment to Stock Option Agreement between the Company and
William J. Rauwerdink dated October 7, 1997.(8)
10.34 Amendment to Stock Option Agreement between the Company and
Brian E. Jablonski dated October 7, 1997.(8)
10.35 Employment Agreement between Image Conversion Systems and
John R. Messinger dated July 29, 1997.(12)
10.36 Stock Option Agreement between Lason, Inc. and John R.
Messinger dated July 29, 1997.(12)
10.37 Stock Option Agreement between Lason, Inc. and Cary W.
Newman dated December 14, 1995.(12)
10.38 Stock Option Agreement between Lason, Inc. and Cary W.
Newman dated December 17, 1996.(12)
</TABLE>
<PAGE> 105
<TABLE>
<C> <S>
10.39 Form of Secured Promissory Note dated June 5, 1998 issued by each of Messrs. Monroe, Rauwerdink,
Messinger, Newman and Jablonski in favor of the Company.+
10.40 Form of Pledge and Security Agreement dated June 5, 1998 between the Company and each of Messrs. Monroe,
Rauwerdink, Messinger, Newman and Jablonski for the Secured Promissory Notes described in Exhibit 10.39.+
10.41 Letter Agreement between Gary L. Monroe and the Company dated July 29, 1998 amending and extending
Employment Agreement.
21.0 Subsidiaries of the Company(13)
23.1 Consent of PricewaterhouseCoopers LLP +
23.2 Consent of PricewaterhouseCoopers LLP +
23.3 Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C. (included in opinion filed as Exhibit 5.1)+
24.1 Powers of Attorney (included on signature page included in Part II).+
</TABLE>
- -------------------------
+ filed herewith
* To be filed by amendment.
(1) Incorporated herein by reference to registrant's Form S-1 filed on October
7, 1996, Commission File No. 333-09799.
(2) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1997, Commission File No. 0-21407.
(3) Incorporated herein by reference to registrant's Form 8-K filed on February
18, 1997, Commission File No. 0-21407.
(4) Incorporated herein by reference to registrant's Form S-8 filed on December
23, 1996, Commission File No. 333-18551.
(5) Incorporated herein by reference to registrant's Form 10-K filed on
March 31, 1997, Commission File No. 0-21407.
(6) Incorporated herein by reference to registrant's Form 8-K filed on
August 4, 1997, Commission File No. 0-21407.
(7) Incorporated herein by reference to registrant's Form S-1 filed on August
15, 1997.
(8) Incorporated herein by reference to registrant's Form 10-Q filed on
November 15, 1997, Commission File No. 0-21407.
(9) Incorporated herein by reference to registrant's Form 8-K filed on December
10, 1997, Commission File No. 0-21407.
(10) Incorporated herein by reference to registrant's Form 8-K filed on March
17, 1998, Commission File No. 0-21407.
(11) Incorporated herein by reference to registrant's Form 8-K filed on March
20, 1998, Commission File No. 0-21407.
(12) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1998, Commission File No. 0-21407.
(13) Incorporated herein by reference to registrant's Form 10-K filed on March
31, 1998.
<PAGE> 1
EXHIBIT 2.13
AGREEMENT FOR THE PURCHASE AND SALE OF STOCK
THIS AGREEMENT is made and entered into on the 24th day of
JULY 1998, by and among LASON, INC., a Delaware corporation, the address of
which is 1305 Stephenson Highway, Troy, Michigan 48083 ("BUYER"), ARTHUR G.
LUNDEEN, whose address is 52 Segada, Rancho Santa Margarita, CA 92688
("LUNDEEN"), JAMES M. CHAMBERLAIN, individually and as Trustee of the
Chamberlain Family Trust U/D/T dated March 6, 1997 and Arlene M. Chamberlain,
individually and as Trustee of the Chamberlain Family Trust U/D/T dated March 6,
1997, whose address is 161 South Bayberry Court, Anaheim, CA 92807
(collectively, "CHAMBERLAIN"), MARK W. SIPES, whose address is 2954 Oakbrook
Drive, Riverside, CA 92503 ("SIPES"), RICHARD C. FRENCH, whose address is 21421
Birdhollow Drive, Trabuco Canyon, CA 92679 ("FRENCH"), PHILLIP B. SIEGEL,
individually and as Co-Trustee of the Phillip B. Siegel Family Trust established
November 22, 1982, whose address is 30932 Via Mirador, San Juan Capistrano, CA
92675 and DIANE R. SIEGEL, individually and as Co-Trustee of the Phillip B.
Siegel Family Trust established November 22, 1982, whose address is 30932 Via
Mirador, San Juan Capistrano, CA 92675 (collectively "SIEGEL"), ERIC HAZELL,
whose address is 27031 Pueblo Nuevo, Mission Viejo, CA 92691 ("HAZELL"), and
CHARLES K. LAUDERDALE, whose address is 25642 Elm Bank, Laguna Hills, CA 92653
("LAUDERDALE"), and CONSOLIDATED REPROGRAPHICS, a California corporation, the
address of which is 31 Musick Avenue, Irvine, California, 92618-1638
("CORPORATION"). For the purposes hereof, Lundeen, Chamberlain, Sipes, French,
Siegel, Hazell and Lauderdale are sometimes hereinafter collectively referred to
as "SHAREHOLDERS."
R E C I T A L S:
Corporation is in the business of providing industrial
photography, blueprint copy services (including hard copy and CAD/CAM copying),
document copying services (black and white analog and digital duplication, color
duplication and plotting), print on demand, facilities management services,
mounting/laminating services, microfilm and microfiche services, offset
printing, equipment supply and service, together with such services and
technologies arising out of, generated by or from, or developed as a result of,
or used in connection with or resulting from all or any of the foregoing
(collectively, the "BUSINESS").
Shareholders have represented that they own all of the issued
and outstanding common stock of Corporation as of the date of this Agreement
(the "SHARES") with the understanding that: (I) as of the date of this
Agreement, Siegel owns preferred stock in Corporation which they will convert to
common stock prior to the Closing Date (as defined below in Section 8.1) and
(ii) Hazell, Lauderdale, Chamberlain and Sipes hold options to purchase some of
the Shares held by Lundeen on the date hereof which they will exercise prior to
the Closing Date.
Buyer desires to purchase all of the Shares currently owned by
Shareholders, as well as the Shares which are to be owned by Siegel, Hazell,
Lauderdale, Chamberlain and Sipes on the Closing Date (as defined below in
Section 8.1) so that the Shares to be purchased by Buyer will give Buyer 100%
ownership interest in Corporation.
Buyer desires to purchase 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:
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1
PURCHASE AND SALE OF SHARES...................................... 2
SECTION 1.1 SALE AND TRANSFER OF SHARES.................... 2
SECTION 1.2 PURCHASE PRICE................................. 2
SECTION 1.3 ESCROW; POSSIBLE POST-CLOSING ADJUSTMENTS
TO PURCHASE PRICE ............................. 3
SECTION 1.4 EARNOUT PAYMENTS............................... 7
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
AND CORPORATION.................................................. 10
SECTION 2.1 ORGANIZATION, STANDING AND POWER............... 10
SECTION 2.2 CAPITALIZATION................................. 10
SECTION 2.3 TITLE TO SHARES................................ 11
SECTION 2.4 SUBSIDIARIES................................... 11
SECTION 2.5 AUTHORITIES AND CONSENTS....................... 11
SECTION 2.6 NO BREACH OR VIOLATION......................... 11
SECTION 2.7 FINANCIAL STATEMENTS........................... 11
SECTION 2.8 BOOKS AND RECORDS.............................. 12
SECTION 2.9 UNDISCLOSED LIABILITIES........................ 12
SECTION 2.10 ABSENCE OF CERTAIN CHANGES..................... 12
SECTION 2.11 TAXES.......................................... 14
SECTION 2.12 RECEIVABLES.................................... 14
SECTION 2.13 INVESTMENTS AND INVESTMENT SECURITIES.......... 14
SECTION 2.14 REAL PROPERTY.................................. 14
SECTION 2.15 LEASES......................................... 15
SECTION 2.16 ENVIRONMENTAL MATTERS.......................... 15
SECTION 2.17 PROPRIETARY RIGHTS............................. 16
SECTION 2.18 NON-INFRINGEMENT; AGREEMENTS................... 16
SECTION 2.19 INSURANCE...................................... 16
SECTION 2.20 INTERESTED TRANSACTIONS........................ 16
SECTION 2.21 CUSTOMERS AND SALES............................ 16
SECTION 2.22 EXISTING EMPLOYMENT CONTRACTS AND/OR
REMUNERATION AGREEMENTS........................ 16
SECTION 2.23 EMPLOYEE BENEFIT PLANS......................... 17
SECTION 2.24 WORKERS COMPENSATION; EMPLOYMENT
DISCRIMINATION; LABOR RELATIONS................ 17
SECTION 2.25 OTHER CONTRACTS................................ 18
SECTION 2.26 OFFICERS AND DIRECTORS, ETC.................... 18
SECTION 2.27 LITIGATION AND CLAIMS.......................... 18
SECTION 2.28 GENERAL LIABILITY.............................. 19
SECTION 2.29 OTHER TANGIBLE PERSONAL PROPERTY............... 19
SECTION 2.30 TITLE TO ASSETS................................ 19
SECTION 2.31 NAMES.......................................... 19
SECTION 2.32 SOFTWARE....................................... 19
SECTION 2.33 YEAR 2000 COMPLIANCE........................... 20
SECTION 2.34 BEST KNOWLEDGE................................. 20
SECTION 2.35 ACCURACY AND COMPLETENESS OF REPRESENTATIONS
AND WARRANTIES................................. 20
i
<PAGE> 3
SECTION 2.36 INVESTMENT REPRESENTATIONS..................... 20
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 21
SECTION 3.1 ORGANIZATION................................... 21
SECTION 3.2 AUTHORIZATION.................................. 21
SECTION 3.3 NO BREACH...................................... 21
SECTION 3.4 VALIDLY ISSUED................................. 21
SECTION 3.5 TRADING ON THE NASDAQ NATIONAL MARKET.......... 21
SECTION 3.6 BUYER'S SECURITIES FILINGS..................... 22
ARTICLE 4
FURTHER AGREEMENTS OF THE PARTIES................................ 22
SECTION 4.1 ACCESS TO INFORMATION.......................... 22
SECTION 4.2 CONDUCT OF BUSINESS BY CORPORATION............. 22
SECTION 4.3 EXCLUSIVITY.................................... 24
SECTION 4.4 CONSENTS....................................... 24
SECTION 4.5 COMMUNICATIONS................................. 24
SECTION 4.6 UPDATING OF SCHEDULES AND EXHIBITS............. 24
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF
SHAREHOLDERS AND CORPORATION..................................... 24
SECTION 5.1 PERFORMANCE.................................... 24
SECTION 5.2 REPRESENTATIONS AND WARRANTIES................. 24
SECTION 5.3 CERTIFICATE OF OFFICER......................... 24
SECTION 5.4 LEGAL OPINION.................................. 24
SECTION 5.5 EMPLOYMENT AGREEMENTS.......................... 24
SECTION 5.6 ESCROW AGREEMENT............................... 24
SECTION 5.7 HSR ACT........................................ 25
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER..................... 25
SECTION 6.1 AUTHORIZATION OF TRANSACTION................... 25
SECTION 6.2 SATISFACTORY INVESTIGATION..................... 25
SECTION 6.3 UNTRUE STATEMENTS.............................. 25
SECTION 6.4 NO MATERIAL ADVERSE CHANGE..................... 25
SECTION 6.5 REPRESENTATIONS AND WARRANTIES................. 25
SECTION 6.6 CERTIFICATE OF SHAREHOLDERS AND CORPORATION.... 25
SECTION 6.7 LEGAL OPINION.................................. 25
SECTION 6.8 LITIGATION..................................... 25
SECTION 6.9 THIRD PARTY CONSENTS........................... 26
SECTION 6.10 CORPORATE ACTION............................... 26
SECTION 6.11 EMPLOYMENT AGREEMENTS.......................... 26
SECTION 6.12 LOCK-UP AGREEMENT.............................. 26
SECTION 6.13 ESCROW AGREEMENT............................... 26
SECTION 6.14 SIEGEL TRANSACTIONS............................ 26
ii
<PAGE> 4
SECTION 6.15 OPTIONS........................................ 26
SECTION 6.16 REPAYMENT OF NOTE.............................. 26
SECTION 6.17 EXTENSION OF LEASES............................ 26
SECTION 6.18 UNITED REPROGRAPHICS........................... 26
SECTION 6.19 HSR ACT........................................ 26
ARTICLE 7
TERMINATION...................................................... 27
SECTION 7.1 TERMINATION OF AGREEMENT....................... 27
SECTION 7.2 NO WAIVER...................................... 27
ARTICLE 8
THE CLOSING...................................................... 27
SECTION 8.1 TIME AND PLACE................................. 27
SECTION 8.2 SHAREHOLDERS' AND CORPORATION'S OBLIGATIONS
AT CLOSING..................................... 27
SECTION 8.3 BUYER'S OBLIGATIONS AT CLOSING................. 28
ARTICLE 9
OBLIGATIONS AFTER CLOSING........................................ 29
SECTION 9.1 AGREEMENT TO REFRAIN FROM COMPETITION.......... 29
SECTION 9.2 FURTHER ASSURANCES............................. 30
ARTICLE 10
INDEMNIFICATION.................................................. 30
SECTION 10.1 BUYER'S INDEMNITY.............................. 30
SECTION 10.2 SHAREHOLDERS' INDEMNITY........................ 30
SECTION 10.3 METHOD OF ASSERTING CLAIMS..................... 31
SECTION 10.4 THIRD PARTY CLAIMS............................. 31
SECTION 10.5 SURVIVAL OF SHAREHOLDERS' INDEMNITY
OBLIGATIONS.................................... 31
SECTION 10.6 SURVIVAL OF BUYER'S INDEMNITY OBLIGATIONS...... 31
SECTION 10.7 LIMITATION ON INDEMNIFICATION.................. 32
SECTION 10.8 RECEIVABLES INDEMNITY.......................... 32
ARTICLE 11
MISCELLANEOUS PROVISIONS......................................... 32
SECTION 11.1 FINDER'S OR BROKER'S FEES...................... 32
SECTION 11.2 EXPENSES....................................... 32
SECTION 11.3 EFFECT OF HEADINGS............................. 32
SECTION 11.4 ENTIRE AGREEMENT; MODIFICATION................. 32
SECTION 11.5 WAIVER......................................... 33
SECTION 11.6 COUNTERPARTS................................... 33
SECTION 11.7 PARTIES IN INTEREST............................ 33
SECTION 11.8 BINDING EFFECT................................. 33
SECTION 11.9 RECOVERY OF LITIGATION COSTS................... 33
SECTION 11.10 SUCCESSORS AND ASSIGNS......................... 33
SECTION 11.11 NOTICES........................................ 33
iii
<PAGE> 5
SECTION 11.12 DEFINITIONS.................................... 34
SECTION 11.13 CHOICE OF LAW.................................. 34
SECTION 11.14 ARBITRATION.................................... 34
SECTION 11.15 HSR ACT........................................ 34
SECTION 11.16 POWER OF ATTORNEY.............................. 35
iv
<PAGE> 6
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 8.1), Shareholders will transfer and convey the Shares to
Buyer, and Buyer will acquire the Shares from Shareholders, free and clear of
all liens, encumbrances, security agreements, equities, options, claims, charges
and restrictions. On the Closing Date, the certificates representing the Shares
shall be duly endorsed in blank for transfer, or accompanied by separate written
instruments 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.
A. Buyer agrees to pay and Shareholders agree to
accept for the Shares an amount to be determined by subtracting an
amount equal to the Corporation Debt (defined below) from $41,000,000
(the "Initial Purchase Price"). The Initial Purchase Price shall be
adjusted following the Closing for any increases or decreases in Net
Current Working Capital and reductions due to possible Buyer offsets
pursuant to Section 1.3, and for any increase resulting from Earnout
Payments due and payable to Shareholders pursuant to Section 1.4. The
Initial Purchase Price shall be paid at Closing as follows: (a) cash in
an amount equal to $34,100,000 minus Corporation Debt, payable via
electronic wire transfer of funds (the "Cash Portion"); and (b)
$6,150,000.00 in the form of shares of Buyer's Common Stock (the "LASON
SHARES") and $750,000.00 in cash, both to be held in escrow pursuant to
the terms and conditions of Section 1.3 below. The Lason Shares will be
valued for this purpose at the average closing price of the Lason
Shares for the preceding 10 trading days prior to the Closing Date as
reported in NASDAQ.com (appropriately adjusted for any stock split,
reverse stock split or common stock dividend effected or declared by
Buyer), with no fractional shares being issued hereunder. In lieu
thereof, Buyer will pay cash for any such fractional shares, the value
of which are to be determined by multiplying the fractional portion of
a share of the Lason Shares by the per share price determined in
accordance with the methodology described above. Shareholders will not
be entitled to dividends, voting rights or any other right as
shareholder in respect of any fractional share of the Lason Shares. In
connection with the foregoing issuance of the Lason Shares, on the
Closing Date, Shareholders will deliver to Buyer a Lock-Up Agreement in
the form of EXHIBIT 1.2(A-1) (the "LOCK-UP AGREEMENT"), pursuant to
which Shareholders will agree not to sell any of the Lason Shares
delivered to them in accordance with this Agreement for a period of 18
months from and after the Closing Date. The Initial Purchase Price (as
same may be adjusted in accordance with the terms and conditions
hereof) is to be allocated among the Shareholders in accordance with
EXHIBIT 1.2 (A- 2).
B. The Cash Portion shall be equal to $34,100,000
minus the following obligations of Corporation ("CORPORATION DEBT"):
(i) Wells Fargo Debt;
(ii) Deferred tax liabilities;
(iii) Acquisition debt for United Reprographics;
(iv) Acquisition debt remaining on $4,182,265
note Siegel;
(v) Azon vendor debt in the amount of $200,000;
and
(vi) Capital lease obligations in excess of
$1,500,000.
The Corporation Debt shall not include and the Cash Portion
shall not be reduced by any other obligations of Corporation, including, but not
limited to the obligations to United Reprographics and
2
<PAGE> 7
Siegel relating to their employment and noncompetition agreements. Corporation
Debt as of the date of this Agreement is set forth on SCHEDULE 1.2(B), and
Corporation shall deliver to Buyer at the Closing such documentation as may be
reasonably requested by Buyer to verify the amount of Corporation Debt existing
as of Closing. Corporation Debt shall be paid at Closing from funds provided by
Buyer to Corporation. The sum of the Cash Portion, the Lason Shares, the
Escrowed Funds (as defined in Section 1.3 below) and the amount paid by Buyer
for Corporation to retire Corporation Debt shall total $41,000,000. Payment of
Corporation Debt as aforesaid shall not reduce Closing Date Net Working Capital.
SECTION 1.3 ESCROW; POSSIBLE POST-CLOSING ADJUSTMENTS TO
PURCHASE PRICE . The aforesaid $750,000.00 in cash (the "ESCROWED FUNDS") and
the aforesaid $6,150,000 in the form of the Lason Shares (the "ESCROWED STOCK")
referenced in Section 1.2A above are to be paid into escrow with Seyburn, Kahn,
Ginn, Bess, Deitch and Serlin, P.C. ("BUYER'S COUNSEL") pursuant to the terms
and conditions of that certain Escrow Agreement in the form of EXHIBIT 1.3 (the
"ESCROW AGREEMENT") for purposes of addressing the following possible
post-Closing adjustments to the Initial Purchase Price:
A. With respect to the Escrowed Funds:
1. Within 90 days of the Closing Date, Buyer
shall cause an audited balance sheet of Corporation to be
prepared by PricewaterhouseCoopers as of the Closing Date (the
"CLOSING DATE BALANCE SHEET"), together with a computation by
PricewaterhouseCoopers of the Net Current Working Capital of
Corporation as that term is defined in subpart (4) below (the
"CLOSING DATE NET CURRENT WORKING CAPITAL"). The Closing Date
Balance Sheet shall be prepared in a manner consistent with
the preparation of the March 28, 1998 Balance Sheet and
without giving effect to any of the transactions contemplated
hereby. If the Closing Date Net Current Working Capital is
less than $1,881,070 (the "Target Capital Base"), the Initial
Purchase Price shall be reduced on a dollar-for-dollar basis,
and shall be paid out of the Escrowed Funds or out of the
Escrowed Stock to the extent that the Escrowed Funds are
insufficient, all as provided below.
2. If the Closing Date Net Current Working
Capital is greater than the Target Capital Base, then the
Initial Purchase Price shall be increased on a
dollar-for-dollar basis. If required, Buyer shall make such
payment (i) within 15 days following the delivery of the
Closing Date Balance Sheet to Shareholders, or (ii) if
Shareholders dispute any aspect of the Closing Date Balance
Sheet or Closing Date Net Current Working Capital, then within
15 days following the resolution of such dispute.
3. Within 5 days of PricewaterhouseCoopers'
completion of the Closing Date Balance Sheet and computation
of Corporation's Closing Date Net Current Working Capital,
Buyer shall deliver to Shareholders, Shareholders' Counsel and
Buyer's Counsel a statement setting forth
PricewaterhouseCoopers' computation of the Closing Date Net
Current Working Capital, the amount of any reduction or
increase to the Initial Purchase Price, and the proper
distribution of the Escrowed Funds. If Shareholders dispute
the accuracy of the Closing Date Net Current Working Capital
or the amount of the reduction or increase to the Initial
Purchase Price, Shareholders shall notify Buyer in writing
within 10 days of delivery of the statement, and Buyer and
Shareholders shall work in good faith to resolve the dispute.
If Buyer and Shareholders come to an agreement on the amount
of the reduction or increase to the Initial Purchase Price and
the proper distribution of the Escrowed Funds, they shall each
notify Buyer's Counsel within 120 days of the Closing Date,
and Buyer's Counsel will release the Escrowed Funds pursuant
to the terms of such agreement. If Buyer and Shareholders do
not notify Buyer's Counsel of their agreement on the amount of
the reduction and the proper distribution of the Escrowed
Funds on or before the 120th day
3
<PAGE> 8
after the Closing Date, unless Shareholders have submitted the
dispute to arbitration pursuant to Section 11.14 hereof and so
notified Buyer's Counsel (together with proof of such
submission), Buyer's Counsel shall release the Escrowed Funds
to Buyer and/or Shareholders as set forth in Buyer's
statement. If Shareholders have submitted the dispute to
arbitration as provided herein, Buyer's Counsel will retain in
escrow 150% of the disputed amount and release the balance to
Shareholders. The amount retained in escrow shall ultimately
be released in accordance with the determination of the
arbitrators. In all events, the arbitrator for this particular
dispute is to be a certified public accountant familiar with
transactions of this type. The Closing Date Balance Sheet
shall be adjusted to the extent required to reflect the final
resolution of any such dispute, either by agreement of the
parties or through arbitration. In addition, Buyer and
Shareholders will execute a memorandum setting forth any
adjustment to the Initial Purchase Price. When released to
Shareholders, the Escrowed Funds are to be paid by electronic
wire transfer of funds.
4. For the purposes hereof, the term "Net
Current Working Capital" is hereby defined to consist of the
following accounts found in the books and records of
Corporation (the "Accounts"), determined in accordance with
generally accepted accounting principles consistently applied:
ACCOUNT #
10-100-100 Petty Cash
10-100-102 Cash
10-100-104 Sweep Account
CASH
10-110-100 ACCOUNTS RECEIVABLE
10-110-120 Allow for Doubtful Accounts
10-110-125 Allow for Customer Discounts
LESS: ALLOW FOR DOUBTFUL
ACCOUNTS/DISCOUNTS
NET ACCOUNTS RECEIVABLE
10-118-100 Inventory - Warehouse
11-118-100 Inventory - Tustin
12-118-100 Inventory - Airport
13-118-100 Inventory - Anaheim
14-118-100 Inventory - Laguna Hills
15-118-100 Inventory - Las Vegas
16-118-100 Inventory - Inland Empire
18-118-100 Inventory - Supply
23-118-100 Inventory - PBS&J
31-118-100 Inventory - RBF Irvine
32-118-100 Inventory - RBF San Diego
33-118-100 Inventory - RBF Regional
35-118-100 Inventory - RBF Arizona
50-118-100 Inventory - Clark & Green
51-118-100 Inventory - Tait
52-118-100 Inventory - Edaw
53-118-100 Inventory - Fong & Associates
54-118-100 Inventory - Teller Manok
4
<PAGE> 9
55-118-100 Inventory - CVL
58-118-100 Inventory - WAT&G
59-118-100 Inventory - Greenberg Farrow
INVENTORY
10-118-200 LESS: RESERVE FOR SLOW
MOVING & OBSOLETE INV.
NET INVENTORY
10-120-100 Prepaid Deposits
10-120-101 Prepaid Income Tax - Fed
10-120-102 Prepaid Income Tax - State
10-120-105 Prepaid Insurance
10-120-107 Prepaid Property Tax
10-120-127 Prepaid Supplies
PREPAID EXPENSES & DEPOSITS
LESS: 10-200-200 Accounts Payable
10-200-206 A/P Purchase Clearing
10-200-213 A/P Other Accruals
ACCOUNTS PAYABLE
10-203-110 Taxes Payable - Corp Fed Inc
10-203-115 Taxes Payable - CA Corp State Inc
10-203-118 Taxes Payable - AZ State Inc
10-203-120 Taxes Payable - Sales Tax
OTHER PAYABLES
10-200-211 Other Accruals
10-202-100 Accrual - Payroll Wages
10-202-101 Accrual - Payroll Vacation
10-202-102 Payable - Credit Union
10-202-103 Payable - Emp. Garnishment
10-202-104 Payable - Ins. Contract
10-202-105 Payable - Ins Group Med
10-202-106 Payable - Ins Work Comp
10-202-107 Payable - Interest
10-202-108 Payable - Profit Sharing
10-202-109 Payable Safety Program
10-202-401 Payable - 401(k) EE Liability
10-203-100 Taxes Payable - Payroll SIT
10-203-101 Taxes Payable - Payroll SDI
10-203-102 Taxes Payable - Payroll ETF
10-203-103 Taxes Payable - SUI
10-203-104 Taxes Payable - FIT
10-203-105 Taxes Payable - FICA
10-203-106 Taxes Payable - FUTA
10-203-130 Deferred Sales Revenue
ACCRUED EXPENSES
In connection with the determination of Closing Date Net
Current Working Capital, the following facts and protocols are
acknowledged by and agreed to by the parties hereto: (i)
5
<PAGE> 10
the Target Capital Base was arrived at by starting with the
March 28, 1998 Net Current Working Capital of $3,081,080 and
making $1,200,000 of adjustments which were acceptable to
Buyer; (ii) the computation of Closing Date Net Working
Capital shall be determined by using the Accounts as of the
Closing Date; (iii) the Accounts constitute 100% of current
assets and current liabilities of Corporation except for:
10-100-105 (A/R Clearing); 10-100- 106 (A/R Misc.); 10-100-107
(A/R NSF Account); 10-102-101 (Visa/MC Suspense); 10-102- 102
(Amex Suspense); 10-102-104 (Amex Suspense - Supplies);
10-110-101 (A/R Employees); 11-102-100 (Cash Suspense -
Tustin); 12-102-100 (Cash Suspense - Airport); 13-102-100
(Cash Suspense - Anaheim); 14-102-100 (Cash Suspense - Laguna
Hills); 15- 102-100 (Cash Suspense - Las Vegas); 16-102-100
(Cash Suspense - Inland Empire); 18- 102-100 (Cash Suspense -
Supplies); 35-102-100 (Cash Suspense - RBF Arizona); and (iv)
the Accounts, and only the Accounts, were used to determine
the March 28, 1998 Net Working Capital amount of $3,081,080.
5. The Escrowed Funds are only being held in
escrow to facilitate a possible payment in connection with
Closing Date Net Working Capital. Accordingly, the Escrowed
Funds are subject to no other offsets or deductions
whatsoever.
6. Notwithstanding anything to the contrary
set forth herein, if there is a tax benefit arising out of the
pre-closing exercise of certain stock options granted by
Lundeen, and such benefit results in an increase to Closing
Date Net Working Capital, Seller shall only receive one-half
of such increase.
B. With respect to the Escrowed Stock:
1. In order to facilitate the payment of any
indemnification owed to Buyer by Corporation and/or
Shareholders pursuant to Article 10 hereof, Corporation and
Shareholders agree to escrow the Escrowed Stock with Buyer's
Counsel and to execute and deposit with Buyer's Counsel
assignments separate from certificate in blank to enable a
reassignment of such Escrowed Stock.
2. If Buyer notifies Buyer's Counsel of a
claim(s) for indemnification, made pursuant to Article 10, at
any time during the 18 months following the Closing Date,
Buyer's Counsel will perform as follows:
a. If Buyer and Shareholders come to
an agreement on the amount of the claim(s), and on
how much of the Escrowed Stock should be released to
Buyer, they shall each notify Buyer's Counsel of
their agreement within 18 months of the Closing Date,
and Buyer's Counsel will release the Escrowed Stock
pursuant to the terms of such agreement. If the 18
month escrow period has not expired, Buyer's Counsel
shall continue to hold all non-released Escrowed
Stock in escrow.
b. If Buyer and Shareholders do not
notify Buyer's Counsel of their agreement on the
amount of the claim(s) and on how the Escrowed Stock
should be released between Shareholders and Buyer on
or before 18 months after the Closing Date, unless
Shareholders have submitted the dispute to
arbitration pursuant to Section 11.14 hereof and so
notified Buyer's Counsel (together with proof of such
submission), Buyer's Counsel shall release and/or
retain the Escrowed Stock consistent with Buyer's
notice. If Shareholders have submitted the dispute
into arbitration as provided herein, Buyer's Counsel
will release the Escrowed Stock in accordance with
the determination of the arbitrators. If a claim for
arbitration remains pending at the conclusion of the
18 month escrow period, Buyer's Counsel shall retain
Escrowed Stock equal to 150% of Buyer's then
outstanding claim(s) for indemnification and release
the balance to Shareholders.
6
<PAGE> 11
c. For purposes of this Section 1.3,
the per share price of the Escrowed Stock shall be
valued at the price per share set forth in Section
1.2 hereof.
3. If Buyer's Counsel is not notified by
Buyer of any claim(s) for indemnification, made pursuant to
Article 10 hereof, during the 18 months following the Closing
Date, Buyer's Counsel shall release the Escrowed Stock to
Shareholders as soon as reasonably possible thereafter, but in
no event later than ten days following final determination of
the amount in dispute.
C. Notwithstanding the foregoing, after disbursement
of the Escrowed Funds and/or Escrowed Stock, Shareholders shall remain
liable for any reduction in the Initial Purchase Price in excess of the
Escrowed Funds and shall remain liable for any claim(s) of
indemnification in excess of the Escrowed Stock. Any such additional
liability is to be paid within 5 business days of when due (i.e. after
final determination pursuant to Section 11.14 hereof). Any such
additional liability not paid when due is to bear interest at the Prime
Rate of Interest charged by First Union National Bank plus 5% per annum
until paid but, in no event, greater than the maximum amount allowed
under applicable law. Further, any such additional liability may be set
off, dollar-for-dollar, against the Earnout Payments described in
Section 1.4 below.
SECTION 1.4 EARNOUT PAYMENTS. In addition to the Initial
Purchase Price, as additional consideration for the Shares, Shareholders shall
be entitled to receive up to 4 additional payments aggregating $28,700,000 (the
"EARNOUT PAYMENTS") if and only if such Earnout Payments are earned in
accordance with the following:
A. Buyer and Shareholders agree that there shall be
MINIMUM, TARGET and UPSIDE PERFORMANCE OBJECTIVES for Corporation's
EBITDA for two consecutive 12 month periods (the "FIRST 12 MONTH
PERIOD" and the "SECOND 12 MONTH PERIOD," respectively) following
Closing. The First 12 Month Period will commence on the first day of
the month in which the Closing Date occurs if the Closing Date occurs
on or before the fifteenth day of the month. If the Closing Date occurs
after the fifteenth day of the month, the First 12 Month Period will
commence on the first day of the month immediately following the month
in which the Closing Date occurred. The Second 12 Month Period will
commence immediately following the First 12 Month Period. Such
Performance Objectives are as follows: (1) First 12 Month Period -
Minimum Performance Objective - $7,300,000; Target Performance
Objective - $9,300,000; and Upside Performance Objective - $10,200,000
and (2) Second 12 Month Period - Minimum Performance Objective -
$8,000,000; Target Performance Objective - $11,500,000; and Upside
Performance Objective - $13,350,000.
B. To the extent that Corporation's First 12 Month
Period EBITDA satisfies the Target Performance Objective for such
period, Shareholders will be paid up to a maximum of $12,000,000 (the
"FIRST EARNOUT PAYMENT"). To the extent that Corporation's First 12
Month Period EBITDA satisfies the Upside Performance Objective for such
period, Shareholders will be paid an additional payment up to a maximum
of $3,200,000 (the "SECOND EARNOUT PAYMENT"). If Corporation's First 12
Month Period EBITDA exceeds the Minimum Performance Objective but does
not satisfy the Target Performance Objective for such period, or
exceeds the Target Performance Objective but does not satisfy the
Upside Performance Objective for such period, the Initial Purchase
Price shall be increased on a proportional basis.
C. To the extent that Corporation's Second 12 Month
Period EBITDA satisfies the Target Performance Objective for such
period, Shareholders will be paid up to a maximum of $10,000,000 (the
"THIRD EARNOUT PAYMENT"). To the extent that Corporation's Second 12
Month Period EBITDA satisfies the Upside Performance Objective for such
period, Shareholders will be paid
7
<PAGE> 12
an additional payment up to a maximum of $3,500,000 (the "FOURTH
EARNOUT PAYMENT"). If Corporation's Second 12 Month Period EBITDA
exceeds the Minimum Performance Objective but does not satisfy the
Target Performance Objective for such period, or exceeds the Target
Performance Objective but does not satisfy the Upside Performance
Objective for such period, the Initial Purchase Price shall be
increased on a proportional basis.
D. In recognition of Corporation's possible
contributions and increased responsibilities in managing additional
acquisitions of Buyer or one of its affiliates, up to 20% of
Corporation's Target and Upside Performance Objectives may be achieved
through Designated Acquisitions (as defined below); provided, however,
that Corporation's EBITDA (exclusive of any additions through
acquisitions) must exceed the Minimum Performance Objectives for each
of the First and Second 12 Month Periods following the Closing in order
for Designated Acquisition EBITDA to be included in the determination
of whether Corporation has satisfied the Target and Upside Performance
Objectives. In each such period, all Designated Acquisition EBITDA,
less Buyer's interest expense for debt incurred to consummate the
acquisition, professional fees, goodwill amortization, and any and all
other costs and expenses arising from the acquisition, will be credited
to Corporation up to a maximum of 20% of Corporation's Target and
Upside Performance Objective. As used herein, the term "DESIGNATED
ACQUISITIONS" means one or more other businesses, the assets or stock
of which Buyer, or one of Buyer's affiliates may, acquire after the
Closing Date and, with the mutual agreement of Shareholders, assign to
Corporation for management, following either an asset or stock
acquisition of such business by either Buyer or one of Buyer's
affiliates. Notwithstanding anything to the contrary set forth herein,
in no event will Corporation's EBITDA be reduced by an amount in excess
of 20% of Corporation's Target and Upside Performance Objections in the
event that a Designated Acquisition or Designated Acquisitions performs
poorly.
E. The 4 Earnout Payments are to be paid 80% in cash
via electronic wire transfer, with the balance to be paid in cash or in
shares of the Common Stock of Buyer (the "EARNOUT SHARES") at Buyer's
election and sole discretion. Any Earnout Shares will be valued for
this purpose at the average closing price of Lason Shares for the
preceding 10 trading days prior to the date of each of the Earnout
Payment Dates (as defined below) as reported in NASDAQ.com
(appropriately adjusted for any stock split, reverse stock split or
common stock dividend effected or declared by Buyer). No fractional
share will be issued by Lason hereunder. In lieu thereof, Buyer will
pay cash for such fractional share, the value of which shall be
determined by multiplying the fractional part of a share of Lason
Common Stock by the closing value set forth above. Shareholders will
not be entitled to dividends, voting rights or any other right as a
shareholder in respect of any fractional share of Lason. In connection
with the foregoing issuance of the Earnout Shares, on each Earnout
Payment Date, Shareholders will execute a Lock-Up Agreement in a
mutually acceptable form pursuant to which Shareholders will agree not
to sell any of the Earnout Shares delivered to them in accordance with
this Agreement for a period of 12 months from each Earnout Payment
Date.
F. Buyer will calculate Corporation's EBITDA no later
than November 1 in each of 1999 and 2000. If an Earnout Payment is
earned, Buyer shall make such Earnout Payment to Shareholders by
November 15, 1999, in the case of the First and Second Earnout
Payments, and November 15, 2000, in the case of the Third and Fourth
Earnout Payments (the "EARNOUT PAYMENT DATES"), subject to the
existence of a dispute requiring resolution pursuant to Section 1.4(G)
below.
G. Buyer shall provide to Shareholders, concurrently
with each Earnout Payment, a statement of its Chief Financial Officer
regarding the calculation of the Earnout Payment. Such statement shall
provide such computations and set forth such detail as is reasonably
necessary to substantiate the calculation of EBITDA and the amount of
the Earnout Payment payable, if any. No later than 10 business days
after Shareholders' receipt of such statement, Shareholders may, by
8
<PAGE> 13
notice given to Corporation, contest the calculations and give notice
to Buyer of the amount calculated by Shareholders. In such event, Buyer
shall provide Shareholders and/or their independent accountants with
reasonable access to Corporation's books and records as necessary to
evaluate the calculation of Earnout Payment. Within 60 business days
after such access is provided, the parties, together with their
independent public accountants, shall meet and discuss such dispute in
a good faith effort to resolve such dispute. If no resolution is
reached within 30 days of the parties initial meeting, then Corporation
and Shareholders shall choose a mutually acceptable independent
certified public accountant (the "DESIGNATED AUDITOR") to review the
calculation. The Designated Auditor shall, after reviewing all relevant
matters and interviewing such parties as he or she deems appropriate,
deliver to Corporation and Shareholders a statement setting forth his
or her calculations, which shall be final and binding upon each party.
If the final calculation is within 5% of the calculation set forth in
the Chief Financial Officer's statement, then Shareholders shall bear
the cost of engaging the Designated Auditor. Otherwise, the cost of
engaging the Designated Auditor shall be borne by Corporation. If the
statement of the Designated Auditor indicates that an additional
payment is due to Shareholders in respect of the Earnout Payment,
Corporation shall pay such amount to Shareholders in cash within five
days following receipt of such statement. Similarly, if the decision of
the Designated Auditor is that a rebate is due to Buyer, Shareholders
shall pay such amount to Buyer in cash within 5 days following receipt
of such amount.
H. EBITDA shall mean, for each of the 2 years
referenced above, the pre-tax net income of Corporation before interest
expense, depreciation and amortization for such year determined on a
stand-alone basis in accordance with generally accepted accounting
principles consistently applied, (A) plus, to the extent deducted in
determining net income and without duplication, the sum of: (i) any
extraordinary losses;(ii) any management fees, salary or other charges
for personnel who work for Buyer or any entity that is directly or
indirectly affiliated with Buyer; (iii) any accounting fees in excess
of $29,191 unless a different amount is mutually agreed by the parties;
(iv) any allocated charges between Corporation and Buyer or any entity
that is directly or indirectly affiliated with Buyer; (v) any
pass-through of interest on debt incurred by Buyer in connection with
this transaction except those taken in the ordinary course of business
such as, by way of illustration and not limitation, write-offs for bad
debt; (vi) any extraordinary or non-recurring expenses; (vii) any
bonuses to employees or payments to deferred compensation plans or
other perks to employees in excess of Seller's past practices, other
than those paid to any of the Shareholders; and (B) minus, to the
extent included in determining net income and without duplication, any
extraordinary gains. In addition, for purposes of calculating EBITDA,
adjustments shall be made to: (i) gross receipts for sales made by
Corporation to Buyer and its affiliates to the extent that such sales
are for prices less than comparable sales to other third party
customers of Corporation; (ii) expenses for purchases made by
Corporation from Buyer and its affiliates, to the extent that such
expenses are greater than comparable expenses from other third party
vendors or providers of services to Corporation; and (iii) any other
charges by Buyer or any entity that is directly or indirectly
affiliated with Buyer to the extent that such charges are greater than
would have been paid by Corporation in an arm's length transaction
between Corporation and any other vendor or provider of services to
Corporation. Further, in no event will EBITDA be reduced by goodwill
amortization or other costs associated with Buyer's acquisition of the
Shares. For the purposes hereof, the term "affiliate" shall be
understood to include (but not be limited to) the various divisions of
Lason Systems, Inc.
I. Notwithstanding anything to the contrary contained
herein, Buyer shall have the right, by notice to Shareholders
specifying in reasonable detail the basis therefor, to withhold the
payment of any Earnout Payment otherwise provided for herein and to set
off and apply against any such Earnout Payment the amount of any then
outstanding indemnification payments finally determined to be due from
Shareholders to Buyer pursuant to this Agreement.
9
<PAGE> 14
J. Shareholders acknowledge and agree that Buyer, as
the sole shareholder of Corporation, after the Closing Date, will have
substantial power to control the amount of the Earnout Payment(s)
provided for herein and that, in fact, Buyer intends to merge
Corporation with a subsidiary following the Closing Date in order to,
among other things, best unify operations and maximize profitability.
In order to create no material impediment to Seller's opportunity to
achieve the Earnout Payment(s), Buyer will operate Corporation as a
free-standing division within one of its subsidiaries and further shall
operate the Business in all material respects in a manner consistent
with the manner in which it was operated prior to the acquisition of
the Shares by Buyer except: (i) Corporation shall participate in
Buyer's centralized accounting, record keeping, cash management and
budgeting process in a fair and consistent manner as Buyer's other
divisions and subsidiaries; (ii) Corporation shall participate in
Buyer's centralized purchasing system as may be in place from time to
time in a fair and consistent manner as Buyer's other divisions and
subsidiaries; (iii) Corporation shall participate in other similar
centralized functions in a fair and consistent manner as Buyer's other
divisions and subsidiaries; (iv) Corporation will participate in
Buyer's benefit program; and (v) the work constituting the Business
shall continue to be done by Corporation, but if such work is diverted
to other divisions or subsidiaries of Buyer, Buyer shall fairly credit
such work to the operating income of Corporation. Further, in no event
shall any of the corporate overhead of Buyer or any of its affiliates,
including parent company charges, management fee charges or any similar
charges be allocated to Corporation, it being agreed that only direct
costs of the Business shall be so attributed. Notwithstanding the
foregoing, in the event that the Board of Directors of Buyer (or its
subsidiary), in its sole discretion, changes or proposes to change the
business, accounting policies or methods, or operations of Corporation
from those in effect immediately prior to the Closing Date (any such
change or proposed change, a "CHANGE") and Shareholders believe that
any such Change is reasonably likely to materially decrease the amount
of the Earnout Payment(s) they would have earned absent such Change,
Shareholders may give notice (the "NOTICE") to Buyer of such belief. In
such event, Shareholders and Buyer's President and/or their designated
representatives shall meet: (i) to discuss in good faith whether the
Change is reasonably likely to have a material adverse effect or result
in a material decrease; and (ii) if they agree that such a material
adverse effect or material decrease is reasonably likely to occur, then
to discuss in good faith an amendment to the Earnout Payment formula
set forth in this Section 1.4 in order to restore to Shareholders the
ability to earn a comparable Earnout Payment to that originally
contemplated by the parties. If Seller and Buyer's President do not
agree that such a material adverse effect or material decrease is
reasonably likely to occur, or, having agreed that such a material
adverse effect or material decrease is likely to occur, they do not
agree on an amendment to the Earnout Payment formula contemplated in
this Section 1.4, the dispute shall be submitted to and resolved by
arbitration pursuant to Section 11.14 hereof, and if the decision of
the arbitrator(s) is that such a material adverse effect or material
decrease is reasonably likely to occur, then the arbitrator(s) shall
also decide how the Earnout Payment formula set forth in this Section
1.4 shall be amended.
K. For all purposes of this Section 1.4, the term
"Corporation" shall be understood to refer to the "Consolidated
Reprographics Division" of one of Buyer's subsidiaries.
L. In the event that any of Lundeen, Chamberlain,
Sipes or French voluntarily quits his employment with Corporation
(except for "Good Reason" as such term is defined in the Employment
Agreements contemplated in Section 6.11 hereof) or has his employment
terminated by Corporation for "Cause" (as such term is defined in the
Employment Agreements contemplated in Section 6.11 hereof), any such
Shareholder's "unearned portion" of the Earnout Payments are not to be
paid. For the purposes hereof, the term "unearned portion" shall mean
such Shareholder's aliquot share of any Earnout Payment for either or
both of the First 12 Month Period or the Second 12 Month Period (as
applicable) multiplied by a fraction the numerator of which is the
number of months worked in that year and the denominator of which is
12. Example: If a Shareholder
10
<PAGE> 15
voluntarily quits after 6 months in year 1, he would receive 1/2 of an
Earnout Payment for that year (if any) and nothing for the second year,
regardless of whether such Earnout Payment is earned or not.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
AND CORPORATION
Shareholders (other than Siegel, Hazell and Lauderdale except
with regard to Sections 2.2, 2.3, 2.5 and 2.36) and Corporation, jointly and
severally, represent and warrant to Buyer that, as of the date, hereof:
SECTION 2.1 ORGANIZATION, STANDING AND POWER. Corporation is
duly incorporated, validly existing and in good standing under the laws of the
State of California, has all necessary corporate power to own its properties and
to carry on its business as now owned and operated by it, and 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. Each
jurisdiction in which Corporation is so qualified to do business is listed on
SCHEDULE 2.1.
SECTION 2.2 CAPITALIZATION. The authorized capital stock of
Corporation consists of two hundred (200) shares of preferred stock of which two
hundred (200) shares are issued and outstanding as of the date hereof (the
"PREFERRED STOCK") and fifty thousand shares (50,000) of common stock of which
one thousand twenty five (1,025) shares are issued and outstanding (the "Common
Stock"). On the Closing Date, the Preferred Stock will have been converted to
Common Stock and, accordingly, there will be zero shares of Preferred Stock
issued and outstanding and one thousand eighty five (1,085) shares of Common
Stock issued and outstanding. The Preferred Stock and the Common Stock
constitute all of the shares of Corporation and all of such shares are owned
beneficially and of record by Shareholders and are referred to herein as the
"SHARES." All of the Shares are validly issued, fully paid, nonassessable, and
have been so issued in full compliance with all applicable federal and state
securities laws. 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. Each of the Shareholders
(including Siegel, Hazell and Lauderdale) is the owner, beneficially and of
record, of all of the Shares owned by them as set forth on Exhibit A-2, free and
clear of all liens, encumbrances, security agreements, equities, options,
claims, charges and restrictions except as set forth in SCHEDULE 2.3, all of
which will be satisfied or discharged prior to Closing. Siegel became an owner
of shares by converting its Preferred Stock to Common Stock immediately prior to
Closing. Hazell and Lauderdale had an option to purchase Common Stock from
Lundeen which they exercised prior to the Closing Date.
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
as set forth on SCHEDULE 2.4.
SECTION 2.5 AUTHORITIES AND CONSENTS. The execution, delivery
and performance of this Agreement by Corporation, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by the
Board of Directors of Corporation. Shareholders and Corporation represent and
warrant that each has 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 any aspect of the business or assets of Corporation,
and no consent or approval of or notice to any other person or is required in
connection with the execution and
11
<PAGE> 16
delivery by each of them of this Agreement or the consummation by them of the
transactions contemplated hereby, other than consents that will be obtained
prior to Closing as set forth in SCHEDULE 2.5 and other than spousal consent,
all of which have been obtained.
SECTION 2.6 NO BREACH OR VIOLATION. Except as set forth on
SCHEDULE 2.6, 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 Bylaws of Corporation, or any 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 properties of
Corporation or the Shares.
SECTION 2.7 FINANCIAL STATEMENTS. There have heretofore been
delivered to Buyer: (i) unaudited financial statements, including balance sheets
and statements of income of Corporation as of and for the years ended August 31,
1995, 1996 and 1997, prepared by Ericson, Carpenter & Company (1995 statements)
and Kieckhafer, Lane and Schiffer LLP (1996 and 1997 statements), whose reports
with respect to said statements are included therein and (ii) unaudited
financial statements, including a balance sheet and statement of income of
Corporation as of and for the 10 month period ended June 30, 1998, prepared by
Corporation's Chief Financial Officer (the "June Balance Sheet").
All of the financial statements referred to above (the
"FINANCIAL STATEMENTS") have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
involved for the type of report (audited or unaudited) involved. Except as set
forth in SCHEDULE 2.7, the Financial Statements present fairly the financial
position of Corporation as at the respective dates thereof, and the related
results of operations of Corporation for the periods therein referred to.
SECTION 2.8 BOOKS AND RECORDS. The stock record books of
Corporation are complete and correct. The other books of account and other
records (other than minute books) of Corporation are complete and correct in all
material respects and all such records have been maintained in accordance with
sound business practices in Shareholders' reasonable judgment. Except for
omissions which would not result in a material adverse effect on Corporation,
the minute books of Corporation contain materially accurate and complete records
of all meetings held and corporate action taken by, the Shareholders, the Board
of Directors, and committees of the Board of Directors of Corporation.
SECTION 2.9 UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 2.9, Corporation has no material debts, liabilities or obligation of
any kind, whether accrued, absolute, contingent or otherwise, which are required
under GAAP to be, but are not, reflected or reserved against or disclosed in
Corporation's balance sheet dated August 31, 1997, included in the Financial
Statements, except for those that may have been incurred subsequent to that
balance sheet. All debts, liabilities and obligations incurred after August 31,
1997, were incurred in the ordinary course of business and are usual and normal
in amount both individually and in the aggregate.
SECTION 2.10 ABSENCE OF CERTAIN CHANGES. Except as set forth
in SCHEDULE 2.10, since September 1, 1997 the business of Corporation has been
operated only in the ordinary course and, without limiting the generality of the
foregoing, Corporation has not:
12
<PAGE> 17
A. Declared, set aside or paid any dividend or other
distribution in respect of its capital stock or otherwise (including
bonus distributions to Shareholders) or redeemed, purchased or
otherwise acquired, directly or indirectly, any of its capital stock;
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, proceeding, suit
or appeal, pending or threatened against it or any of its assets or
properties, except in the ordinary and usual course of its business;
G. Mortgaged, pledged, otherwise encumbered or
subjected to lien any of its 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, 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
$25,000.00, except any planned capital equipment expenditures and
inventory in the ordinary course of business;
13
<PAGE> 18
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;
O. Paid to or for the benefit of any of its
directors, officers, employees or Shareholders any compensation of any
kind other than base wages, salaries and benefits in effect prior to
September 1, 1997;
P. Effected any change in its directors or executive
management;
Q. Effected any amendment or modification in its
Articles of Incorporation or Bylaws;
R. Had any labor trouble that has or might materially
and adversely affect its condition (financial or otherwise), earnings,
business, assets, liabilities, properties, operations or prospects;
S. Changed its accounting methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates);
T. Revalued any of its assets;
U. 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;
V. Made any loan to any person or entity, or
guaranteed any loan;
W. To the best of Shareholders' and Corporation's
knowledge, had any other event or condition of any character that has
or might reasonably have a material and adverse effect on its condition
(financial or otherwise), earnings, business, assets, liabilities,
properties, operations or prospects; or
X. Agreed, committed or entered into any other
understanding to do any of the things described in the preceding
Subsections A through W.
SECTION 2.11 TAXES. Except as set forth in SCHEDULE 2.11
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 of Closing. Except as set forth in Schedule 2.11,
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 Schedule 2.11, 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
14
<PAGE> 19
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 Financial Statements are adequate for any and all taxes for the
periods covered by such Financial Statements and for all prior periods, whether
or not disputed. As used in this Section 2.11, 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 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.
SECTION 2.12 RECEIVABLES. Except as set forth in SCHEDULE
2.12, all receivables of Corporation shown on the balance sheets included in the
Financial Statements are carried at values determined in accordance with
generally accepted accounting principles consistently applied, reflect all
pertinent facts known to Corporation as of the date hereof, and represent valid
and binding obligations of the debtors requiring no further performance by
Corporation and are collectible in full without any set-off whatsoever, other
than the reserves for doubtful accounts described below, within 180 days of the
date on which such receivable was created. Except as set forth in Schedule 2.12,
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 statement of assets and liabilities included in the
Financial Statements.
SECTION 2.13 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 in SCHEDULE 2.13.
SECTION 2.14 REAL PROPERTY.
A. SCHEDULE 2.14 sets forth a complete and accurate
address of each parcel of real property, (collectively, the "REAL
PROPERTY") which is either owned by or leased to Corporation.
B. To the best of Shareholders' and Corporation's
knowledge, the Real Property and the current and currently planned use
thereof is and will be in compliance with all applicable use
restrictions and/or lease covenants.
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.
D. To the best of Shareholders' and Corporation's
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 (except a lease by Corporation),
15
<PAGE> 20
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 Schedule 2.14.
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 2.15 LEASES. SCHEDULE 2.15 lists all leases, rental
agreements, conditional sales contracts and other similar agreements
(collectively, "LEASES"), as amended, which cannot be terminated by Corporation
without liability at any time upon less than thirty (30) days' notice or which
involve payment by it in the future of more than $25,000, 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
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. Corporation
has such title to or interests thereunder as are necessary to continue to
conduct its business as presently conducted or as presently proposed to be
conducted.
SECTION 2.16 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. ss.ss. 9601 et seq., Occupational Safety and Health Act, 29
U.S.C. ss.ss. 651 et seq., Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., Clean Air Act, 42 U.S.C. ss.ss. 7401 et
seq., Federal Water Pollution Control Act, 33 U.S.C. ss.ss. 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 Property
(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 2.17 PROPRIETARY RIGHTS. SCHEDULE 2.17 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
16
<PAGE> 21
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 and similar arrangements to which
Corporation is a party.
SECTION 2.18 NON-INFRINGEMENT; AGREEMENTS. Except as set forth
in SCHEDULE 2.18, no Proprietary Right is the subject of litigation or other
adversary proceedings. To the best of Shareholders' and Corporation's 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 2.19 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 SCHEDULE 2.19. All of said policies are 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 Schedule 2.19.
SECTION 2.20 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 current 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 set forth in SCHEDULE 2.20.
SECTION 2.21 CUSTOMERS AND SALES. A correct and current list
of all customers of Corporation whose annual purchases exceed $100,000.00, is
set forth on SCHEDULE 2.21. There are no facts or circumstances known to
Shareholders or Corporation or either of them indicating that any customer who
has ordered products or services from Corporation which have not yet been
delivered intends to cancel such order. Neither Shareholders nor Corporation has
knowledge that any of the listed 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 2.22 EXISTING EMPLOYMENT CONTRACTS AND/OR REMUNERATION
AGREEMENTS. SCHEDULE 2.22 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 default and there are no facts or conditions
which if continued, or upon notice, will result in a default under such
contracts or arrangements. There is no pending or threatened labor dispute,
strike or work stoppage affecting the business of Corporation.
SECTION 2.23 EMPLOYEE BENEFIT PLANS. SCHEDULE 2.23 contains
an accurate and complete list of all Plans (defined below) contributed to,
maintained or sponsored by Corporation, to which it
17
<PAGE> 22
is obligated to contribute or with respect to which Corporation has any
liability or potential liability, whether direct or indirect (the "Company
Plans"). For purposes of this Agreement, the term "Plans" shall mean: (i)
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not funded and
whether or not terminated; (ii) employment agreements; and (iii) personnel
policies or fringe benefit plans, policies, programs and arrangements, whether
or not subject to ERISA, whether or not funded, and whether or not terminated,
including without limitation, stock bonus, deferred compensation, pension,
severance, bonus vacation, travel, incentive, and health, disability and welfare
plans.
(b) Corporation does not contribute to, has no obligation to
contribute to and otherwise has no liability or potential liability with respect
to (i) any "Multiemployer Plan" (as such term is defined in Section 3(37) of
ERISA); (ii) any Plan of the type described in Sections 4063 and 4064 of ERISA
or in Section 413 of the Code (and regulations promulgated thereunder); or (iii)
any Plan which provides health, life insurance, accident or other "welfare-type"
benefits to current or future retirees or former employees, their spouses or
dependents, other than in accordance with Section 4980B of the Code or
applicable state continuation coverage law.
(c) None of the Company Plans obligates Corporation to pay
separation, severance, termination or similar-type benefits solely as a result
of any transaction contemplated by this Agreement or solely as a result of a
"change in control," as such term is used in Section 280G of the Code (and
regulations promulgated thereunder).
(d) All of the Company Plans and all related trusts, insurance
contracts, and funds have been maintained, funded and administered in compliance
in all material respects with all applicable laws and regulations, including but
not limited to ERISA and the Code. Corporation has not, and to Corporation's and
Shareholders' best knowledge, neither any trustee or administrator of any
Company Plan nor any other person has engaged in any transaction with respect to
any Company Plan which could subject Corporation, or any trustee or
administrator of any Company Plan, or any party dealing with any Company Plan,
or Buyer to any tax or penalty imposed by ERISA or the Code. No actions, suits,
claims, complaints, charges, proceedings, hearings, investigations, or demands
with respect to any Company Plan (other than routine claims for benefits) are
pending or, to the knowledge of Corporation, threatened and Corporation has no
knowledge of any facts which could give rise to or be expected to give rise to
any actions, suits, claims, complaints, charges, proceedings, hearings,
investigations, or demands. Corporation has not incurred, and to Corporation's
and Shareholders' best knowledge, no fact or event exists that could reasonably
be expected to cause Corporation to incur, any liability under Title IV of
ERISA.
(e) None of the Company Plans is a defined benefit pension
plan subject to Title IV of ERISA.
(f) With respect to each of the Company Plans, Corporation has
provided Buyer with true, complete and correct copies, to the extent applicable,
of (i) all documents pursuant to which the Company Plans are maintained, funded
and administered; (ii) the most recent annual report (Form 5500 series) filed
with Internal Revenue Service (with attachments); (iii) the most recent
financial statement; and (iv) all governmental rulings, determinations, and
opinions (and pending requests for governmental rulings, determinations, and
opinions).
SECTION 2.24 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
18
<PAGE> 23
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
commencement of any such proceeding. All currently pending or outstanding
worker's compensation claims are listed on SCHEDULE 2.24 attached hereto and all
such claims are fully insured against. 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. To the best of Shareholders' and
Corporation's knowledge, 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 Shareholders' and
Corporation's 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 Schedule 2.24, to the best of
Shareholders' and Corporation's knowledge, there is no unfair labor practice
complaint against Corporation pending before the National Labor Relations Board.
SECTION 2.25 OTHER CONTRACTS. SCHEDULE 2.25 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), other than outstanding purchase orders made in the ordinary course
of business and other than as listed in any other schedule hereto, to which
Corporation is a party and which: (i) involve payment by Corporation of more
than [$25,000.00]; or (ii) materially affect the condition (financial or other),
earnings, assets, liabilities, business, operations or prospects of Corporation.
Corporation has, to the best of Shareholder's and Corporation's 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.
SECTION 2.26 OFFICERS AND DIRECTORS, ETC. SCHEDULE 2.26 is a
true and complete list of:
A. The names of all present officers and directors
of Corporation, their current annual salaries or other compensation
(such as, but not limited to, consultants' fees) and including all
bonuses, whether deferred, accrued or otherwise, which were paid
or accrued during fiscal years 1996 and 1997, and all employment and
consultant agreements (copies of which are hereby provided);
B. The names, titles and annual compensation of all
salaried employees of Corporation whose compensation (in whatever form)
from Corporation as of the date of this Agreement which will equal or
exceed or which will be likely to exceed an annual rate of $50,000.00,
in 1998 or equaled such amount in the year ended December 31, 1997;
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
who 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
Bylaws or by resolution of the Board of Directors or otherwise) to
write checks or borrow funds on behalf of Corporation.
19
<PAGE> 24
SECTION 2.27 LITIGATION AND CLAIMS. Except as set forth on
SCHEDULE 2.27, there is: (i) no action, suit, proceeding, claim or investigation
pending or, to the best of Shareholder's and Corporation's 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 (ii) no other unresolved claim made
against Corporation or affecting it or its properties or business, or the
transactions contemplated by this Agreement or any 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 Schedule 2.27 and Buyer has been provided with accurate and
complete copies of same. The matters set forth in Schedule 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. Except as set forth on Schedule 2.27, 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. Neither Shareholders nor
Corporation have 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. SCHEDULE 2.29
contains a complete and accurate list and brief description of all 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 Schedule 2.29 have
passed emission standards examinations required by applicable law.
SECTION 2.30 TITLE TO ASSETS. Except for property leased by
Corporation, 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 Corporation's
balance sheet at December 31, 1997, included 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 being acquired "as is" but has been
repaired and maintained in the ordinary and normal course of business in a good
and workman-like manner consistent with industry standards. Corporation is in
possession of all premises leased to it from others. Except as provided in
Schedule 2.20, no officer, nor any 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.
SECTION 2.31 NAMES. SCHEDULE 2.31 sets forth every name under
which Corporation has conducted business during the term of its existence. To
the extent that corporation has conducted business under an assumed name,
Schedule 2.31 also sets forth the name of every state or local jurisdiction in
which Corporation has filed or applied for authority to conduct business under
an assumed name together with the assumed name so registered. Shareholders and
Corporation hereby represent that all assets and rights
20
<PAGE> 25
relating to the business are held by, and all agreements, obligations, expenses,
liabilities of and transactions relating to the business have been entered into,
incurred or conducted by Corporation.
SECTION 2.32 SOFTWARE. SCHEDULE 2.32 contains a true and
complete list of all computer software owned by or licensed to Corporation (the
"SOFTWARE"). Except as specified on Schedule 2.32, Corporation owns all right,
title and interest in and to the Software, free and clear of any liens, claims
or encumbrances of any kind or nature, or, in the case of Software identified on
Schedule 2.32 as owned by third parties and licensed to Corporation, Corporation
has all rights under licenses with respect to the third party Software required
in connection with the conduct of its business. Except as specified on Schedule
2.32, all Software identified on Schedule 2.32 as owned by Corporation was
developed by Corporation entirely through its own efforts and for its own
account. The use of Software licensed to Corporation from third parties does not
violate the terms of the respective license agreements with respect to such
licensed Software.
SECTION 2.33 YEAR 2000 COMPLIANCE. Except as disclosed in
SCHEDULE 2.33, to the best of Shareholders' and Corporation's knowledge,
Corporation is taking the required steps to cause Corporation's computer
hardware, software, embedded microchips, application systems and other
processing capabilities utilized by or in connection with the Business
(including, but not limited to, any third party software and applications) to be
able to interpret and manipulate data on and involving all calendar dates
correctly and without causing any abnormal ending scenario, including in
relation to dates in and after the year 2000. Schedule 2.33 sets forth the time
table and estimated cost of remedying any non-compliant hardware, software,
embedded microchips, application systems and other processing capabilities
utilized by or in connection with Corporation's business.
SECTION 2.34 BEST KNOWLEDGE. The term "to the best of
Shareholders' or Corporation's knowledge," or equivalent terms, as used to
qualify any of the foregoing representations and warranties, means knowledge of
a Shareholder after an investigation which a reasonable and prudent person would
conduct as to the subject matter of such representations and warranties.
SECTION 2.35 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND
WARRANTIES. No representation or warranty made by Shareholders or Corporation in
this Agreement and no statement contained in any document or instrument
delivered or to be delivered to Buyer pursuant hereto or in connection with the
transactions contemplated hereby contain or will contain any untrue statement of
a known material fact, or omits or will omit to state a known material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
SECTION 2.36 INVESTMENT REPRESENTATIONS. In connection with
the acquisition of the Lason Shares by Shareholders:
A. Shareholders were given the Annual Report on Form
10-K of Buyer, as amended, for the year ended December 31, 1997 and the
quarterly report on Form 10-Q of Buyer for the quarter ending March 31,
1998, as filed with the Securities and Exchange Commission (the "SEC"),
and the opportunity to ask questions and receive answers concerning
Buyer and the terms and conditions of the offer and sale and to obtain
any additional information possessed by Buyer or which Buyer could
acquire without unreasonable effort or expense necessary to verify the
accuracy of the information provided to Shareholders about Buyer;
B. Shareholders are acquiring the Lason Shares
solely for their own account for investment and not with the view to
sale or distribution of the Lason Shares acquired hereunder or
any portion thereof and not with any present intention of selling,
offering to sell, or otherwise disposing of or distributing the Lason
Shares acquired hereunder or any portion thereof;
21
<PAGE> 26
C. Shareholders have received all information they
deemed necessary and appropriate to enable them to evaluate the
financial risk inherent in making an investment in the Lason Shares;
D. Each of the Shareholders is an accredited
investor as such term is defined in Regulation D, Rule 501 under the
Securities Act of 1933, as amended (the "ACT") or is sophisticated
in financial matters and able to evaluate the risks and benefits of an
investment in Buyer;
E. Shareholders are aware that the Lason Shares
which will be delivered to them have not been registered under the Act,
and, therefore, cannot be resold unless such stock is registered under
the Act or unless an exemption from registration under the Act is
available (such as that provided by Rule 144 under the Act) and that
each certificate of the Lason Shares will contain a legend noting the
restrictions on resale under the Act and under the Lock-Up Agreement;
and
F. Shareholders will not sell, assign or transfer any
of the Lason Shares received pursuant to this Agreement except
following expiration of the restrictions imposed by the Lock-Up
Agreement and except (i) pursuant to an effective registration
statement under the Act; or (ii) in a transaction which is not required
to be registered under the Act.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Shareholders and
Corporation as follows:
SECTION 3.1 ORGANIZATION. Buyer is a corporation duly
incorporated, 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
businesses where and as now conducted and to own, lease and operate properties
as it now does.
SECTION 3.2 AUTHORIZATION. The execution, delivery and
performance of this Agreement by Buyer and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Board of Directors of Buyer and Buyer represents and warrants that it has the
right, power, legal capacity and authority to enter into and perform its
obligations under this Agreement and that no consent or approval of, notice to
or filing with any governmental authority having jurisdiction over any aspect of
the business or assets of Buyer, and no consent or approval of or notice to any
other person or entity is required in connection with the execution and delivery
by Buyer of this Agreement or the consummation by Buyer of the transactions
contemplated hereby, except for compliance with the HSR Act.
SECTION 3.3 NO BREACH. The execution, delivery and performance
of this Agreement by Buyer and the consummation of the transactions contemplated
hereby and thereby, do 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 Bylaws of Buyer; (iii) 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, or any lease, license, promissory note, security agreement,
commitment, indenture, mortgage, deed of trust or other agreement, instrument or
arrangement to which Buyer is a party or by which it or its property is bound;
(iv) an event that would permit any party to terminate or rescind any agreement
to accelerate the maturity of any indebtedness or other obligations of Buyer; or
(v) the creation or imposition of any lien, charge or encumbrance on any of the
properties of Buyer.
22
<PAGE> 27
SECTION 3.4 VALIDLY ISSUED. The total authorized number of
shares of capital stock which Buyer has authority to issue is 20,000,000 shares
of Common Stock, par value of $0.01 per share, of which as of March 31, 1998,
12,039,039 shares were issued and outstanding, and 5,000,000 shares of preferred
stock, par value $0.01 per share, of which as of March 31, 1998, no shares were
issued and outstanding. Additionally, as of March 31, 1998, certain persons hold
options to acquire approximately 1,335,070 shares of Buyer's Common Stock. When
issued in accordance with the terms of this Agreement, the Lason Shares being
issued to Shareholders will be validly issued, fully paid and non-assessable.
SECTION 3.5 TRADING ON THE NASDAQ NATIONAL MARKET. The shares
of Buyer's Common Stock are currently registered for trading on the NASDAQ
National Market under the symbol "LSON". As soon as practicable, and in any
event within 60 days following the Closing Date, Buyer will prepare and file the
applicable listing application with respect to the Lason Shares with the NASDAQ
National Market and will use commercially reasonable efforts to cause such Lason
Shares to be so listed as promptly as practicable following such filing. For the
purposes of this Section 3.5, the term "Lason Shares" shall be understood to
mean the Escrowed Shares as defined elsewhere herein.
SECTION 3.6 BUYER'S SECURITIES FILINGS. Buyer's Annual Report
on Form 10-K for the year ended December 31, 1997, as amended, and Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 do not contain any
untrue statements of material fact or omit to state any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. There have been not material adverse
changes in the condition (financial or otherwise), earnings, business, assets,
liabilities, properties, or operations or prospects of Buyer since March 31,
1998.
ARTICLE 4
FURTHER AGREEMENTS OF THE PARTIES
SECTION 4.1 ACCESS TO INFORMATION. Buyer and its
representatives may make such investigation of the properties, 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 Shareholders or Corporation in
respect of the representations, warranties, schedules, certificates or
agreements given hereunder.
SECTION 4.2 CONDUCT OF BUSINESS BY CORPORATION. From the date
of this Agreement 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 assets with a value in excess of
$25,000 or the granting of any preferential right to purchase such
assets, properties or rights, except in connection with the sale or
lease of assets to customers in the ordinary course of business;
B. Maintain in full force and effect the insurance
policies listed in Schedule 2.19 to this Agreement;
23
<PAGE> 28
C. Make no change in its Articles of Incorporation
or Bylaws;
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, except for the conversion of Preferred Stock to Common Stock by
Siegel and the exercise of options by Chamberlain, Sipes, Hazell and
Lauderdale;
E. Declare or pay no dividend or other distribution
in respect of any shares of its capital;
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);
H. Enter into 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
$25,000.00;
I. Terminate none of the contracts or agreements
listed in Schedule 2.25 or modify any of said contracts or agreements
except in accordance with their terms;
J Except for the payment of employee PIB of
$235,000 for fiscal 1998, the payment of Management Incentives paid
through June 16, 1998, and the payment pursuant to existing
arrangements disclosed on Schedule 2.26: (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 no 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 no liability for borrowed money, other than in the ordinary
course of business, make no 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. Make or agree to make no capital expenditures in
excess of $25,000 for any single item, or $50,000 in the aggregate, or
enter into any leases of capital equipment or property under which the
annual lease charge is in excess of $25,000.00;
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;
24
<PAGE> 29
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 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;
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;
S. Write off none of the receivables on its books,
except in the ordinary course of business consistent with past
practices; and
T. Enter into a lease for real property with
Shareholders or any persons or entities affiliated with them.
SECTION 4.3 EXCLUSIVITY. Corporation will not (and
Shareholders will not cause or permit Corporation to) solicit, initiate or
encourage the submission of any proposal or offer from any person relating to
the acquisition of any capital stock or any other voting securities, or any
substantial parties of the assets of, Corporation (including any acquisition
structured as a merger, consolidation or share exchange). Shareholders and
Corporation will notify Buyer immediately if any person makes any proposal,
offer, inquiry or contact with respect to any of the foregoing and inform Buyer
of the terms, conditions and/or substance of such proposal, offer, inquiry or
contact.
SECTION 4.4 CONSENTS. Buyer, Shareholders and Corporation
shall 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, except to the extent receipt of a consent is waived by
Buyer.
SECTION 4.5 COMMUNICATIONS. Buyer, Shareholders and
Corporation agree to consult with each other and obtain the prior approval of
one another, which approval shall not be unreasonably withheld or delayed, on
reasonable notice as to the content of any press release or any written
statement for general circulation regarding the subject matter of this
Agreement.
SECTION 4.6 UPDATING OF SCHEDULES AND EXHIBITS. 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
SHAREHOLDERS AND CORPORATION
The obligations of Shareholders and Corporation to consummate
the transactions contemplated by this Agreement shall be subject to the
following conditions, except as Shareholders or Corporation may waive in writing
in accordance with Section 11.5 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.
25
<PAGE> 30
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. Shareholders and
Corporation shall have been furnished with a certificate executed by an officer
of Buyer in form and substance satisfactory to Shareholders and Corporation,
certifying the fulfillment of the conditions set forth in Section 5.2 above.
SECTION 5.4 LEGAL OPINION. Seyburn, Kahn, Ginn, Bess, Deitch
and Serlin, P.C., counsel for Buyer, shall have delivered to Shareholders and
Corporation its opinions to the effect set forth in EXHIBIT 5.4.
SECTION 5.5 EMPLOYMENT AGREEMENTS. Lundeen, Chamberlain,
Sipes and French shall have entered into the Employment Agreements contemplated
in Section 6.11 hereof.
SECTION 5.6 ESCROW AGREEMENT. Shareholders, Corporation and
Buyer shall have executed and delivered the Escrow Agreement contemplated in
Section 1.2 hereof.
SECTION 5.7 HSR ACT. All of the legal requirements required
under the HSR Act shall have been fulfilled and neither the Federal Trade
Commission nor the Department of Justice shall have instituted an action to
restrain or enjoin the consummation of the transaction.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations 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 Shareholders and Corporation and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors of Corporation and by Shareholders.
SECTION 6.2 SATISFACTORY INVESTIGATION. The investigation of
the business of Corporation contemplated in Section 4.1 hereof shall be
satisfactory to Buyer in all respects as determined in the exercise of its sole,
absolute and exclusive discretion. Such investigation shall, in all events,
include the approval by Buyer of the Financial Statements including, but not
limited to, the June Balance Sheet.
SECTION 6.3 UNTRUE STATEMENTS. This Agreement, together with
the Schedules 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 6.4 NO 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.
26
<PAGE> 31
SECTION 6.5 REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Shareholders and Corporation contained in this
Agreement, shall be true at and as of the Closing Date with the same effect as
though such representations and warranties have been made at and as of such
time, and Shareholders and Corporation 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 6.6 CERTIFICATE OF SHAREHOLDERS AND CORPORATION.
Buyer shall have been furnished with a certificate executed by an officer of
Corporation and certificates executed by Shareholders, in form and substance
satisfactory to Buyer, certifying to the fulfillment of the conditions set forth
in Section 6.5 above.
SECTION 6.7 LEGAL OPINION. Roger Neu, Esq. counsel for
Shareholders and Corporation, shall have delivered to Buyer his opinion to the
effect set forth in EXHIBIT 6.7.
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,
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 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, Buyer shall have received, in form and substance reasonably
satisfactory to Buyer, the resignations of all officers and directors of
Corporation, effective as of the Closing Date.
SECTION 6.11 EMPLOYMENT AGREEMENTS. Lundeen, Chamberlain,
Sipes and French shall have executed and delivered to Buyer employment
agreements on mutually acceptable terms and conditions.
SECTION 6.12 LOCK-UP AGREEMENT. Shareholders and Corporation
shall have executed and delivered to Buyer a Lock-Up Agreement in the form of
Exhibit 1.2(A-1).
SECTION 6.13 ESCROW AGREEMENT. Shareholders, Corporation and
Buyer shall have executed and delivered the Escrow Agreement contemplated in
Section 1.2 hereof.
SECTION 6.14 SIEGEL TRANSACTIONS. With regard to Siegel,
Corporation shall have: (i) caused the conversion of all preferred stock held by
Siegel to Common Stock in a manner acceptable to Buyer; (ii) secured an estoppel
letter from Phillip B. Siegel attesting to the fact that Corporation is not in
default under either his non-competition and/or employment agreements; (iii)
repaid all amounts owed to Siegel under
27
<PAGE> 32
a certain Secured Note inclusive of both principal and interest, as well as
termination of the Security Agreement securing such Note; (iv) provided Buyer
with a full and unconditional release with respect to all agreements between
Siegel and Corporation prior to closing, including but not limited to, a Stock
Redemption Agreement, Stock Pledge Agreement, Promissory Note and Security
Agreement except for obligations arising under those certain Non-Competition and
Employment Agreements dated July 1, 1996.
SECTION 6.15 OPTIONS. The options granted by Lundeen to
Sipes, Lauderdale, Hazell and Chamberlain shall have been exercised.
SECTION 6.16 REPAYMENT OF NOTE. The Promissory Note owed to
Corporation by Lundeen Siegel, a California limited partnership, shall have been
repaid in full (principal and interest).
SECTION 6.17 EXTENSION OF LEASES. Corporation's leases for its
headquarters facilities in Irvine, California which is leased from Lundeen
Siegel, a California limited partnership, and its facility in Tustin, California
which is leased from Philip B. Siegel d/b/a Consolidated Land Company shall have
been extended in writing for 5 years each on mutually acceptable terms and
conditions.
SECTION 6.18 UNITED REPROGRAPHICS. The Sellers in the United
Reprographics transaction shall have provided Buyer with an estoppel letter
attesting to the fact that Corporation is not in default under any existing
agreements.
SECTION 6.19 HSR ACT. All of the legal requirements required
under the HSR Act shall have been fulfilled and neither the Federal Trade
Commission nor the Department of Justice shall have instituted an action to
restrain or enjoin the consummation of the transaction.
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION OF AGREEMENT. This Agreement and the
transactions contemplated hereby may be terminated at any time prior to the
Closing Date, as follows:
A. MUTUAL CONSENT. By mutual consent of all of the
parties hereto.
B. BREACH. By Buyer on the one hand or by
Shareholders or Corporation on the other hand by reason of the breach
by the other in any material respect of any of its or their
representations, warranties, covenants or agreements contained in this
Agreement.
C. UNSATISFACTORY INVESTIGATION. By Buyer at any
time prior to the Closing Date if the investigation of the business of
Corporation is not satisfactory to Buyer.
D. RESPECTIVE CONDITIONS. By Buyer on the one hand
or by Shareholders or Corporation on the other hand if the conditions
precedent to their respective obligations contained in Articles 5 or 6
hereof have not been met in all material respects through no fault of
the terminating party by September 30, 1998.
SECTION 7.2 NO WAIVER. Termination as provided herein shall
not waive any rights of any party against another for default or breach of any
provision of this Agreement.
28
<PAGE> 33
ARTICLE 8
THE CLOSING
SECTION 8.1 TIME AND PLACE. The transfer of the Shares by
Shareholders to Buyer (the "CLOSING") shall take place at the offices of
Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C., at 10:00 a.m., local time,
within 1 business day of the passage of the applicable HSR waiting period or at
such other time and place as the parties may agree to in writing (the "CLOSING
DATE").
SECTION 8.2 SHAREHOLDERS' AND CORPORATION'S OBLIGATIONS AT
CLOSING. At the Closing, Shareholders and Corporation 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 8.3:
A. Certificates representing the Shares, registered
in the name of Shareholders, duly endorsed by the Shareholders for
transfer as specified in Section 1.1 above or accompanied by separate
written instruments of assignment. On submission of such certificates
to Corporation for transfer, Corporation shall issue to Buyer a new
certificate representing the Shares, registered in the name of Buyer;
B. The stock book, stock ledger, minute book and
corporate seal of Corporation;
C. The opinion of counsel as provided in
Section 6.7;
D. The written resignations of all the officers an
directors of Corporation;
E. The certificates executed by Corporation's
officer and Shareholders, dated the Closing Date, as provided in
Section 6.6;
F. The Employment Agreements contemplated in
Section 6.11;
G. The Escrow Agreement contemplated in Sections 5.6
and 6.13, and, in connection therewith, Shareholders are to deliver the
Escrow Shares to the Escrow Agent (as defined in the Escrow Agreement);
H. The Lock-Up Agreement contemplated in
Section 6.12 and Section 1.2;
I. All requisite instruments related to the Siegel
Transactions as contemplated in Section 6.14;
J. The United Reprographics Estoppel Letter as
contemplated in Section 6.19;
K. The Canceled Promissory Note referenced in
Section 6.17;
L. Certified resolutions of Corporation's Board of
Directors authorizing the execution, delivery and performance of this
Agreement and all actions to be taken by Corporation under this
Agreement;
M. A Certificate of Good Standing issued by the
Secretary of State of California and in such other jurisdictions as
Corporation is qualified to do business;
29
<PAGE> 34
N. Payoff letters and UCC termination statements
paying off Corporation's indebtedness to Wells Fargo and Siegel and
releasing all liens on its assets imposed in connection with such
indebtedness;
O. All requisite third party consents;
P. Written extensions of certain leases as
contemplated in Section 6.18 hereof; and
Q. Such other and further instruments as counsel for
Corporation and Buyer shall mutually agree are necessary to consummate
the transactions contemplated herein.
SECTION 8.3 BUYER'S OBLIGATIONS AT CLOSING. At the Closing,
Buyer shall deliver to Shareholder the following instruments and documents
against delivery of the items specified in Section 8.2:
A. The Cash Consideration;
B. The Lason Shares;
C. The certificate executed by officer of Buyer
dated the Closing Date, as provided in
Section 5.3;
D. The opinion of counsel as provided in
Section 5.4;
E. The Escrow Agreement contemplated in Sections
5.6 and 6.14;
F. Certified resolutions of Buyer's Board of
Directors authorizing the execution,
delivery and performance of this Agreement
and all actions to be taken by them under
this Agreement; and
G. Such other and further instruments as
counsel for Corporation and Buyer shall
mutually agree are necessary to consummate
the transactions contemplated herein.
ARTICLE 9
OBLIGATIONS AFTER CLOSING
SECTION 9.1 AGREEMENT TO REFRAIN FROM COMPETITION. For and in
consideration of the economic benefits generally accruing to Shareholders
hereunder, each Shareholder, other than Hazell and Lauderdale with such
Shareholders hereinafter being referred to as "Key Shareholders" for the
purposes of this Section 9.1, hereby agrees that for a term equal to the term of
those certain Employment Agreements contemplated in Section 6.11 hereof and for
a 3 year period thereafter (but in no event less than the 60 months period
following the Closing Date) in the case of Lundeen, Chamberlain, Sipes and
French and for the 60 month period following the Closing Date in the case of
Siegel (each, as applicable the "Non-Compete Period"), he or she shall not,
either directly or indirectly (and whether or not for compensation), work for,
be employed by, own, participate or engage in, or have any interest in, any
person, firm, entity, partnership, limited partnership, limited liability
company, corporation or business (whether as an employee, owner, partner,
member, shareholder, officer, director, agent, consultant or in any capacity
which calls for the rendering of personal services, advice, acts of management,
operation or control) that engages in any activity
30
<PAGE> 35
substantially the same as or competitive with the Business in Orange, Los
Angeles, Ventura, San Bernardino, Riverside and San Diego counties in the State
of California, or in the States of Arizona and Nevada (the "RESTRICTED
TERRITORY"). The foregoing shall not, however, be deemed to prevent the Key
Shareholders from owning in the aggregate up to 5.0% of the securities of any
corporation the shares of which are traded on a securities exchange or in the
over-the-counter market.
Each Key Shareholder further agrees that he or she shall not,
directly or indirectly, and in any of those capacities referenced above, at any
time during the Non-Compete Period: (i) divert or attempt to divert any Business
from Corporation (or any successor) or Buyer (and its subsidiaries) whether or
not in the Restricted Territory;(ii) solicit, contact, call upon or attempt to
solicit, or provide services to, any of the Corporation's (or its successors) or
Buyer's (and its subsidiaries) customers, suppliers or actively sought potential
customers or suppliers for the purpose of doing anything encompassed within the
definition of the Business or any work reasonably related to the Business
whether or not in the Restricted Territory; or (iii) induce or attempt to induce
any person who is an employee of Corporation (or any successor) or Buyer (and
its subsidiaries), or knowingly induce or attempt to induce any person who is an
employee of Corporation (or any successor) or Buyer (and its subsidiaries) to
leave the employ of Corporation (or any successor) or Buyer (and its
subsidiaries) whether or not in the Restricted Territory.
Each Key Shareholder shall keep secret and inviolate and shall
not divulge, communicate, use to the detriment of Corporation (or any successor)
or Buyer (and its subsidiaries) or for the benefit of any other person or
persons or misuse in any way any knowledge or information of a confidential
nature, including, without limitation, all trade secrets, personnel information,
computer programs, technical data, customer lists and unpublished matters
relating to the business, assets, accounts, books, records, customers and
contracts of Corporation (or any successor) or Buyer (and its subsidiaries)
which he may or hereafter come to know as a result of his association with and
which is unique to Corporation (or any successor) or Buyer (and its
subsidiaries) ("Confidential Information"). Each Key Shareholder may disclose
Confidential Information if required by any judicial or governmental request,
requirement or order provided that each Key Shareholder will take reasonable
steps to give Corporation (or any successor) or Buyer (and its subsidiaries), as
applicable, sufficient prior notice in order to contest such request,
requirement or order.
Key Shareholders have had knowledge of the affairs, trade
secrets, customers, potential customers and other proprietary information of
Corporation (or any successor) or Buyer (and its subsidiaries), and Key
Shareholders acknowledge and agree that compliance with the covenants set forth
in this Section 9.1 is necessary for the protection of the business, goodwill
and other proprietary interests of Corporation (or any successor) and Buyer (and
its subsidiaries) and that any violation of this Section 9.1 will cause severe
and irreparable injury to the business, goodwill and proprietary interests of
Corporation (or any successor) or Buyer (and its subsidiaries), which injury is
not compensable by money damages. Accordingly, in the event of a breach (or
threatened or attempted breach) of this Section 9.1, Corporation (or any
successor), Buyer (and its subsidiaries) shall, in addition to any other rights
and remedies, be entitled to immediate appropriate injunctive relief or a decree
of specific performance, without the necessity of showing any irreparable injury
or special damages.
If, in any judicial proceeding, a court shall refuse to
enforce any of the covenants included herein, then said unenforceable
covenant(s) shall be deemed modified so as to become unenforceable to the
maximum extent permitted, and if such modification is not permitted, then such
unenforceable covenants 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 enforced. It is the intent and agreement of
Corporation, Buyer and Key Shareholders that these covenants be given the
maximum force, effect and application permissible under law.
31
<PAGE> 36
The provisions of this Section 9.1 shall survive the closing
of the transaction contemplated in this Agreement.
SECTION 9.2 FURTHER ASSURANCES. From time to time, at Buyer's
request and without further consideration and at the expense of Buyer,
Shareholders and Corporation 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.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1 BUYER'S INDEMNITY. Buyer agrees to indemnify and
hold harmless Shareholders from and against, and in respect to, any and all
losses, expenses, costs, obligations, liabilities and damages, including
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"LOSSES") they may incur by reason of: (i) Buyer's breach of or failure to
perform any of its representations, warranties, commitments, covenants or
agreements 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
(ii) any act or omission of Buyer or Corporation, or any of their respective
successors or assigns, after the Closing Date, that constitutes a breach or
default under, or a failure to perform any obligation, duty or liability of
Buyer or Corporation, respectively, under any loan agreement, lease, contract,
order or other agreement (relating to the business of Corporation) to which
Buyer or Corporation, respectively, is a party or by which any of them is bound.
SECTION 10.2 SHAREHOLDERS' INDEMNITY. Shareholders hereby
indemnify, defend and hold harmless Buyer from and against, and in respect to,
any and all losses, expenses, costs, obligations, liabilities and damages
including interest, penalties and reasonable attorneys' fees and expenses, that
Buyer may incur by reason of Shareholders' or Corporation's breach of or failure
by Shareholders or Corporation to perform, any of their representations,
warranties, commitments, covenants or agreements in this Agreement, including
any exhibit hereto. Shareholders further indemnify and hold Buyer and
Corporation harmless from: (i) any and all costs or expenses related to
Corporation's compliance with foreign, federal, state, and local tax laws for
periods of time prior to the Closing Date including, but not limited to, paying
all taxes when and as requested to do so by Buyer (the "Tax Indemnity") and (ii)
any and all costs or expenses of whatsoever type or kind (including tax
liability inclusive of interest and penalties) related to those certain
unresolved accounting issues disclosed in Schedule 2.7, notwithstanding their
disclosure in such Schedule 2.7 (collectively, the "GAAP Exceptions"), provided,
however, Shareholders shall have no liability arising out of the exercise of
stock options including no effect on the Earnout Payment. The liability of
Shareholders hereunder shall be joint and several with the following exceptions:
(i) Except as noted herein, Siegel, Hazell and Lauderdale shall only be liable
up to the amount of their pro rata Shareholder interest as set forth on Schedule
1.2 (A-2) for indemnification and damages arising out of breaches of any
representation and warranty by Shareholders or any other damages attributable to
Shareholders arising out of the Agreement that would result in a reduction of
the Purchase Price or Earnout Payments; (ii) Each Shareholder's liability for
damages attributable to a misrepresentation or breach by said Shareholder of the
representations and warranties set forth in Sections 2.2, 2.3, 2.5, 2.36 and 9.1
shall be limited to those damages arising out of said Shareholder's
misrepresentation or breach.
SECTION 10.3 METHOD OF ASSERTING CLAIMS. The party seeking
indemnification (the "INDEMNITEE") will give prompt written notice to the other
party or parties (the "INDEMNITOR") of any claim ("CLAIM") which it discovers or
of which it receives notice after the Closing and which might give rise to a
32
<PAGE> 37
Claim by it against Indemnitor under Sections 10.1 or 10.2 and Section 1.4 B.
hereof as the case may be, stating the nature, basis and (to the extent known)
amount thereof; provided that failure to give prompt notice shall not jeopardize
Indemnitee's right to indemnification unless such failure shall have materially
prejudiced the ability of Indemnitor to defend such Claim. Thereafter, the
parties shall meet in good faith in an effort to resolve the Claim. If no such
mutually satisfactory resolution is reached within 30 days after the date of
written notice of a Claim, either party shall have the right to submit the
question to arbitration in accordance with Section 11.14 hereof.
SECTION 10.4 THIRD PARTY CLAIMS. In case of any Claim, suit or
proceeding by a third party or by any government body, or any legal,
administrative or arbitration proceedings with respect to which Indemnitor may
have liability under the indemnity agreement contained in either Section 9.1. or
9.2 as the case may be, Indemnitor shall be entitled to participate therein,
and, to the extent desired by Indemnitor, to assume the defense thereof at its
own expense and through counsel of its own choosing, and after notice from
Indemnitor to Indemnitee of the election so to assume the defense thereof,
Indemnitor will not be liable to Indemnitee for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof,
other than reasonable costs of investigation, unless Indemnitor does not
actually assume the defense thereof following notice of such election. The
parties will render each other such assistance as may reasonably be required of
each other in order to insure proper and adequate defense of any such suit,
Claim or proceeding. Indemnitee will not make any settlement of any suit, Claim
or proceeding which might give rise to liability of Indemnitor under the
indemnity agreements contained in either Section 10.1 or 10.2 hereof as the case
may be without the written consent of Indemnitor, which consent shall not be
unreasonably withheld. If Indemnitor shall desire and be able to effect, a bona
fide compromise or settlement of any such suit, Claim, or proceeding and
Indemnitee shall unreasonably refuse to consent to such compromise or
settlement, then Indemnitor's liability under either Section 10.1 or 10.2 as the
case may be with respect to such suit, Claim or proceeding shall be limited to
the amount so offered in compromise or settlement together with all legal and
other expenses which may have been incurred prior to the date on which
Indemnitee has refused to consent to such compromise or settlement.
SECTION 10.5 SURVIVAL OF SHAREHOLDERS' INDEMNITY OBLIGATIONS.
Shareholders' liability for a breach of the representations, warranties and
covenants made by Shareholders or Corporation 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 Buyer and shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of 18 months from the Closing Date, except for Claims relating to
Sections 2.3, 2.5, 2.11, 2.16 and 2.36, any of which may be brought during any
applicable period of limitations and except for Claims arising out of, or
relating to, the Tax Indemnity and the GAAP Exceptions which may be brought at
any time following the date hereof.
SECTION 10.6 SURVIVAL OF BUYER'S INDEMNITY OBLIGATIONS.
Buyer's liability for a breach of the representations, warranties and covenants
made by Buyer 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 Shareholders and
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
SECTION 10.7 LIMITATION ON INDEMNIFICATION. Except as set
forth herein, the following limitations shall apply to the rights of
indemnification set forth in Section 10.1 and 10.2 hereof as applicable (and
notwithstanding Section 10.5 hereof): (i) the liability of the Indemnitor shall
be net of any insurance benefits received by Indemnitee (or in the case of
indemnification by Shareholders, of insurance benefits received by Corporation)
and any tax benefits received by Indemnitee (or in the case of indemnification
by Shareholders, of tax benefits received by Corporation) in respect of the loss
giving rise to the Claim for
33
<PAGE> 38
indemnification; (ii) any indemnification payments made by Buyer shall
constitute an increase, and any indemnification payments made by Shareholders
shall constitute a reduction, of the Purchase Price; and (iii) no
indemnification shall be required from Shareholders until the aggregate amount
of Buyer's damages (determined in accordance with clause (I) of this Section
10.7) exceed $300,000 and then only for amounts in excess of $300,000; provided,
however, that no such limitation on indemnification shall be applicable to: (i)
claims arising under Section 2.11 hereof or under the Tax Indemnity or (ii)
claims arising in connection with the GAAP Exceptions.
SECTION 10.8 RECEIVABLES INDEMNITY. In the event that
Shareholders pay any amounts to Buyer with respect to uncollected receivables
pursuant to Section 2.12 hereof then, and in that event, such receivable or
receivables shall be assigned to Shareholders for collection.
ARTICLE 11
MISCELLANEOUS PROVISIONS
SECTION 11.1 FINDER'S OR BROKER'S FEES. Except for its
agreement with Harlingwood, Buyer represents and warrants that it has dealt with
no broker or finder in connection with any of the transactions contemplated by
this Agreement, 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,
except for Harlingwood. Buyer agrees to indemnify and hold harmless Corporation
and Shareholders against any loss, liability, damage, cost, claim or expense
incurred by reason of any brokerage, commission or finder's fee alleged to be
payable to Harlingwood by reason of any act, omission or statement of Buyer.
Each of Corporation and Shareholders represent and warrant that he or it has
dealt with no broker or finder in connection with any of the transactions
contemplated by this Agreement, and, insofar as he or it knows, no broker or
other person is entitled to any commission or finder's fee in connection with
any of these transactions. Shareholders and Corporation each agree to indemnify
and hold harmless Buyer 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 of their acts, omissions or statements.
SECTION 11.2 EXPENSES. Except as otherwise provided in Section
11.15, Buyer and Shareholders shall, individually, pay all costs and expenses
incurred or to be incurred by any of them in negotiating and preparing this
Agreement and in closing and carrying out the transactions contemplated hereby.
SECTION 11.3 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.
SECTION 11.4 ENTIRE AGREEMENT; MODIFICATION. This Agreement,
together with all of the schedules and exhibits furnished hereunder, constitute
the sole and entire agreement among 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 11.5 WAIVER. Any party hereto may waive, in writing,
compliance by the other party of 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 11.5 shall apply, unless
34
<PAGE> 39
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 11.6 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. A party may execute this Agreement and transmit its signature by
facsimile, which shall be fully binding, and the party taking such actions shall
deliver a manually signed original as soon as is practicable.
SECTION 11.7 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 this
Agreement 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 to this
Agreement.
SECTION 11.8 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 permitted assigns.
SECTION 11.9 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.
SECTION 11.10 SUCCESSORS AND ASSIGNS. Neither Shareholders'
nor Buyer's rights or obligations under this Agreement may be assigned, except
that Buyer may assign its rights and obligations hereunder to an affiliate
provided that such affiliate shall execute and deliver such documentation
necessary to be bound by the terms of this Agreement provided that Buyer shall
remain primarily liable hereunder. Any assignment in violation of the foregoing
shall be null and void.
SECTION 11.11 NOTICES. Any notices, consent, approval or other
communications given pursuant to the provisions of this Agreement shall be in
writing and shall be (a) mailed by certified mail or registered mail, return
receipt requested, postage prepaid, or (b) delivered by a nationally recognized
overnight courier, U.S. Post Office Express Mail, or similar overnight courier
which delivers only upon signed receipt of the addressee, and addressed as
follows:
If to Shareholders or CONSOLIDATED REPROGRAPHICS
Corporation at: 31 Musick Avenue
Irvine, California 92618-1638
With a copy (which ROGER L. NEU, ESQ.
shall not constitute 2603 Main Street, Suite 1099
notice) to: Irvine, California 92614
35
<PAGE> 40
If to Buyer at: LASON, INC.
1305 Stephenson Highway
Troy, Michigan 48083
Attn: Gary L. Monroe, Chairman, President
and Chief Executive Officer
With a copy SEYBURN, KAHN, GINN, BESS
(which shall not DEITCH AND SERLIN, P.C.
constitute notice) 2000 Town Center, Suite 1500
to: Southfield, Michigan 48075-1195
Attn: Laurence B. Deitch, Esq.
The time of giving of any notice shall be the time of receipt thereof by the
addressee or any agent of the addressee, except that in the event the addressee
or such agent of the addressee shall refuse to receive any notice given by
registered mail or certified mail as above provided or there shall be no person
available at the time of the delivery thereof to receive such notice, the time
of the giving of such notice shall be the time of such refusal or the time of
such delivery, as the case may be. Any party hereto may, by giving five (5) days
written notice to the other party hereto, designate any other address in
substitution of the foregoing address to which notice shall be given.
SECTION 11.12 DEFINITIONS. All terms defined in this Agreement
shall have such defined meanings when used in any exhibit, schedule, or any
certificate or other document made or delivered pursuant thereto or thereto,
unless otherwise defined therein.
SECTION 11.13 CHOICE OF LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Michigan, without
giving effect to any choice of law or conflict provision or rule, whether of the
State of Michigan (or any other jurisdiction) that would cause the laws of any
jurisdiction other than the State of Michigan to be applied. In furtherance of
the foregoing, the internal law of the State of Michigan will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law or analysis, the substantive law
of some other jurisdiction would ordinarily apply.
SECTION 11.14 ARBITRATION. Except for claims arising out of
Section 9.1 of this Agreement (which claims may be brought in a Federal or State
court of competent jurisdiction in either the State of Michigan or the State of
California as Buyer may elect) in the event of a dispute between the parties
hereto concerning any of the provisions of this Agreement, the parties shall
promptly meet and discuss such dispute in a good faith effort to resolve such
dispute. If no resolution is reached within 30 days following the date on which
one party first notifies the other of his or its request that such a meeting be
held, then, and in that event, the dispute shall be resolved by final and
binding arbitration in Orange County, California pursuant to the commercial
arbitration rules then prevailing of the American Arbitration Association.
Notwithstanding the foregoing, each party specifically reserves the right (a) to
seek equitable remedies in a Federal or state court of competent jurisdiction
sitting in either the State of Michigan or in the State of California as
plaintiff in the action may elect, except for claims arising under Section 9.1
hereof, where Buyer shall have the sole right to select the venue for
adjudication; and (b) to bring a third party action against any other party in
any proceeding to which the party initiating such third party action (the
"INITIATING PARTY") is a party under circumstances in which the basis of the
claim of the initiating party against he other party is that the other party is
liable, in whole or in part, for any claim or counterclaim being asserted
against the initiating party in such proceeding. The decision of the arbitrators
when rendered shall be final and binding on the parties hereto. Judgment upon
the award of the arbitrators may be entered by any court of competent
jurisdiction. The cost of the arbitration
36
<PAGE> 41
proceeding (exclusive of counsel fees) shall be borne equally by the parties,
except as otherwise specifically provided herein.
SECTION 11.15 HSR ACT. Buyer and Shareholders shall cooperate
in good faith in complying with the HSR Act and in attempting to secure early
termination of the applicable HSR Act waiting period. In connection therewith,
Buyer acknowledges that it shall pay and is solely responsible for all expenses
related to complying with HSR Act, including the initial HSR Act filing fee in
the amount of [$45,000] and the fees of counsel to Corporation and Shareholders
in complying with the HSR Act. As a pre-condition to the obligations of Buyer to
consummate the transaction contemplated by this Agreement, Shareholders shall
have fully complied with the applicable provisions of the HSR Act, and any and
all applicable waiting periods thereunder shall have expired, or an opinion
reasonably acceptable to Buyer state that no such filing is required shall have
been delivered to Buyer. As a pre-condition to the obligations of Shareholders
to consummate the transaction contemplated by this Agreement, Buyer shall have
fully complied with the applicable provisions of the HSR Act, and any and all
applicable waiting periods thereunder shall have expired or an opinion
reasonably acceptable to Shareholders stating that no such filing is required
shall have been delivered to Shareholders.
SECTION 11.16 POWER OF ATTORNEY. Shareholders hereby appoint
Lundeen (or in the event of his death, incapacity or unwillingness to serve,
Chamberlain) as their attorney-in-fact for the following purposes: (i) to act as
their spokesman and to bind them with regard to any matters arising hereunder
requiring the action of Shareholders, including, but not limited to, matters
related to the Net Working Capital adjustment, the Earnout Payments and
indemnification; and (ii) to execute and deliver any and all documents necessary
to close the transaction contemplated herein, not executed by a Shareholder
individually.
37
<PAGE> 42
IN WITNESS WHEREOF, each of the parties hereto have signed
this Agreement for the Purchase and Sale of Stock or has caused the same to be
signed by its duly authorized officer as of the date first above written.
BUYER:
LASON, INC., a Delaware corporation
By /s/ GARY L. MONROE
----------------------------------------------
GARY L. MONROE
Its: Chairman, President and Chief Executive
Officer
SHAREHOLDERS:
/s/ ARTHUR G. LUNDEEN
------------------------------------------------
ARTHUR G. LUNDEEN
/s/ JAMES M. CHAMBERLAIN
------------------------------------------------
JAMES M. CHAMBERLAIN, individually and as
Trustee of the Chamberlain Family Trust U/T/D
dated March 6, 1997
/s/ ARLENE M. CHAMBERLAIN
------------------------------------------------
ARLENE M. CHAMBERLAIN, individually and as
Trustee of the Chamberlain Family Trust U/T/D
dated March 6, 1997
/s/ MARK W. SIPES
------------------------------------------------
MARK W. SIPES
/s/ RICHARD C. FRENCH
------------------------------------------------
RICHARD C. FRENCH
/s/ PHILLIP B. SIEGEL
------------------------------------------------
PHILLIP B. SIEGEL, individually and as
Co-Trustee of the Phillip B. Siegel Family Trust
established November 22, 1982
38
<PAGE> 43
/s/ DIANE R. SIEGEL
------------------------------------------------
DIANE R. SIEGEL, individually and as Co-Trustee
of the Phillip B. Siegel Family Trust
established November 22, 1982
/s/ CHARLES K. LAUDERDALE
------------------------------------------------
CHARLES K. LAUDERDALE
/s/ ERIC HAZELL
------------------------------------------------
ERIC HAZELL
CORPORATION:
CONSOLIDATED REPROGRAPHICS,
a California corporation
By:/s/ ARTHUR G. LUNDEEN
---------------------------------------------
ARTHUR G. LUNDEEN, PRESIDENT
39
<PAGE> 44
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Agreement and that I know
its contents. I am aware that by its provisions my spouse, Mark W. Sipes, agrees
to sell all his shares of the Company, including my community interest in them,
if any. I hereby acknowledge and agree that the Shares are my spouse's sole and
separate property and that I will take no action at any time to hinder the
operation of the Agreement on those Shares.
/s/ Debra K. Sipes
--------------------------------
Debra K. Sipes
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Agreement and that I know
its contents. I am aware that by its provisions my spouse, Arthur G. Lundeen,
agrees to sell all his shares of the Company, including my community interest in
them, if any. I hereby acknowledge and agree that the Shares are my spouse's
sole and separate property and that I will take no action at any time to hinder
the operation of the Agreement on those Shares.
/s/ Patricia T. Lundeen
--------------------------------
Patricia T. Lundeen
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Agreement and that I know
its contents. I am aware that by its provisions my spouse, Charles K.
Lauderdale, agrees to sell all his shares of the Company, including my community
interest in them, if any. I hereby acknowledge and agree that the Shares are my
spouse's sole and separate property and that I will take no action at any time
to hinder the operation of the Agreement on those Shares.
/s/ Kathleen S. Lauderdale
--------------------------------
Kathleen S. Lauderdale
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Agreement and that I know
its contents. I am aware that by its provisions my spouse, Eric Hazell, agrees
to sell all his shares of the Company, including my community interest in them,
if any. I hereby acknowledge and agree that the Shares are my spouse's sole and
separate property and that I will take no action at any time to hinder the
operation of the Agreement on those Shares.
/s/ Mary K. Hazell
--------------------------------
Mary K. Hazell
40
<PAGE> 1
EXHIBIT 4.2
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
among
LASON, INC.,
THE LENDERS NAMED HEREIN,
FIRST UNION NATIONAL BANK,
as Agent,
and
COMERICA BANK and NBD BANK,
as Co-Agents
$150,000,000 Senior Credit Facility
Arranged by
FIRST UNION CAPITAL MARKETS
A division of Wheat First Securities, Inc.
Dated as of June 29, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS.........................................................................1
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS..............................................................2
1.2 ACCOUNTING TERMS..........................................................20
1.3 OTHER TERMS; CONSTRUCTION.................................................20
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1 COMMITMENTS...............................................................20
2.2 BORROWINGS................................................................21
2.3 DISBURSEMENTS; FUNDING RELIANCE; DOMICILE OF LOANS........................24
2.4 NOTES.....................................................................25
2.5 TERMINATION AND REDUCTION OF COMMITMENTS AND SWINGLINE COMMITMENT.........25
2.6 MANDATORY PAYMENTS AND PREPAYMENTS........................................26
2.7 VOLUNTARY PREPAYMENTS.....................................................27
2.8 INTEREST..................................................................28
2.9 FEES......................................................................29
2.10 INTEREST PERIODS.......................................................30
2.11 CONVERSIONS AND CONTINUATIONS..........................................31
2.12 METHOD OF PAYMENTS; COMPUTATIONS.......................................32
2.13 RECOVERY OF PAYMENTS...................................................33
2.14 USE OF PROCEEDS........................................................33
2.15 PRO RATA TREATMENT.....................................................33
2.16 INCREASED COSTS; CHANGE IN CIRCUMSTANCES; ILLEGALITY; ETC..............34
2.17 TAXES..................................................................36
2.18 COMPENSATION...........................................................38
2.19 OPTIONAL INCREASE IN COMMITMENTS.......................................39
ARTICLE III
LETTERS OF CREDIT
3.1 ISSUANCE..................................................................40
3.2 NOTICES...................................................................41
3.3 PARTICIPATIONS............................................................41
3.4 REIMBURSEMENT.............................................................42
3.5 PAYMENT BY LOANS..........................................................42
3.6 PAYMENT TO LENDERS........................................................43
3.7 OBLIGATIONS ABSOLUTE......................................................43
3.8 CASH COLLATERAL ACCOUNT...................................................45
3.9 EFFECTIVENESS.............................................................45
</TABLE>
i
<PAGE> 3
ARTICLE IV
CONDITIONS OF BORROWING
4.1 CONDITIONS OF INITIAL BORROWING...................................46
4.2 CONDITIONS OF ALL BORROWINGS......................................49
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 CORPORATE ORGANIZATION AND POWER..................................50
5.2 AUTHORIZATION; ENFORCEABILITY.....................................50
5.3 NO VIOLATION......................................................50
5.4 GOVERNMENTAL AND THIRD-PARTY AUTHORIZATION; PERMITS...............51
5.5 LITIGATION........................................................51
5.6 TAXES.............................................................51
5.7 SUBSIDIARIES......................................................52
5.8 FULL DISCLOSURE...................................................52
5.9 MARGIN REGULATIONS................................................52
5.10 NO MATERIAL ADVERSE CHANGE.....................................52
5.11 FINANCIAL MATTERS..............................................52
5.12 OWNERSHIP OF PROPERTIES........................................53
5.13 ERISA..........................................................53
5.14 ENVIRONMENTAL MATTERS..........................................54
5.15 COMPLIANCE WITH LAWS...........................................55
5.16 REGULATED INDUSTRIES...........................................55
5.17 INSURANCE......................................................55
5.18 MATERIAL CONTRACTS.............................................55
5.19 SECURITY DOCUMENTS.............................................55
5.20 LABOR RELATIONS................................................56
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1 FINANCIAL STATEMENTS..............................................56
6.2 OTHER BUSINESS AND FINANCIAL INFORMATION..........................57
6.3 CORPORATE EXISTENCE; FRANCHISES; MAINTENANCE OF PROPERTIES........59
6.4 COMPLIANCE WITH LAWS..............................................60
6.5 PAYMENT OF OBLIGATIONS............................................60
6.6 INSURANCE.........................................................60
6.7 MAINTENANCE OF BOOKS AND RECORDS; INSPECTION......................60
6.8 PERMITTED ACQUISITIONS............................................60
6.9 CREATION OR ACQUISITION OF SUBSIDIARIES...........................62
6.10 ADDITIONAL SECURITY............................................63
6.11 FURTHER ASSURANCES.............................................63
6.12 LANDLORD AGREEMENTS............................................64
6.13 YEAR 2000 COMPATIBILITY........................................64
6.14 ACQUISITIONS BY LASON INTERNATIONAL............................64
ARTICLE VII
FINANCIAL COVENANTS
7.1 SENIOR LEVERAGE RATIO.............................................64
7.2 TOTAL LEVERAGE RATIO..............................................64
ii
<PAGE> 4
7.3 FIXED CHARGE COVERAGE RATIO.........................................64
7.4 MINIMUM CONSOLIDATED NET WORTH......................................65
ARTICLE VIII
NEGATIVE COVENANTS
8.1 MERGER; CONSOLIDATION..............................................65
8.2 INDEBTEDNESS.......................................................65
8.3 LIENS..............................................................67
8.4 DISPOSITION OF ASSETS..............................................68
8.5 INVESTMENTS........................................................69
8.6 RESTRICTED PAYMENTS................................................70
8.7 TRANSACTIONS WITH AFFILIATES.......................................70
8.8 LINES OF BUSINESS..................................................70
8.9 CERTAIN AMENDMENTS.................................................70
8.10 LIMITATION ON CERTAIN RESTRICTIONS..............................71
8.11 NO OTHER NEGATIVE PLEDGES.......................................71
8.12 FISCAL YEAR.....................................................71
8.13 ACCOUNTING CHANGES..............................................71
8.14 INACTIVE SUBSIDIARIES...........................................71
8.15 BORROWER ACTIVITIES.............................................71
ARTICLE IX
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT..................................................72
9.2 REMEDIES: TERMINATION OF COMMITMENTS, ACCELERATION, ETC............74
9.3 REMEDIES: SET-OFF..................................................75
ARTICLE X
THE AGENT
10.1 APPOINTMENT.....................................................75
10.2 NATURE OF DUTIES................................................76
10.3 EXCULPATORY PROVISIONS..........................................76
10.4 RELIANCE BY AGENT...............................................76
10.5 NON-RELIANCE ON AGENT AND OTHER LENDERS.........................77
10.6 NOTICE OF DEFAULT...............................................77
10.7 INDEMNIFICATION.................................................78
10.8 THE AGENT IN ITS INDIVIDUAL CAPACITY............................78
10.9 SUCCESSOR AGENT.................................................79
10.10 COLLATERAL MATTERS..............................................79
10.11 ISSUING LENDER AND SWINGLINE LENDER.............................79
10.12 CO-AGENTS.......................................................79
ARTICLE XI
MISCELLANEOUS
11.1 FEES AND EXPENSES...............................................80
11.2 INDEMNIFICATION.................................................80
11.3 GOVERNING LAW; CONSENT TO JURISDICTION..........................81
11.4 ARBITRATION; PRESERVATION AND LIMITATION OF REMEDIES............82
11.5 NOTICES.........................................................83
11.6 AMENDMENTS, WAIVERS, ETC........................................83
iii
<PAGE> 5
11.7 ASSIGNMENTS, PARTICIPATIONS.....................................84
11.8 NO WAIVER.......................................................86
11.9 SUCCESSORS AND ASSIGNS..........................................87
11.10 SURVIVAL........................................................87
11.11 SEVERABILITY....................................................87
11.12 CONSTRUCTION....................................................87
11.13 CONFIDENTIALITY.................................................87
11.14 COUNTERPARTS; EFFECTIVENESS.....................................88
11.15 DISCLOSURE OF INFORMATION.......................................88
11.16 ENTIRE AGREEMENT................................................88
iv
<PAGE> 6
EXHIBITS
Exhibit A-1 Form of Revolving Note
Exhibit A-2 Form of Swingline Note
Exhibit B-1 Form of Notice of Borrowing
Exhibit B-2 Notice of Swingline Borrowing
Exhibit B-3 Form of Notice of Conversion/Continuation
Exhibit B-4 Form of Letter of Credit Notice
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Pledge and Security Agreement
Exhibit F Form of Pledge Agreement
Exhibit G Form of Subsidiary Guaranty
Exhibit H Form of Opinion of Seyburn, Kahn, Ginn, Bess, Deitch & Serlin
Exhibit I Form of Financial Condition Certificate
Exhibit J Form of Lender Addition and Acknowledgment Agreement
SCHEDULES
Schedule 5.7 Subsidiaries
Schedule 5.12 Real Property
Schedule 5.17 Insurance
Schedule 5.18 Contracts
Schedule 8.2 Indebtedness
Schedule 8.3 Liens
Schedule 8.5 Investments
Schedule 8.7 Transactions with Affiliates
<PAGE> 7
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of the 29th
day of June, 1998 (this "Agreement"), is made among LASON, INC., a Delaware
corporation with its principal offices in Troy, Michigan (the "Borrower"), the
banks and financial institutions listed on the signature pages hereto or that
become parties hereto after the date hereof (collectively, the "Lenders"), and
FIRST UNION NATIONAL BANK ("First Union"), as agent for the Lenders (in such
capacity, the "Agent").
RECITALS
A. This Agreement amends and restates the Loan Agreement among
the Agent, the Lenders parties thereto and Lason Services, Inc., a wholly owned
Subsidiary of the Borrower ("Services") dated as of January 17, 1995 (the
"Initial Agreement"), as amended and restated by that Amended and Restated Loan
Agreement dated as of February 21, 1997 (the "First Restatement"). Under the
Initial Agreement, as amended and restated by the First Restatement, the
Lenders have made available to Services revolving loans.
B. The Borrower has requested that the Lenders amend and restate the
Initial Agreement to allow for a substitution of the Borrower for Services as
the borrower hereunder, to make available to the Borrower a revolving credit
facility in the aggregate initial principal amount of $150,000,000, which amount
may be increased to a maximum aggregate principal amount of $200,000,000
pursuant to the terms and conditions hereof, and to make certain other
amendments as contained herein. The Borrower will use the proceeds of this
facility to finance permitted acquisitions, to pay or reimburse certain fees and
expenses in connection herewith, and for working capital and general corporate
purposes of Services, all as more fully described herein.
C. The Lenders are willing to make available to the Borrower the
credit facility described herein subject to and on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual provisions, covenants
and agreements herein contained, the parties hereto hereby agree as follows:
<PAGE> 8
ARTICLE I
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, in addition to
the terms defined elsewhere herein, the following terms shall have the
meanings set forth below (such meanings to be equally applicable to the
singular and plural forms thereof):
"Account Designation Letter" shall mean a letter from the Borrower to
the Agent, duly completed and signed by an Authorized Officer and in form and
substance satisfactory to the Agent, listing any one or more accounts to which
the Borrower may from time to time request the Agent to forward the proceeds of
any Loans made hereunder.
"Acquisition" shall mean any acquisition, whether in a single
transaction or series of related transactions, by the Borrower or any one or
more Subsidiaries, or any combination thereof, of (a) all or a substantial part
of the assets, or a going business or division, of any Person, whether through
purchase of assets, merger or otherwise, or (b) control of at least a majority
in voting power of the Stock of any Person
"Acquisition Amount" shall mean, with respect to any Acquisition, the
sum (without duplication) of (i) the amount of cash paid by the Borrower and its
Subsidiaries in connection with such Acquisition, (ii) the Fair Market Value of
all Capital Stock of the Borrower issued or given in connection with such
Acquisition, (iii) the amount (determined by using the face amount or the amount
payable at maturity, whichever is greater) of all Indebtedness incurred, assumed
or acquired by the Borrower and its Subsidiaries, as applicable, in connection
with such Acquisition, (iv) all additional purchase price amounts in connection
with such Acquisition in the form of earnouts and other contingent obligations
that should be recorded as a liability on the balance sheet of the Borrower and
its Subsidiaries, or expensed, in either event in accordance with GAAP,
Regulation S-X under the Securities Act of 1933, as amended, or any other rule
or regulation of the Securities and Exchange Commission, (v) all amounts paid in
respect of covenants not to compete, consulting agreements and other affiliated
contracts in connection with such Acquisition, (vi) the amount of all
transaction fees and expenses (including, without limitation, legal, accounting
and finders' fees and expenses) incurred by the Borrower and its Subsidiaries in
connection with such Acquisition and (vii) the aggregate fair market value of
all other consideration given by the Borrower and its Subsidiaries in connection
with such Acquisition.
"Adjusted Base Rate" shall mean, at any time with respect to any Base
Rate Loan, a rate per annum equal to the Base Rate as in effect at such time
plus the Applicable Margin Percentage for Base Rate Loans as in effect at such
time.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate as in effect at such time plus
the Applicable Margin Percentage for LIBOR Loans as in effect at such time.
2
<PAGE> 9
"Affiliate" shall mean, as to any Person, each other Person that
directly, or indirectly through one or more intermediaries, owns or controls, is
controlled by or under common control with, such Person or is a director or
officer of such Person. For purposes of this definition, with respect to any
Person "control" shall mean (i) the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the beneficial ownership of securities or other ownership interests of such
Person having 10% or more of the combined voting power of the then outstanding
securities or other ownership interests of such Person ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors or other governing body of such Person.
"Agent" shall mean First Union, in its capacity as Agent appointed
under ARTICLE X, and its successors and permitted assigns in such capacity.
"Agreement" shall mean this Second Amended and Restated Credit
Agreement, as amended, modified or supplemented from time to time.
"Applicable Margin Percentage" shall mean, at any time from and after
the Closing Date, the applicable percentage (a) to be added to the Base Rate
pursuant to SECTION 2.8 for purposes of determining the Adjusted Base Rate, (b)
to be added to the LIBOR Rate pursuant to SECTION 2.8 for purposes of
determining the Adjusted LIBOR Rate, and (c) to be used in calculating the
commitment fee payable pursuant to SECTION 2.9(B), in each case as determined
under the following matrix with reference to the Total Leverage Ratio:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin Applicable Margin
Percentage for Percentage for Percentage for
Total Leverage Ratio Base Rate Loans LIBOR Loans Commitment Fee
-------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Greater than 3.5 to 1.0 .50% 1.75% .375%
Greater than 3.0 to 1.0 but less
than or equal to 3.5 to 1.0
.25% 1.50% .350%
Greater than 2.5 to 1.0 but less
than or equal to 3.0 to 1.0
0.00% 1.25% .300%
Greater than 1.5 to 1.0 but less
than or equal to 2.5 to 1.0
0.00% 1.00% .250%
ss than or equal to 1.50 to 1.0 0.00% .75% .250%
</TABLE>
On each Adjustment Date (as hereinafter defined), the Applicable Margin
Percentage for all Loans and the commitment fee payable pursuant to SECTION
2.9(B) shall be adjusted effective as of such
3
<PAGE> 10
date (based upon the calculation of the Leverage Ratio as of the last day of the
fiscal period to which such Adjustment Date relates) in accordance with the
above matrix; provided, however, that, notwithstanding the foregoing or anything
else herein to the contrary, if at any time the Borrower shall have failed to
deliver the financial statements and a Compliance Certificate as required by
SECTION 6.1(A) or SECTION 6.1(B), as the case may be, and SECTION 6.2(A), or if
at any time a Default or Event of Default shall have occurred and be continuing,
then at the election of the Required Lenders, at all times from and including
the date on which such statements and Compliance Certificate are required to
have been delivered (or the date of occurrence of such Default or Event of
Default, as the case may be) to the date on which the same shall have been
delivered (or such Default or Event of Default cured or waived, as the case may
be), each Applicable Margin Percentage shall be determined in accordance with
the above matrix as if the Leverage Ratio were greater than 3.5 : 1.0
(notwithstanding the actual Leverage Ratio). For purposes of this definition,
"Adjustment Date" shall mean, (i) with respect to any fiscal period of the
Borrower beginning with the fiscal quarter ending March 31, 1998, the fifth
(5th) day (or, if such day is not a Business Day, on the next succeeding
Business Day) after delivery by the Borrower in accordance with SECTION 6.1(A)
or SECTION 6.1(B), as the case may be, of financial statements as of the end of
and for such fiscal period and (ii) on the closing date of any Permitted
Acquisition. Until the first Adjustment Date, each Applicable Margin Percentage
shall be determined in accordance with the above matrix based upon the Leverage
Ratio as set forth in the pro forma Covenant Compliance Worksheet required to be
delivered pursuant to SECTION 4.1(K).
"Assignee" shall have the meaning given to such term in SECTION 11.7
(A).
"Assignment and Acceptance" shall mean an Assignment and Acceptance
entered into between a Lender and an Assignee and accepted by the Agent and the
Borrower, in substantially the form of EXHIBIT D.
"Authorized Officer" shall mean, with respect to any action specified
herein, any officer of the Borrower duly authorized by resolution of the board
of directors of the Borrower to take such action on its behalf, and whose
signature and incumbency shall have been certified to the Agent by the secretary
or an assistant secretary of the Borrower.
"Bankruptcy Code" shall mean 11 U.S.C. Sections 101 et seq., as amended
from time to time, and any successor statute.
"Base Rate" shall mean the higher of (i) the per annum interest rate
publicly announced from time to time by First Union in Charlotte, North
Carolina, to be its prime rate (which may not necessarily be its best lending
rate), as adjusted to conform to changes as of the opening of business on the
date of any such change in such prime rate, and (ii) the Federal Funds Rate plus
0.5% per annum, as adjusted to conform to changes as of the opening of business
on the date of any such change in the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any Loan that bears interest
at such time at the Adjusted Base Rate.
4
<PAGE> 11
"Borrowing" shall mean the incurrence by the Borrower (including as a
result of conversions and continuations of outstanding Loans pursuant to SECTION
2.11) on a single date of a group of Loans of a single Type (or a Swingline Loan
made by the Swingline Lender) and, in the case of LIBOR Loans, as to which a
single Interest Period is in effect.
"Borrowing Date" shall mean, with respect to any Borrowing, the date
upon which such Borrowing is made.
"Business Day" shall mean (i) any day other than a Saturday or Sunday,
a legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan, any such day that is also a day on which tradings are
conducted in the London interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, the aggregate amount
(whether paid in cash or accrued as a liability) that would, in accordance with
GAAP, be included on the consolidated statement of cash flows of the Borrower
and its Subsidiaries for such period as additions to equipment, fixed assets,
real property or improvements or other capital assets (including, without
limitation, capital lease obligations); provided, however, that Capital
Expenditures shall not include any such expenditures (i) for replacements and
substitutions for capital assets, to the extent made with the proceeds of
insurance, or (ii) made in connection with Permitted Acquisitions.
"Capital Stock" shall mean (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person; and in each case, any and all warrants, rights or
options to purchase any of the foregoing.
"Cash Collateral Account" shall have the meaning given to such term in
SECTION 3.8.
"Cash Equivalents" shall mean (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within 90 days from the date of acquisition, (ii) commercial paper
issued by any Person organized under the laws of the United States of America,
maturing within 90 days from the date of acquisition and, at the time of
acquisition, having a rating of at least A-1 or the equivalent thereof by
Standard & Poor's Ratings Services or at least P-1 or the equivalent thereof by
Moody's Investors Service, Inc., (iii) time deposits and certificates of deposit
maturing within 90 days from the date of issuance and issued by a bank or trust
company organized under the laws of the United States of America or any state
thereof that has combined capital and surplus of at least $500,000,000 and that
has (or is a subsidiary of a bank holding company that has) a long-term
unsecured debt rating of at least A or the equivalent thereof by Standard &
Poor's Ratings Services or at least A2 or the equivalent thereof by Moody's
Investors Service, Inc., (iv) repurchase obligations with a term not exceeding
seven (7) days with respect to underlying securities of the types described in
clause (i) above entered into
5
<PAGE> 12
with any bank or trust company meeting the qualifications specified in clause
(iii) above, and (v) money market funds at least 95% of the assets of which are
continuously invested in securities of the type described in clause (i) above.
"Casualty Event" shall mean, with respect to any property (including
any interest in property) of the Borrower or any of its Subsidiaries, any loss
of, damage to, or condemnation or other taking of, such property for which the
Borrower or such Subsidiary receives insurance proceeds, proceeds of a
condemnation award or other compensation.
"Closing Date" shall mean the date upon which the initial extensions of
credit are made pursuant to this Agreement.
"Co-Agents" shall mean Comerica Bank and NBD Bank as co-agents
hereunder, subject to the provisions of SECTION 10.12.
"Collateral" shall mean all the assets, property and interests in
property that shall from time to time be pledged or be purported to be pledged
as direct or indirect security for the Obligations pursuant to any one or more
of the Security Documents.
"Commitment" shall mean, with respect to any Lender at any time, the
amount set forth opposite such Lender's name on its signature page hereto under
the caption "Commitment" or, if such Lender has entered into one or more
Assignment and Acceptances, the amount set forth for such Lender at such time in
the Register maintained by the Agent pursuant to SECTION 11.7(B) as such
Lender's "Commitment," as such amount may be reduced at or prior to such time
pursuant to the terms hereof.
"Compliance Certificate" shall mean a fully completed and duly executed
certificate in the form of EXHIBIT C, together with a Covenant Compliance
Worksheet.
"Consolidated Current Assets" shall mean, as of any date of
determination, all assets of the Borrower and its Subsidiaries (other than cash
and Cash Equivalents) that would, in accordance with GAAP, be classified on a
consolidated balance sheet of the Borrower and its Subsidiaries as current
assets as of such date.
"Consolidated Current Liabilities" shall mean, as of any date of
determination, all liabilities (without duplication) of the Borrower and its
Subsidiaries that would, in accordance with GAAP, be classified on a
consolidated balance sheet of the Borrower and its Subsidiaries as current
liabilities as of such date; provided, however, that Consolidated Current
Liabilities shall not include current maturities of any long-term Indebtedness.
"Consolidated Fixed Charges" shall mean, for any period, the aggregate
(without duplication) of the following, all determined on a consolidated basis
for the Borrower and its Subsidiaries in accordance with GAAP for such period:
(a) Consolidated Interest Expense for such period, (b) the aggregate (without
duplication) of all scheduled payments of principal on Funded Debt required to
have been made by the Borrower and its Subsidiaries during such period
6
<PAGE> 13
(whether or not such payments are actually made), (c) federal, state, local and
other income taxes for such period, and (d) Rent Expense for such period.
"Consolidated Funded Debt" shall mean, as of any date of determination,
the aggregate (without duplication) of all Funded Debt of the Borrower and its
Subsidiaries as of such date, determined on a consolidated basis in accordance
with GAAP. For purposes of determining Consolidated Funded Debt as of any date,
each Contingent Obligation of the Borrower and its Subsidiaries required to be
included in such determination shall be valued at the maximum aggregate
principal amount (whether or not drawn or outstanding) of the Indebtedness that
is the corresponding "primary obligation" (as such term is defined in the
definition of Contingent Obligation) as of such date.
"Consolidated Interest Expense" shall mean, for any period, the sum
(without duplication) of (i) total interest expense of the Borrower and its
Subsidiaries for such period in respect of Funded Debt of the Borrower and its
Subsidiaries (including, without limitation, all such interest expense accrued
or capitalized during such period, whether or not actually paid during such
period), determined on a consolidated basis in accordance with GAAP, (ii) all
net amounts payable under or in respect of Hedge Agreements, to the extent paid
or accrued by the Borrower and its Subsidiaries during such period, and (iii)
all commitment fees and other ongoing fees in respect of Funded Debt (including
the commitment fee provided for under SECTION 2.9(B) and the fees provided for
under the Fee Letter) paid, accrued or capitalized by the Borrower and its
Subsidiaries during such period.
"Consolidated Net Income" shall mean, for any period, net income (or
loss) for the Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" shall mean, as of any date of determination,
the net worth of the Borrower and its Subsidiaries as of such date, determined
on a consolidated basis in accordance with GAAP but (i) excluding any
Disqualified Capital Stock and (ii) without regard to the requirements of
Statement of Financial Accounting Standards No. 115 issued by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants.
"Consolidated Operating Cash Flow" shall mean, for any period, the
aggregate of (i) Consolidated Net Income for such period, plus (ii) the sum of
Consolidated Interest Expense, federal, state, local and other income taxes,
depreciation, amortization of intangible assets, and extraordinary or
nonrecurring losses (including in connection with the sale or write-down of
assets) and other noncash expenses or charges reducing income for such period,
all to the extent taken into account in the calculation of Consolidated Net
Income for such period, minus (iii) the sum of extraordinary or nonrecurring
gains (including in connection with the sale or write-up of assets) and other
noncash credits increasing income for such period, all to the extent taken into
account in the calculation of Consolidated Net Income for such period.
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Indebtedness,
liability or other obligation (the "primary
7
<PAGE> 14
obligation") of another Person (the "primary obligor"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligation or any property constituting direct or indirect security therefor,
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof; provided, however, that, with respect to the Borrower and its
Subsidiaries, the term Contingent Obligation shall not include endorsements for
collection or deposit in the ordinary course of business.
"Covenant Compliance Worksheet" shall mean a fully completed worksheet
in the form of Attachment A to EXHIBIT C.
"Credit Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Fee Letter, the Pledge and Security Agreement, the Subsidiary
Guaranty, any other Security Documents, any Hedge Agreement to which the
Borrower and any Lender are parties and that is permitted or required to be
entered into by the Borrower hereunder, and all other agreements, instruments,
documents and certificates now or hereafter executed and delivered to the Agent
or any Lender by or on behalf of the Borrower or any of its Subsidiaries with
respect to this Agreement and the transactions contemplated hereby, in each case
as amended, modified, supplemented or restated from time to time.
"Debt Issuance" shall mean the issuance or sale by the Borrower or any
of its Subsidiaries of any debt securities, whether in a public offering of such
securities or otherwise.
"Default" shall mean any event or condition that, with the passage of
time or giving of notice, or both, would constitute an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person that, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event or otherwise, (i) matures or is mandatorily redeemable or
subject to any mandatory repurchase requirement, pursuant to a sinking fund
obligation or otherwise, (ii) is redeemable or subject to any mandatory
repurchase requirement at the sole option of the holder thereof, or (iii) is
convertible into or exchangeable for (whether at the option of the issuer or the
holder thereof) (a) debt securities or (b) any Capital Stock referred to in (i)
or (ii) above, in each case under (i), (ii) or (iii) above at any time on or
prior to the Maturity Date; provided, however, that only the portion of Capital
Stock that so matures or is mandatorily redeemable, is so redeemable at the
option of the holder thereof, or is so convertible or exchangeable on or prior
to such date shall be deemed to be Disqualified Capital Stock.
"Dollars" or "$" shall mean dollars of the United States of America.
8
<PAGE> 15
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including any trade or
business, whether or not incorporated) that would be deemed to be under "common
control" with, or a member of the same "controlled group" as, the Borrower or
any of its Subsidiaries, within the meaning of Sections 414(b), (c), (m) or (o)
of the Internal Revenue Code or Section 4001 of ERISA.
"ERISA Event" shall mean any of the following with respect to a Plan or
Multiemployer Plan, as applicable: (i) a Reportable Event with respect to a Plan
or a Multiemployer Plan, (ii) a complete or partial withdrawal by the Borrower
or any ERISA Affiliate from a Multiemployer Plan that results in liability under
Section 4201 or 4204 of ERISA, or the receipt by the Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA, (iii) the distribution
by the Borrower or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a
notice of intent to terminate any Plan or the taking of any action to terminate
any Plan, (iv) the commencement of proceedings by the PBGC under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from any
Multiemployer Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan, (v) the institution of a proceeding by any fiduciary of
any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which is not dismissed within thirty (30) days, (vi) the
imposition upon the Borrower or any ERISA Affiliate of any liability under Title
IV of ERISA, other than for PBGC premiums due but not delinquent under Section
4007 of ERISA, or the imposition or threatened imposition of any Lien upon any
assets of the Borrower or any ERISA Affiliate as a result of any alleged failure
to comply with the Internal Revenue Code or ERISA in respect of any Plan, (vii)
the engaging in or otherwise becoming liable for a nonexempt Prohibited
Transaction by the Borrower or any ERISA Affiliate, (viii) a violation of the
applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit
rule under Section 401(a) of the Internal Revenue Code by any fiduciary of any
Plan for which the Borrower or any of its ERISA Affiliates may be directly or
indirectly liable or (ix) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the trust of which such
Plan is a part if the Borrower or an ERISA Affiliate fails to timely provide
security to such Plan in accordance with the provisions of such sections.
"Eligible Assignee" shall mean (i) a commercial bank organized under
the laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of any
other country that is a member of the Organization for Economic Cooperation and
Development or any successor thereto (the "OECD") or a political subdivision of
any such country and having total assets in excess of $1,000,000,000, provided
that such bank or other financial institution is acting through a branch or
agency located in the United States, in the country under the laws of which it
is organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a
9
<PAGE> 16
member of the OECD, (iv) a finance company, insurance company or other
financial institution or fund that is engaged in making, purchasing or
otherwise investing in loans in the ordinary course of its business and having
total assets in excess of $500,000,000, (v) any Affiliate of an existing
Lender or (vi) any other Person approved by the Required Lenders, which
approval shall not be unreasonably withheld.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
accusations, allegations, notices of noncompliance or violation, investigations
(other than internal reports prepared by any Person in the ordinary course of
its business and not in response to any third party action or request of any
kind) or proceedings relating in any way to any actual or alleged violation of
or liability under any Environmental Law or relating to any permit issued, or
any approval given, under any such Environmental Law (collectively, "Claims"),
including, without limitation, (i) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Substances or arising from alleged injury or threat of injury to human health or
the environment.
"Environmental Laws" shall mean any and all federal, state and local
laws, statutes, ordinances, rules, regulations, permits, licenses, approvals,
rules of common law and orders of courts or Governmental Authorities, relating
to the protection of human health or occupational safety or the environment, now
or hereafter in effect and in each case as amended from time to time, including,
without limitation, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Substances.
"Equity Issuance" shall mean the issuance, sale or other disposition by
the Borrower or any of its Subsidiaries of its Capital Stock (including, without
limitation, pursuant to a registered public offering of Capital Stock of the
Borrower), any rights, warrants or options to purchase or acquire any shares of
its Capital Stock or any other security or instrument representing, convertible
into or exchangeable for an equity interest in the Borrower or any of its
Subsidiaries; provided, however, that the term Equity Issuance shall not include
the issuance or sale of Capital Stock by any of the Subsidiaries of the Borrower
to the Borrower or any other Subsidiary, provided that such Capital Stock is
pledged to the Agent pursuant to the Pledge.
"Event of Default" shall have the meaning given to such term in
SECTION 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Fair Market Value" shall mean, with respect to any Capital Stock of
the Borrower given in connection with an Acquisition, the value given to such
Capital Stock for purposes of such
10
<PAGE> 17
Acquisition by the parties thereto, as determined in good faith pursuant to the
relevant acquisition agreement or otherwise in connection with such Acquisition.
"Federal Funds Rate" shall mean, for any period, a fluctuating per
annum interest rate (rounded upwards, if necessary, to the nearest 1/100 of one
percentage point) equal for each day during such period to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by the Agent.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fee Letter" shall mean the letter from First Union to the Borrower,
dated April 16, 1998, relating to certain fees payable by the Borrower in
respect of the transactions contemplated by this Agreement, as amended, modified
or supplemented from time to time.
"Financial Condition Certificate" shall mean a fully completed and duly
executed certificate, substantially in the form of EXHIBIT I, together with the
attachments thereto.
"Financial Officer" shall mean, with respect to the Borrower, the chief
financial officer, vice president - finance, principal accounting officer or
treasurer of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, as of the last day of any
fiscal quarter, the ratio of (i) Consolidated Operating Cash Flow, plus Rent
Expense and Operating Lease Expense, minus Capital Expenditures for the period
of four consecutive fiscal quarters then ending to (ii) Consolidated Fixed
Charges for such period.
"Funded Debt" shall mean, with respect to any Person, all Indebtedness
for borrowed money of such Person that by its terms or by the terms of any
instrument or agreement relating thereto matures more than one year from, or is
renewable or extendable at the option of the debtor to a date more than one year
from, the date of creation thereof (including an option of the debtor under a
revolving credit or similar arrangement obligating the lender or lenders to
extend credit over a period of one year or more), including any current
maturities of such Indebtedness; provided, however, that "Funded Debt" shall
include Seller Notes without regard to maturity.
"GAAP" shall mean generally accepted accounting principles, as set
forth in the statements, opinions and pronouncements of the Accounting
Principles Board, the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board, consistently applied and maintained, as in
effect from time to time (subject to the provisions of SECTION 1.2).
11
<PAGE> 18
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any central bank thereof, any
municipal, local, city or county government, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Hazardous Substances" shall mean any substances or materials (i) that
are or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
defined by any Environmental Law as toxic, explosive, corrosive, ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence of
which require investigation or response under any Environmental Law, (iv) that
constitute a nuisance, trespass or health or safety hazard to Persons or
neighboring properties, (v) that consist of underground or aboveground storage
tanks, whether empty, filled or partially filled with any substance, or (vi)
that contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedge Agreement" shall mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Inactive Subsidiaries" shall mean those Subsidiaries of the Borrower
identified on Schedule 5.7 as "Inactive Subsidiaries."
"Indebtedness" shall mean, with respect to any Person (without
duplication), (i) all indebtedness and obligations of such Person for borrowed
money or in respect of loans or advances of any kind, (ii) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (iii)
all reimbursement obligations of such Person with respect to surety bonds,
letters of credit and bankers' acceptances (in each case, whether or not drawn
or matured and in the stated amount thereof), (iv) all obligations of such
Person to pay the deferred purchase price of property or services, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, (vi) all
obligations of such Person as lessee under leases that are or are required to
be, in accordance with GAAP, recorded as capital leases, to the extent such
obligations are required to be so recorded, (vii) all Disqualified Capital Stock
issued by such Person, with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any (for purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
this Agreement, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the board of directors or other
governing body of the issuer of such Disqualified Capital Stock), (viii) the net
termination obligations of such Person under any Hedge Agreements, calculated as
of any date as
12
<PAGE> 19
if such agreement or arrangement were terminated as of such date, (ix) all
Contingent Obligations of such Person and (x) all indebtedness referred to in
clauses (i) through (ix) above secured by any Lien on any property or asset
owned or held by such Person regardless of whether the indebtedness secured
thereby shall have been assumed by such Person or is nonrecourse to the credit
of such Person.
"Interest Period" shall have the meaning given to such term in SECTION
2.10.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Issuing Lender" shall mean First Union in its capacity as issuer of
the Letters of Credit, and its successors in such capacity.
"LIBOR Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted LIBOR Rate.
"LIBOR Rate" shall mean, with respect to each LIBOR Loan comprising
part of the same Borrowing for any Interest Period, an interest rate per annum
obtained by dividing (i) (y) the rate of interest appearing on Telerate Page
3750 (or any successor page) (rounded upward, if necessary, to the nearest 1/16
of one percentage point) or (z) if no such rate is available, the rate of
interest determined by the Agent to be the rate or the arithmetic mean of rates
(rounded upward, if necessary, to the nearest 1/16 of one percentage point) at
which Dollar deposits in immediately available funds are offered by First Union
to first-tier banks in the London interbank Eurodollar market, in each case
under (y) and (z) above at approximately 11:00 a.m., London time, two (2)
Business Days prior to the first day of such Interest Period for a period
substantially equal to such Interest Period and in an amount substantially equal
to the amount of First Union's LIBOR Loan comprising part of such Borrowing, by
(ii) the amount equal to 1.00 minus the Reserve Requirement (expressed as a
decimal) for such Interest Period.
"Lason International" shall mean Lason International, Inc., a
Subsidiary of the Borrower.
"Lender" shall mean each financial institution signatory hereto and
each other financial institution that becomes a "Lender" hereunder pursuant to
SECTION 11.7, and their respective successors and assigns.
"Lending Office" shall mean, with respect to any Lender, the office of
such Lender designated as its "Lending Office" on its signature page hereto or
in an Assignment and Acceptance, or such other office as may be otherwise
designated in writing from time to time by such Lender to the Borrower and the
Agent. A Lender may designate separate Lending Offices as provided in the
foregoing sentence for the purposes of making or maintaining different Types of
Loans, and, with respect to LIBOR Loans, such office may be a domestic or
foreign branch or Affiliate of such Lender.
13
<PAGE> 20
"Letter of Credit Exposure" shall mean, with respect to any Lender at
any time, such Lender's ratable share (based on the proportion that its
Commitment bears to the aggregate Commitments at such time) of the sum of (i)
the aggregate Stated Amount of all Letters of Credit outstanding at such time
and (ii) the aggregate amount of all Reimbursement Obligations outstanding at
such time.
"Letter of Credit Notice" shall have the meaning given to such term in
SECTION 3.2.
"Letters of Credit" shall have the meaning given to such term in
SECTION 3.1.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
security interest, lien (statutory or otherwise), preference, priority, charge
or other encumbrance of any nature, whether voluntary or involuntary, including,
without limitation, the interest of any vendor or lessor under any conditional
sale agreement, title retention agreement, capital lease or any other lease or
arrangement having substantially the same effect as any of the foregoing.
"Loans" shall mean any or all of the Revolving Loans and the Swingline
Loans.
"Margin Stock" shall have the meaning given to such term in Regulation
U.
"Material Adverse Change" shall mean a material adverse change in the
condition (financial or otherwise), operations, prospects, business, properties
or assets of the Borrower and its Subsidiaries, taken as a whole.
"Material Adverse Effect" shall mean a material adverse effect upon (i)
the condition (financial or otherwise), operations, prospects, business,
properties or assets of the Borrower and its Subsidiaries, taken as a whole,
(ii) the ability of the Borrower or any Subsidiary to perform its obligations
under this Agreement or any of the other Credit Documents to which it is a party
or (iii) the legality, validity or enforceability of this Agreement or any of
the other Credit Documents or the rights and remedies of the Agent and the
Lenders hereunder and thereunder.
"Material Contract" shall have the meaning given to such term in
SECTION 5.18.
"Maturity Date" shall mean December 31, 2003.
"Multiemployer Plan" shall mean any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate makes, is making or is obligated to make contributions or has made or
been obligated to make contributions.
"Net Cash Proceeds" shall mean, (i) in the case of any Equity Issuance
or Debt Issuance, the aggregate cash payments received by the Borrower and its
Subsidiaries less reasonable and customary fees and expenses (including
underwriting discounts and commissions) incurred by the Borrower and its
Subsidiaries in connection therewith, and (ii) in the case of any Casualty
Event, the aggregate cash proceeds of insurance, condemnation awards and other
compensation received by the Borrower and its Subsidiaries in respect of such
Casualty Event less (y) reasonable fees and
14
<PAGE> 21
expenses incurred by the Borrower and its Subsidiaries in connection therewith
and (z) contractually required repayments of Indebtedness to the extent secured
by Liens on the property subject to such Casualty Event and any income or
transfer taxes paid or reasonably estimated by the Borrower to be payable by the
Borrower and its Subsidiaries as a result of such Casualty Event.
"Notes" shall mean either or both the Revolving Notes of the Borrower
in substantially the form of EXHIBIT A-1 and the Swingline Note in substantially
the form of EXHIBIT A-2, together with any amendments, modifications and
supplements thereto, substitutions therefor and restatements thereof.
"Notice of Borrowing" shall have the meaning given to such term in
SECTION 2.2(B).
"Notice of Swingline Borrowing" shall have the meaning given to such
term in SECTION 2.2(D).
"Notice of Conversion/Continuation" shall have the meaning given to
such term in SECTION 2.11(B).
"Obligations" shall mean all principal of and interest (including, to
the greatest extent permitted by law, post-petition interest) on the Loans, all
Reimbursement Obligations and all fees, expenses, indemnities and other
obligations owing, due or payable at any time by the Borrower to the Agent, any
Lender, the Issuing Lender or any other Person entitled thereto, under this
Agreement or any of the other Credit Documents.
"Operating Lease Expense" means, for any period, all amounts paid by
the Borrower and its Subsidiaries during such period in respect of any
obligations under any operating lease.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"Participant" shall have the meaning given to such term in SECTION
11.7(D).
"Permitted Acquisition" shall mean (a) any Acquisition with respect to
which all of the following conditions are satisfied: (i) each business acquired
shall be within the permitted lines of business described in SECTION 8.8, (ii)
in the case of an Acquisition involving the acquisition of control of Capital
Stock of any Person, immediately after giving effect to such Acquisition such
Person (or the surviving Person, if the Acquisition is effected through a merger
or consolidation) shall be the Borrower or a Wholly Owned Subsidiary, and (iii)
all of the conditions and requirements of SECTIONS 6.9 and 6.10 applicable to
such Acquisition are satisfied; or (b) any other Acquisition to which the
Required Lenders (or the Agent on their behalf) shall have given their prior
written consent (which consent may be in their sole discretion and may be given
subject to such additional terms and conditions as the Required Lenders shall
establish) and with respect to which all of the conditions and requirements set
forth in this definition and in SECTION 6.9, and in or pursuant to any such
consent, have been satisfied or waived in writing by the Required Lenders (or
the Agent on their behalf).
15
<PAGE> 22
"Permitted Liens" shall have the meaning given to such term in
SECTION 8.3.
"Person" shall mean any corporation, association, joint venture,
partnership, limited liability company, organization, business, individual,
trust, government or agency or political subdivision thereof or any other legal
entity.
"Plan" shall mean any "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA that is subject to the provisions of Title IV
of ERISA (other than a Multiemployer Plan) and to which the Borrower or any
ERISA Affiliate may have any liability.
"Pledge Agreement" shall mean a pledge agreement made by the Borrower
in favor of the Agent, in substantially the form of EXHIBIT F, as amended,
modified or supplemented from time to time.
Pledge and Security Agreement" shall mean a pledge and security
agreement made by the Subsidiaries of the Borrower party thereto in favor of the
Agent, in substantially the form of EXHIBIT E, as amended, modified or
supplemented from time to time.
"Pro Forma Adjusted Operating Cash Flow" means, with respect to any
Person, on any date of determination, Consolidated Operating Cash Flow for such
Person for the period of twelve (12) consecutive calendar months ending on, or
immediately prior to, such date of determination, calculated on a pro forma
basis to include as of the first day of such period any Acquisition. For the
purposes hereof, Pro Forma Adjusted Operating Cash Flow shall be adjusted for
the non-recurring costs and expenses of any Acquisition in a manner satisfactory
to the Agent (with respect to any Acquisition that does not require the consent
of the Required Lenders pursuant to SECTION 6.8 of this Agreement) and in a
manner satisfactory to the Agent and the Required Lenders (with respect to any
Acquisition that requires the consent of the Agent and the Required Lenders
pursuant to SECTION 6.8 of this Agreement). These adjustments may include, but
not be limited to, management compensation in excess of historical compensation
levels respecting the acquired Person (including, without limitation,
perquisites in excess of historical levels) to be paid by the Borrower or any of
its Subsidiaries following any Acquisition, fees for professional services in
excess of historical levels after any such Acquisition, expenses incurred in
connection with any such Acquisition and such other similar additional expenses
incurred after any such Acquisition.
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by
reason of a Department of Labor prohibited transaction individual or class
exemption or (ii) Section 4975(c) of the Internal Revenue Code that is not
exempt by reason of Section 4975(c)(2) or 4975(d) of the Internal Revenue Code.
"Projections" shall have the meaning given to such term in SECTION
5.11(B).
"Refunded Swingline Loans" shall have the meaning given to such term in
SECTION 2.2(E).
16
<PAGE> 23
"Register" shall have the meaning given to such term in SECTION 11.7
(B).
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X,
respectively, of the Federal Reserve Board, and any successor regulations.
"Reimbursement Obligation" shall have the meaning given to such term in
SECTION 3.4.
"Rent Expense" means, for any period, all amounts paid by the Borrower
and its Subsidiaries during such period in respect of any obligations under any
lease or rental agreement for real property.
"Reportable Event" shall mean (i) any "reportable event" within the
meaning of Section 4043(c) of ERISA for which the 30-day notice under Section
4043(a) of ERISA has not been waived by the PBGC (including any failure to meet
the minimum funding standard of, or timely make any required installment under,
Section 412 of the Internal Revenue Code or Section 302 of ERISA, regardless of
the issuance of any waivers in accordance with Section 412(d) of the Internal
Revenue Code), (ii) any such " reportable event" subject to advance notice to
the PBGC under Section 4043(b)(3) of ERISA, (iii) any application for a funding
waiver or an extension of any amortization period pursuant to Section 412 of the
Internal Revenue Code, and (iv) a cessation of operations described in Section
4062(e) of ERISA.
"Required Lenders" shall mean the Lenders holding outstanding Loans and
Commitments (or, after the termination of the Commitments, outstanding Loans and
Letter of Credit Exposure) representing not less than fifty-one percent (51%) of
the aggregate at such time of all outstanding Loans and Commitments (or, after
the termination of the Commitments, the aggregate at such time of all
outstanding Loans and Letter of Credit Exposure).
"Requirement of Law" shall mean, with respect to any Person, the
charter, articles or certificate of organization or incorporation and bylaws or
other organizational or governing documents of such Person, and any statute,
law, treaty, rule, regulation, order, decree, writ, injunction or determination
of any arbitrator or court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject or otherwise pertaining to any or
all of the transactions contemplated by this Agreement and the other Credit
Documents.
"Reserve Requirement" shall mean, with respect to any Interest Period,
the reserve percentage (expressed as a decimal) in effect from time to time
during such Interest Period, as provided by the Federal Reserve Board, applied
for determining the maximum reserve requirements (including, without limitation,
basic, supplemental, marginal and emergency reserves) applicable to First Union
under Regulation D with respect to "Eurocurrency liabilities" within the meaning
of Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding.
17
<PAGE> 24
"Responsible Officer" shall mean, with respect to the Borrower, the
president, the chief executive officer, the chief financial officer, any
executive officer, or any other Financial Officer of the Borrower, and any other
officer or similar official thereof responsible for the administration of the
obligations of the Borrower in respect of this Agreement.
"Revolving Loans" shall have the meaning given to such term in SECTION
2.1.
"Revolving Notes" shall mean the promissory notes of the Borrower in
substantially the form of EXHIBIT A-1, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.
"Security Documents" shall mean the Pledge and Security Agreement and
all other pledge or security agreements, mortgages, deeds of trust, assignments
or other similar agreements or instruments executed and delivered by the
Borrower or any of its Subsidiaries pursuant to SECTION 6.10 or SECTION 6.11 or
otherwise in connection with the transactions contemplated hereby, in each case
as amended, modified or supplemented from time to time.
"Seller Notes" shall mean any evidence of Indebtedness issued as
partial consideration for a Permitted Acquisition that matures less than one
year from the date of creation thereof.
"Senior Leverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Funded Debt (excluding Subordinated
Indebtedness), less cash and Cash Equivalents held by the Borrower and its
Subsidiaries in excess of $5,000,000 as of such date to (ii) Pro Forma Adjusted
Consolidated Operating Cash Flow for the period of four consecutive fiscal
quarters then ending.
"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the aggregate amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
"Subordinated Indebtedness" shall have the meaning given to such term
in SECTION 8.2.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other Person of which more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of
directors, board of managers or other governing body of such Person, is at the
time, directly or indirectly, owned or controlled by such Person and one or more
of its other Subsidiaries or a combination thereof (irrespective of whether, at
the time, securities of any other class or classes of any such corporation or
other Person shall or might have voting power by reason of the happening of any
contingency). When used without reference to a parent entity, the term
"Subsidiary" shall be deemed to refer to a Subsidiary of the Borrower, but shall
not include any of the Inactive Subsidiaries.
"Subsidiary Guarantor" shall mean any Subsidiary of the Borrower that
is a guarantor under the Subsidiary Guaranty and has granted to the Agent a Lien
upon and security interest in its personal property assets pursuant to the
Pledge and Security Agreement.
18
<PAGE> 25
"Subsidiary Guaranty" shall mean a guaranty agreement made by the
Subsidiary Guarantors in favor of the Agent and the Lenders, in substantially
the form of EXHIBIT G, as amended, modified or supplemented from time to time.
"Swingline Commitment" shall mean $5,000,000 or, if less, the Total
Commitments at the time of determination, as such amount may be reduced at or
prior to such time pursuant to the terms hereof.
"Swingline Lender" shall mean First Union in its capacity as maker of
Swingline Loans, and its successors in such capacity.
"Swingline Loans" shall have the meaning given to such term in SECTION
2.1(B).
"Swingline Maturity Date" shall mean the date that is five (5) Business
Days prior to the Maturity Date.
"Swingline Note" shall mean the promissory note of the Borrower is
substantially the form of EXHIBIT A-2, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.
"Termination Date" shall mean the Maturity Date or such earlier date
of termination of the Commitments pursuant to SECTION 2.5 or SECTION 9.2.
"Total Commitments" shall mean, at any time, the sum of the
Commitments of all Lenders at such time.
"Total Leverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Funded Debt less cash and Cash
Equivalents held by the Borrower and its Subsidiaries in excess of $5,000,000 as
of such date to (ii) Pro Forma Adjusted Consolidated Operating Cash Flow for
the period of four (4) consecutive fiscal quarters then ending.
"Type" shall have the meaning given to such term in SECTION 2.2(A).
"Unfunded Pension Liability" shall mean, with respect to any Plan or
Multiemployer Plan, the excess of its benefit liabilities under Section
4001(a)(16) of ERISA over the current value of its assets, determined in
accordance with the applicable assumptions used for funding under Section 412 of
the Code for the applicable plan year.
"Unutilized Commitment" shall mean, with respect to any Lender at any
time, such Lender's Commitment at such time less the sum of (i) the aggregate
principal amount of all Loans made by such Lender that are outstanding at such
time and (ii) such Lender's Letter of Credit Exposure at such time.
19
<PAGE> 26
"Unutilized Swingline Commitment" shall mean, with respect to the
Swingline Lender at any time, the Swingline Commitment at such time less the
aggregate principal amount of all Swingline Loans that are outstanding at such
time.
"Wholly Owned" shall mean, with respect to any Subsidiary of any
Person, that 100% of the outstanding Capital Stock of such Subsidiary is owned,
directly or indirectly, by such Person.
1.2 Accounting Terms. Except as specifically provided otherwise in this
Agreement, all accounting terms used herein that are not specifically defined
shall have the meanings customarily given them in accordance with GAAP.
Notwithstanding anything to the contrary in this Agreement, for purposes of
calculation of the financial covenants set forth in ARTICLE VII, all accounting
determinations and computations hereunder shall be made in accordance with GAAP
as in effect as of the date of this Agreement applied on a basis consistent with
the application used in preparing the most recent financial statements of the
Borrower referred to in SECTION 5.11(A). In the event that any changes in GAAP
after such date are required to be applied to the Borrower and would affect the
computation of the financial covenants contained in ARTICLE VII, such changes
shall be followed only from and after the date this Agreement shall have been
amended to take into account any such changes.
1.3 Other Terms; Construction. Unless otherwise specified or unless the
context otherwise requires, all references herein to sections, annexes,
schedules and exhibits are references to sections, annexes, schedules and
exhibits in and to this Agreement, and all terms defined in this Agreement shall
have the defined meanings when used in any other Credit Document or any
certificate or other document made or delivered pursuant hereto. All references
herein to the Lenders or any of them shall be deemed to include the Issuing
Lender unless specifically provided otherwise or unless the context otherwise
requires.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1 Commitments. (a) Each Lender severally agrees, subject to and on
the terms and conditions of this Agreement, to make loans (each, a "Revolving
Loan," and collectively, the "Revolving Loans") to the Borrower, from time to
time on any Business Day during the period from and including the Closing Date
to but not including the Termination Date, in an aggregate principal amount at
any time outstanding not greater than the excess, if any, of its Commitment at
such time over its Letter of Credit Exposure at such time, provided that no
Borrowing of Revolving Loans shall be made if, immediately after giving effect
thereto, the sum of (x) the aggregate principal amount of Revolving Loans
outstanding at such time, (y) the aggregate Letter of Credit Exposure of all
Lenders at such time would exceed the aggregate Commitments at such time, and
(z) the aggregate principal amount of Swingline Loans outstanding at such time
(excluding the aggregate amount of any Swingline Loans to be repaid with
proceeds of Revolving Loans made pursuant to such Borrowing) would exceed the
aggregate Commitments at such
20
<PAGE> 27
time. Subject to and on the terms and conditions of this Agreement, the
Borrower may borrow, repay and reborrow Loans.
(b) The Swingline Lender agrees, subject to and on the terms and
conditions of this Agreement, to make loans (each, a "Swingline Loan," and
collectively, the "Swingline Loans") to the Borrower, from time to time on any
Business Day during the period from the Closing Date to but not including the
Swingline Maturity Date (or, if earlier, the Termination Date), in an aggregate
principal amount at any time outstanding not exceeding the Swingline Commitment,
notwithstanding that the aggregate principal amount of Swingline Loans
outstanding at any time, when added to the aggregate principal amount of the
Revolving Loans made by the Swingline Lender in its capacity as a Lender
outstanding at such time and its Letter of Credit Exposure at such time, may
exceed its Commitment at such time, but provided that no Borrowing of Swingline
Loans shall be made if, immediately after giving effect thereto, the sum of (x)
the aggregate principal amount of Revolving Loans outstanding at such time, (y)
the aggregate Letter of Credit Exposure of all Lenders at such time and (z) the
aggregate principal amount of Swingline Loans outstanding at such time would
exceed the aggregate Commitments at such time. Subject to and on the terms and
conditions of this Agreement, the Borrower may borrow, repay (including by means
of a Borrowing of Revolving Loans pursuant to SECTION 2.2(E)) and reborrow
Swingline Loans.
2.2 Borrowings. (a) The Revolving Loans shall, at the option of
the Borrower and subject to the terms and conditions of this Agreement, be
either Base Rate Loans or LIBOR Loans (each, a "Type" of Loan), provided that
all Revolving Loans comprising the same Borrowing shall, unless otherwise
specifically provided herein, be of the same Type, and the Loans made on the
Closing Date shall be made initially as Base Rate Loans. The Swingline Loans
shall be made and maintained as Base Rate Loans at all times.
(b) In order to make a Borrowing (other than (x) Borrowings of
Swingline Loans, which shall be made pursuant to SECTION 2.2(D), (y) Borrowings
for the purpose of repaying Refunded Swingline Loans, which shall be made
pursuant to SECTION 2.2(E), and (z) Borrowings involving continuations or
conversions of outstanding Loans, which shall be made pursuant to SECTION 2.11),
the Borrower will give the Agent written notice not later than 12:00 a.m.,
Charlotte time, three (3) Business Days prior to each Borrowing to be comprised
of LIBOR Loans and on the day of each Borrowing to be comprised of Base Rate
Loans; provided, however, that requests for the Borrowing of any Loans to be
made on the Closing Date may, at the discretion of the Agent, be given later
than the times specified hereinabove. Each such notice (each, a "Notice of
Borrowing") shall be irrevocable, shall be given in the form of EXHIBIT B-1 and
shall specify (1) the aggregate principal amount and initial Type of the Loans
to be made pursuant to such Borrowing, (2) in the case of a Borrowing of LIBOR
Loans, the initial Interest Period to be applicable thereto, and (3) the
requested date of such Borrowing (the "Borrowing Date"), which shall be a
Business Day. Upon its receipt of a Notice of Borrowing, the Agent will promptly
notify each Lender of the proposed Borrowing. Notwithstanding anything to the
contrary contained herein:
21
<PAGE> 28
(i) the aggregate principal amount of each Borrowing
comprised of Base Rate Loans shall not be less than $1,000,000 or, if
greater, an integral multiple of $500,000 in excess thereof (or, if
less, in the amount of the aggregate Unutilized Commitments), and the
aggregate principal amount of each Borrowing comprised of LIBOR Loans
shall not be less than $3,000,000 or, if greater, an integral multiple
of $1,000,000 in excess thereof;
(ii) if the Borrower shall have failed to designate the Type
of Loans comprising a Borrowing, the Borrower shall be deemed to have
requested a Borrowing comprised of Base Rate Loans; and
(iii) if the Borrower shall have failed to select the
duration of the Interest Period to be applicable to any Borrowing of
LIBOR Loans, then the Borrower shall be deemed to have selected an
Interest Period with a duration of one month.
(c) Not later than 1:00 p.m., Charlotte time, on the requested
Borrowing Date, each Lender will make available to the Agent at its office
referred to in SECTION 11.5 (or at such other location as the Agent may
designate) an amount, in Dollars and in immediately available funds, equal to
the amount of the Loan to be made by such Lender. To the extent the Lenders have
made such amounts available to the Agent as provided hereinabove, the Agent will
make the aggregate of such amounts available to the Borrower in accordance with
SECTION 2.3(A) and in like funds as received by the Agent.
(d) In order to make a Borrowing of a Swingline Loan, the Borrower will
give the Agent and the Swingline Lender written notice not later than 12:00
a.m., Charlotte time, on the Business Day of such Borrowing. Each such notice
(each, a "Notice of Swingline Borrowing") shall be irrevocable, shall be given
in the form of EXHIBIT B-2 and shall specify (i) the principal amount of the
Swingline Loan to be made pursuant to such Borrowing (which shall not be less
than $50,000 and, if greater, shall be in an integral multiple of $50,000 in
excess thereof (or, if less, in the amount of the Unutilized Swingline
Commitment)) and (ii) the requested Borrowing Date, which shall be a Business
Day. Not later than 1:00 p.m., Charlotte time, on the requested Borrowing Date,
the Swingline Lender will make available to the Agent at its office referred to
in SECTION 11.5 (or at such other location as the Agent may designate) an
amount, in Dollars and in immediately available funds, equal to the amount of
the requested Swingline Loan. To the extent the Swingline Lender has made such
amount available to the Agent as provided hereinabove, the Agent will make such
amount available to the Borrower in accordance with SECTION 2.3(A) and in like
funds as received by the Agent.
(e) With respect to any outstanding Swingline Loans, the Swingline
Lender may at any time (whether or not an Event of Default has occurred and is
continuing) in its sole and absolute discretion, and is hereby authorized and
empowered by the Borrower to, cause a Borrowing of Revolving Loans to be made
for the purpose of repaying such Swingline Loans by delivering to the Agent (if
the Agent is different from the Swingline Lender) and each other Lender (on
behalf of, and with a copy to, the Borrower), not later than 11:00 a.m.,
Charlotte time, one (1) Business Day prior to the proposed Borrowing Date
therefor, a notice (which shall be deemed to be a Notice of Borrowing given by
the Borrower) requesting the Lenders to make Revolving Loans
22
<PAGE> 29
(which shall be made initially as Base Rate Loans) on such Borrowing Date in an
aggregate amount equal to the amount of such Swingline Loans (the "Refunded
Swingline Loans") outstanding on the date such notice is given that the
Swingline Lender requests to be repaid. Not later than 1:00 p.m., Charlotte
time, on the requested Borrowing Date, each Lender (other than the Swingline
Lender) will make available to the Agent at its office referred to in SECTION
11.5 (or at such other location as the Agent may designate) an amount, in
Dollars and in immediately available funds, equal to the amount of the Revolving
Loan to be made by such Lender. To the extent the Lenders have made such amounts
available to the Agent as provided hereinabove, the Agent will make the
aggregate of such amounts available to the Swingline Lender in like funds as
received by the Agent, which shall apply such amounts in repayment of the
Refunded Swingline Loans. Notwithstanding any provision of this Agreement to the
contrary, on the relevant Borrowing Date, the Refunded Swingline Loans
(including the Swingline Lender's ratable share thereof, in its capacity as a
Lender) shall be deemed to be repaid with the proceeds of the Revolving Loans
made as provided above (including a Revolving Loan deemed to have been made by
the Swingline Lender), and such Refunded Swingline Loans deemed to be so repaid
shall no longer be outstanding as Swingline Loans but shall be outstanding as
Revolving Loans. If any portion of any such amount repaid (or deemed to be
repaid) to the Swingline Lender shall be recovered by or on behalf of the
Borrower from the Swingline Lender in any bankruptcy, insolvency or similar
proceeding or otherwise, the loss of the amount so recovered shall be shared
ratably among all the Lenders in the manner contemplated by SECTION 2.15(B).
(f) If, as a result of any bankruptcy, insolvency or similar proceeding
with respect to the Borrower, Revolving Loans are not made pursuant to
subsection (e) above in an amount sufficient to repay any amounts owed to the
Swingline Lender in respect of any outstanding Swingline Loans, or if the
Swingline Lender is otherwise precluded for any reason from giving a notice on
behalf of the Borrower as provided for hereinabove, the Swingline Lender shall
be deemed to have sold without recourse, representation or warranty, and each
Lender shall be deemed to have purchased and hereby agrees to purchase, a
participation in such outstanding Swingline Loans in an amount equal to its
ratable share (based on the proportion that its Commitment bears to the
aggregate Commitments at such time) of the unpaid amount thereof together with
accrued interest thereon. Upon one (1) Business Day's prior notice from the
Swingline Lender, each Lender (other than the Swingline Lender) will make
available to the Agent at its office referred to in SECTION 11.5 (or at such
other location as the Agent may designate) an amount, in Dollars and in
immediately available funds, equal to its respective participation. To the
extent the Lenders have made such amounts available to the Agent as provided
hereinabove, the Agent will make the aggregate of such amounts available to the
Swingline Lender in like funds as received by the Agent. In the event any such
Lender fails to make available to the Agent the amount of such Lender's
participation as provided in this subsection (f), the Swingline Lender shall be
entitled to recover such amount on demand from such Lender, together with
interest thereon for each day from the date such amount is required to be made
available for the account of the Swingline Lender until the date such amount is
made available to the Swingline Lender at the Federal Funds Rate for the first
three (3) Business Days and thereafter at the Adjusted Base Rate applicable to
Revolving Loans. Promptly following its receipt of any payment by or on behalf
of the Borrower in respect of a Swingline Loan, the
23
<PAGE> 30
Swingline Lender will pay to each Lender that has acquired a participation
therein such Lender's ratable share of such payment.
(g) Notwithstanding any provision of this Agreement to the contrary,
the obligation of each Lender (other than the Swingline Lender) to make
Revolving Loans for the purpose of repaying any Refunded Swingline Loans
pursuant to subsection (e) above and each such Lender's obligation to purchase a
participation in any unpaid Swingline Loans pursuant to subsection (f) above
shall be absolute and unconditional and shall not be affected by any
circumstance or event whatsoever, including, without limitation, (i) any
set-off, counterclaim, recoupment, defense or other right that such Lender may
have against the Swingline Lender, the Agent, the Borrower or any other Person
for any reason whatsoever, (ii) the occurrence or continuance of any Default or
Event of Default, (iii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
Borrower or any of its Subsidiaries, or (iv) any breach of this Agreement by any
party hereto.
2.3 Disbursements; Funding Reliance; Domicile of Loans. (a) The
Borrower hereby authorizes the Agent to disburse the proceeds of each Borrowing
in accordance with the terms of any written instructions from any of the
Authorized Officers, provided that the Agent shall not be obligated under any
circumstances to forward amounts to any account not listed in an Account
Designation Letter. The Borrower may at any time deliver to the Agent an Account
Designation Letter listing any additional accounts or deleting any accounts
listed in a previous Account Designation Letter.
(b) Unless the Agent has received, prior to 1:00 p.m., Charlotte time,
on the relevant Borrowing Date, written notice from a Lender that such Lender
will not make available to the Agent such Lender's ratable portion of the
relevant Borrowing, the Agent may assume that such Lender has made such portion
available to the Agent in immediately available funds on such Borrowing Date in
accordance with the applicable provisions of SECTION 2.2, and the Agent may, in
reliance upon such assumption, but shall not be obligated to, make a
corresponding amount available to the Borrower on such Borrowing Date. If and to
the extent that such Lender shall not have made such portion available to the
Agent, and the Agent shall have made such corresponding amount available to the
Borrower, such Lender, on the one hand, and the Borrower, on the other,
severally agree to pay to the Agent forthwith on demand such corresponding
amount, together with interest thereon for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Agent, (i) in the case of such Lender, at the Federal Funds Rate, and (ii) in
the case of the Borrower, at the rate of interest applicable at such time to the
Type of Loans comprising such Borrowing, as determined under the provisions of
SECTION 2.8. If such Lender shall repay to the Agent such corresponding amount,
such amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement. The failure of any Lender to make any Loan required
to be made by it as part of any Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its Loan as part of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Loan to be made by such other Lender as part of any Borrowing.
24
<PAGE> 31
(c) Each Lender may, at its option, make and maintain any Loan at,
to or for the account of any of its Lending Offices, provided that any exercise
of such option shall not affect the obligation of the Borrower to repay such
Loan to or for the account of such Lender in accordance with the terms of this
Agreement.
2.4 Notes. (a) The Revolving Loans made by each Lender shall be
evidenced by a Revolving Note appropriately completed in substantially the form
of EXHIBIT A-1, and the Swingline Loans made by the Swingline Lender shall be
evidenced by a Swingline Note appropriately completed in substantially the form
of EXHIBIT A-2.
(b) Each Revolving Note issued to a Lender shall (i) be executed by the
Borrower, (ii) be payable to the order of such Lender, (iii) be dated as of the
Closing Date (or, in the case of a Revolving Note issued after the Closing Date,
dated the effective date of the applicable Assignment and Acceptance), (iv) be
in a stated principal amount equal to such Lender's Commitment, (v) bear
interest in accordance with the provisions of SECTION 2.8, as the same may be
applicable from time to time to the Revolving Loans made by such Lender, and
(vi) be entitled to all of the benefits of this Agreement and the other Credit
Documents and subject to the provisions hereof and thereof.
(c) The Swingline Note shall (i) be executed by the Borrower, (ii)
be payable to the order of the Swingline Lender, (iii) be dated as of the
Closing Date, (iv) be in a stated principal amount equal to the Swingline
Commitment, (v) bear interest in accordance with the provisions of SECTION 2.8,
as the same may be applicable from time to time to the Swingline Loans, and (vi)
be entitled to all of the benefits of this Agreement and the other Credit
Documents and subject to the provisions hereof and thereof.
(d) Each Lender will record on its internal records the amount and Type
of each Loan made by it and each payment received by it in respect thereof and
will, in the event of any transfer of any of its Notes, either endorse on the
reverse side thereof or on a schedule attached thereto (or any continuation
thereof) the outstanding principal amount and Type of the Loans evidenced
thereby as of the date of transfer or provide such information on a schedule to
the Assignment and Acceptance relating to such transfer; provided, however, that
the failure of any Lender to make any such recordation or provide any such
information, or any error therein, shall not affect the Borrower's obligations
under this Agreement or the Notes.
2.5 Termination and Reduction of Commitments and Swingline
Commitment. (a) The Commitments shall be automatically and permanently
terminated on the Termination Date (or on June 30, 1998, but
only if the Closing Date shall not have occurred on or prior to such date).
The Swingline Commitment shall be automatically and permanently terminated
on the Swingline Maturity Date, unless sooner terminated pursuant to any
other provision of this section or SECTION 9.2.
(b) The Commitments shall, on each date upon which a prepayment
of the Loans is required under any provision of SECTION 2.6, be automatically
and permanently reduced by the amount of such required prepayment, as more
particularly set forth in SECTION 2.6(D).
25
<PAGE> 32
(c) At any time and from time to time after the date hereof, upon
not less than five (5) Business Days' prior written notice to the Agent (and, in
the case of a termination or reduction of the Unutilized Swingline Commitment,
the Swingline Lender), the Borrower may terminate in whole or reduce in part the
aggregate Unutilized Commitments, provided that any such partial reduction shall
be in an aggregate amount of not less than $1,000,000 or, if greater, an
integral multiple of $1,000,000 in excess thereof. The amount of any
termination or reduction made under this subsection (c) may not thereafter be
reinstated.
(d) If at any time the Borrower incurs Indebtedness as described
in SECTION 8.2(III)(A), the Commitments shall be automatically and permanently
reduced by the amount of such Indebtedness.
(e) Not later than one hundred eighty (180) days after its receipt of
any proceeds of insurance, condemnation award or other compensation in respect
of any Casualty Event (and in any event upon its determination not to repair or
replace any property subject to such Casualty Event), the Commitments shall be
automatically and permanently reduced in an amount equal to 100% of the Net Cash
Proceeds from such Casualty Event (less any amounts theretofore applied to the
repair or replacement of property subject to such Casualty Event). The Borrower
will deliver to the Agent, concurrently with such reduction, a certificate
signed by a Financial Officer of the Borrower in form and substance satisfactory
to the Agent and setting forth the calculation of such Net Cash Proceeds;
provided, however, that, notwithstanding the foregoing, (i) nothing in this
subsection shall be deemed to limit or otherwise affect any right of the Agent
herein or in any of the other Credit Documents to receive and hold such proceeds
as loss payee and to disburse the same to the Borrower upon the terms hereof or
thereof, or any obligation of the Borrower and each of its Subsidiaries herein
or in any of the other Credit Documents to remit any such proceeds to the Agent
upon its receipt thereof, and (ii) any and all such proceeds received or held by
the Agent or the Borrower or any of its Subsidiaries during the continuance of
an Event of Default (regardless of any proposed or actual use thereof for repair
or replacement) shall be applied to prepay the outstanding principal amount of
the Loans.
(f) Each reduction of the Commitments pursuant to this Section
shall be applied ratably among the Lenders according to their respective
Commitments. Notwithstanding any provision of this Agreement to the contrary,
any reduction of the Commitments pursuant to this Section that has the effect of
reducing the aggregate Commitments to an automatic corresponding reduction of
the Swingline Commitment to the amount of the aggregate Commitments (as so
reduced), without any further action on the part of the Borrower or the
Swingline Lender.
2.6 Mandatory Payments and Prepayments. (a) Except to the extent
due or paid sooner pursuant to the provisions of this Agreement, (i) the
aggregate outstanding principal of the Revolving Loans shall be due and payable
in full on the Maturity Date, and (ii) the aggregate outstanding principal of
the Swingline Loans shall be due and payable in full on the Swingline Maturity
Date.
26
<PAGE> 33
(b) In the event that, at any time, the sum of (x) the aggregate
principal amount of Revolving Loans outstanding at such time, (y) the aggregate
Letter of Credit Exposure of all Lenders at such time and (z) the aggregate
principal amount of Swingline Loans outstanding at such time (excluding the
aggregate amount of any Swingline Loans to be repaid with proceeds of Revolving
Loans made on the date of determination) shall exceed the aggregate Commitments
at such time (after giving effect to any concurrent termination or reduction
thereof), the Borrower will immediately prepay the outstanding principal amount
of the Swingline Loans and, to the extent of any excess remaining after
prepayment in full of outstanding Swingline Loans, the Borrower will immediately
prepay the outstanding principal amount of the Revolving Loans in the amount of
such excess; provided that, to the extent such excess amount is greater than the
aggregate principal amount of Swingline Loans and Revolving Loans outstanding
immediately prior to the application of such prepayment, the amount so prepaid
shall be retained by the Agent and held in the Cash Collateral Account as cover
for Letter of Credit Exposure, as more particularly described in SECTION 3.8,
and thereupon such cash shall be deemed to reduce the aggregate Letter of Credit
Exposure by an equivalent amount.
(c) Each payment or prepayment pursuant to the provisions of this
Section shall be applied ratably among the Lenders holding the Loans being
prepaid, in proportion to the principal amount held by each.
(d) Each payment or prepayment of a LIBOR Loan made pursuant to
the provisions of this Section on a day other than the last day of the Interest
Period applicable thereto shall be made together with all amounts required under
SECTION 2.18 to be paid as a consequence thereof.
2.7 Voluntary Prepayments. (a) At any time and from time to time, the
Borrower shall have the right to prepay the Loans, in whole or in part, without
premium or penalty (except as provided in clause (iii) below), upon written
notice given to the Agent not later than 12:00 a.m., Charlotte time, three (3)
Business Days prior to each intended prepayment of LIBOR Loans and on the day of
each intended prepayment of Base Rate Loans, provided that (i) each partial
prepayment shall be in an aggregate principal amount of not less than $1,000,000
or, if greater, an integral multiple of $500,000 in excess thereof ($50,000 and
$50,000, respectively, in the case of Swingline Loans), (ii) no partial
prepayment of LIBOR Loans made pursuant to any single Borrowing shall reduce the
aggregate outstanding principal amount of the remaining LIBOR Loans under such
Borrowing to less than $3,000,000 or to any greater amount not an integral
multiple of $1,000,000 in excess thereof, and (iii) unless made together with
all amounts required under SECTION 2.18 to be paid as a consequence of such
prepayment, a prepayment of a LIBOR Loan may be made only on the last day of the
Interest Period applicable thereto. Each such notice shall specify the proposed
date of such prepayment and the aggregate principal amount and Type of the Loans
to be prepaid (and, in the case of LIBOR Loans, the Interest Period of the
Borrowing pursuant to which made), and shall be irrevocable and shall bind the
Borrower to make such prepayment on the terms specified therein. Loans prepaid
pursuant to this subsection (a) may be reborrowed, subject to the terms and
conditions of this Agreement.
27
<PAGE> 34
(b) Each prepayment of the Loans made pursuant to subsection (a)
above shall be applied ratably among the Lenders holding the Loans being
prepaid, in proportion to the principal amount held by each.
2.8 Interest. (a) The Borrower will pay interest in respect of
the unpaid principal amount of each Loan, from the date of Borrowing thereof
until such principal amount shall be paid in full, (i) at the Adjusted Base
Rate, as in effect from time to time during such periods as such Loan is a Base
Rate Loan, and (ii) at the Adjusted LIBOR Rate, as in effect from time to time
during such periods as such Loan is a LIBOR Loan.
(b) Upon the occurrence and during the continuance of an Event of
Default as the result of failure by the Borrower to pay any principal of or
interest on any Loan, any fees or other amount hereunder when due (whether at
maturity, pursuant to acceleration or otherwise), and (at the election of the
Required Lenders) upon the occurrence and during the continuance of any other
Event of Default, all outstanding principal amounts of the Loans and, to the
greatest extent permitted by law, all interest accrued on the Loans and all
other accrued and outstanding fees and other amounts hereunder, shall bear
interest at a rate per annum equal to the interest rate applicable from time to
time thereafter to such Loans (whether the Adjusted Base Rate or the Adjusted
LIBOR Rate) plus 2% (or, in the case of fees and other amounts, at the Adjusted
Base Rate plus 2%), and, in each case, such default interest shall be payable on
demand. To the greatest extent permitted by law, interest shall continue to
accrue after the filing by or against the Borrower of any petition seeking any
relief in bankruptcy or under any law pertaining to insolvency or debtor relief.
(c) Accrued (and theretofore unpaid) interest shall be payable as
follows:
(i) in respect of each Base Rate Loan (including any Base
Rate Loan or portion thereof paid or prepaid pursuant to the provisions
of SECTION 2.6, except as provided hereinbelow), in arrears on the last
Business Day of each calendar quarter, beginning with the first such
day to occur after the Closing Date; provided, that in the event the
Loans are repaid or prepaid in full and the Commitments have been
terminated, then accrued interest in respect of all Base Rate Loans
shall be payable together with such repayment or prepayment on the date
thereof;
(ii) in respect of each LIBOR Loan (including any LIBOR Loan
or portion thereof paid or prepaid pursuant to the provisions of
SECTION 2.6, except as provided hereinbelow), in arrears (y) on the
last Business Day of the Interest Period applicable thereto (subject to
the provisions of clause (iv) in SECTION 2.10) and (z) in addition, in
the case of a LIBOR Loan with an Interest Period having a duration of
six months, on the date three months after the first day of such
Interest Period; provided, that in the event all LIBOR Loans made
pursuant to a single Borrowing are repaid or prepaid in full, then
accrued interest in respect of such LIBOR Loans shall be payable
together with such repayment or prepayment on the date thereof; and
28
<PAGE> 35
(iii) in respect of any Loan, at maturity (whether pursuant to
acceleration or otherwise) and, after maturity, on demand.
(d) Nothing contained in this Agreement or in any other Credit Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable law. If the amount
of interest payable for the account of any Lender on any interest payment date
would exceed the maximum amount permitted by applicable law to be charged by
such Lender, the amount of interest payable for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amount permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this sentence exceed the aggregate amount by which
interest paid for its account has theretofore been reduced pursuant to the
previous sentence.
(e) The Agent shall promptly notify the Borrower and the Lenders upon
determining the interest rate for each Borrowing of LIBOR Loans after its
receipt of the relevant Notice of Borrowing or Notice of
Conversion/Continuation, and upon each change in the Base Rate; provided,
however, that the failure of the Agent to provide the Borrower or the Lenders
with any such notice shall neither affect any obligations of the Borrower or
the Lenders hereunder nor result in any liability on the part of the Agent to
the Borrower or any Lender. Each such determination (including each
determination of the Reserve Requirement) shall, absent manifest error, be
conclusive and binding on all parties hereto.
2.9 Fees. The Borrower agrees to pay:
(a) To First Union, for its own account, on the date of its
execution of this Agreement, the fees described in the third paragraph of the
Fee Letter, in the amounts set forth therein as due and payable on such date and
to the extent not theretofore paid to First Union;
(b) To the Agent, for the account of each Lender, a commitment fee for
each calendar quarter (or portion thereof) for the period from the date of this
Agreement to the Termination Date, at a per annum rate equal to the Applicable
Margin Percentage in effect for such fee from time to time during such quarter,
on such Lender's ratable share (based on the proportion that its Commitment
bears to the aggregate Commitments) of the average daily aggregate Unutilized
Commitments, payable in arrears (i) on the last Business Day of each calendar
quarter, beginning with the first such day to occur after the Closing Date, and
(ii) on the Termination Date;
(c) To the Agent, for the account of each Lender, a letter of credit
fee for each calendar quarter (or portion thereof) in respect of all Letters of
Credit outstanding during such quarter, at a per annum rate equal to the
Applicable Margin Percentage in effect from time to time during such quarter for
Loans that are maintained as LIBOR Loans, on such Lender's ratable
29
<PAGE> 36
share (based on the proportion that its Commitment bears to the aggregate
Commitments) of the daily average aggregate Stated Amount of such Letters of
Credit, payable in arrears (i) on the last Business Day of each calendar
quarter, beginning with the first such day to occur after the Closing Date, and
(ii) on the later of the Termination Date and the date of termination of the
last outstanding Letter of Credit;
(d) To the Issuing Lender, for its own account, a facing fee for
each calendar quarter (or portion thereof) in respect of all Letters of Credit
outstanding during such quarter, at a per annum rate of 0.125% on the daily
average aggregate Stated Amount of such Letters of Credit payable in arrears (i)
on the last Business Day of each calendar quarter, beginning with the first such
day to occur after the Closing Date, and (ii) on the later of the Termination
Date and the date of termination of the last outstanding Letter of Credit;
(e) To the Agent, for its own account, the annual administrative
fee described in the second paragraph of the Fee Letter, on the terms, in the
amount and at the times set forth therein;
(f) To the Agent for the account of the Lenders with Commitments
in effect under the First Restatement, the fee described in the second paragraph
of the memorandum dated May 15, 1998 from the Agent to such Lenders; and
(g) To the agent for the account of the Lenders other than those
described in (f) above, the fee payable to such Lenders described in the
memorandum dated May 15, 1998 from the Agent to such Lenders.
2.10 Interest Periods. Concurrently with the giving of a Notice of
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of Base Rate Loans to be converted into, or LIBOR Loans to be
continued as, LIBOR Loans, the Borrower shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrower, be a one, two, three or six-month period; provided, however, that:
(i) all LIBOR Loans comprising a single Borrowing shall
at all times have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan shall
commence on the date of the Borrowing of such LIBOR Loan (including
the date of any continuation of, or conversion into, such LIBOR
Loan), and each successive Interest Period applicable to such LIBOR
Loan shall commence on the day on which the next preceding Interest
Period applicable thereto expires;
(iii) LIBOR Loans may not be outstanding under more than
five (5) separate Interest Periods at any one time (for which purpose
Interest Periods shall be deemed to be separate even if they are
coterminous);
30
<PAGE> 37
(iv) if any Interest Period otherwise would expire on a
day that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day unless such next succeeding Business Day
falls in another calendar month, in which case such Interest Period
shall expire on the next preceding Business Day;
(v) the Borrower may not select any Interest Period that
begins prior to the Closing Date or that expires after the Maturity
Date;
(vi) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month during
which such Interest Period would otherwise expire, such Interest Period
shall expire on the last Business Day of such calendar month; and
(vii) if, upon the expiration of any Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrower shall have failed
to elect a new Interest Period to be applicable to such LIBOR Loans,
then the Borrower shall be deemed to have elected to convert such LIBOR
Loans into Base Rate Loans as of the expiration of the then current
Interest Period applicable thereto.
2.11 Conversions and Continuations. (a) The Borrower shall have the
right, on any Business Day occurring on or after the Closing Date, to elect (i)
to convert all or a portion of the outstanding principal amount of any Base Rate
Loans into LIBOR Loans, or to convert any LIBOR Loans the Interest Periods for
which end on the same day into Base Rate Loans, or (ii) to continue all or a
portion of the outstanding principal amount of any LIBOR Loans the Interest
Periods for which end on the same day for an additional Interest Period,
provided that (w) any such conversion of LIBOR Loans into Base Rate Loans shall
involve an aggregate principal amount of not less than $1,000,000 or, if
greater, an integral multiple of $500,000 in excess thereof; any such conversion
of Base Rate Loans into, or continuation of, LIBOR Loans shall involve an
aggregate principal amount of not less than $3,000,000 or, if greater, an
integral multiple of $1,000,000 in excess thereof; and no partial conversion of
LIBOR Loans made pursuant to a single Borrowing shall reduce the outstanding
principal amount of such LIBOR Loans to less than $3,000,000 or to any greater
amount not an integral multiple of $1,000,000 in excess thereof, (x) except as
otherwise provided in SECTION 2.16(D), LIBOR Loans may be converted into Base
Rate Loans only on the last day of the Interest Period applicable thereto (and,
in any event, if a LIBOR Loan is converted into a Base Rate Loan on any day
other than the last day of the Interest Period applicable thereto, the Borrower
will pay, upon such conversion, all amounts required under SECTION 2.18 to be
paid as a consequence thereof), (y) no such conversion or continuation will be
permitted with regard to any Base Rate Loan that are Swingline Loans, and (z) no
conversion of Base Rate Loans into LIBOR Loans or continuation of LIBOR Loans
shall be permitted during the continuance of a Default or Event of Default.
(b) The Borrower shall make each such election by giving the Agent
written notice not later than 12:00 a.m., Charlotte time, three (3) Business
Days prior to the intended effective date of any conversion of Base Rate Loans
into, or continuation of, LIBOR Loans and on the day of the intended effective
date of any conversion of LIBOR Loans into Base Rate Loans. Each such
31
<PAGE> 38
notice (each, a "Notice of Conversion/Continuation") shall be irrevocable, shall
be given in the form of EXHIBIT B-3 and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Loans being
converted or continued. Upon the receipt of a Notice of Conversion/Continuation,
the Agent will promptly notify each Lender of the proposed conversion or
continuation. In the event that the Borrower shall fail to deliver a Notice of
Conversion/Continuation as provided herein with respect to any outstanding LIBOR
Loans, such LIBOR Loans shall automatically be converted to Base Rate Loans upon
the expiration of the then current Interest Period applicable thereto (unless
repaid pursuant to the terms hereof). In the event the Borrower shall have
failed to select in a Notice of Conversion/Continuation the duration of the
Interest Period to be applicable to any conversion into, or continuation of,
LIBOR Loans, then the Borrower shall be deemed to have selected an Interest
Period with a duration of one month.
2.12 Method of Payments; Computations. (a) All payments by the Borrower
hereunder shall be made without setoff, counterclaim or other defense, in
Dollars and in immediately available funds to the Agent, for the account of the
Lenders entitled to such payment or the Swingline Lender, as the case may be
(except as otherwise expressly provided herein as to payments required to be
made directly to the Issuing Lender and the Lenders) at its office referred to
in SECTION 11.5, prior to 1:00 p.m., Charlotte time, on the date payment is due.
Any payment made as required hereinabove, but after 1:00 p.m., Charlotte time,
shall be deemed to have been made on the next succeeding Business Day. If any
payment falls due on a day that is not a Business Day, then such due date shall
be extended to the next succeeding Business Day (except that in the case of
LIBOR Loans to which the provisions of clause (iv) in SECTION 2.10 are
applicable, such due date shall be the next preceding Business Day), and such
extension of time shall then be included in the computation of payment of
interest, fees or other applicable amounts.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received by 1:00 p.m., Charlotte time, in immediately available
funds, the Agent will make available to each relevant Lender on the same date,
by wire transfer of immediately available funds, such Lender's ratable share of
such payment (based on the percentage that the amount of the relevant payment
owing to such Lender bears to the total amount of such payment owing to all of
the relevant Lenders), and (ii) if such payment is received after 1:00 p.m.,
Charlotte time, or in other than immediately available funds, the Agent will
make available to each such Lender its ratable share of such payment by wire
transfer of immediately available funds on the next succeeding Business Day (or
in the case of uncollected funds, as soon as practicable after collected). If
the Agent shall not have made a required distribution to the appropriate Lenders
as required hereinabove after receiving a payment for the account of such
Lenders, the Agent will pay to each such Lender, on demand, its ratable share of
such payment with interest thereon at the Federal Funds Rate for each day from
the date such amount was required to be disbursed by the Agent until the date
repaid to such Lender. The Agent will distribute to the Issuing Lender like
amounts relating to payments made to the Agent for the account of the Issuing
Lender in the same manner, and subject to the same terms and conditions, as set
forth hereinabove with respect to distributions of amounts to the Lenders.
32
<PAGE> 39
(c) Unless the Agent shall have received written notice from the
Borrower prior to the date on which any payment is due to any Lender hereunder
that such payment will not be made in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date, and the Agent
may, in reliance on such assumption, but shall not be obligated to, cause to be
distributed to such Lender on such due date an amount equal to the amount then
due to such Lender. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, and without limiting the obligation of the
Borrower to make such payment in accordance with the terms hereof, such Lender
shall repay to the Agent forthwith on demand such amount so distributed to such
Lender, together with interest thereon for each day from the date such amount is
so distributed to such Lender until the date repaid to the Agent, at the Federal
Funds Rate.
(d) All computations of interest and fees hereunder (including
computations of the Reserve Requirement) shall be made on the basis of a year
consisting of 360 days and the actual number of days (including the first day,
but excluding the last day) elapsed.
2.13 Recovery of Payments. (a) The Borrower agrees that to the extent
the Borrower makes a payment or payments to or for the account of the Agent, any
Lender or the Issuing Lender, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or similar state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, the Obligation intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been received.
(b) If any amounts distributed by the Agent to any Lender are
subsequently returned or repaid by the Agent to the Borrower or its
representative or successor in interest, whether by court order or by settlement
approved by the Lender in question, such Lender will, promptly upon receipt of
notice thereof from the Agent, pay the Agent such amount. If any such amounts
are recovered by the Agent from the Borrower or its representative or successor
in interest, the Agent will redistribute such amounts to the Lenders on the same
basis as such amounts were originally distributed.
2.14 Use of Proceeds. The proceeds of the Loans shall be used (i)
first, to repay the outstanding Indebtedness under the First Restatement in
full, (ii) second, to pay or reimburse reasonable transaction fees and expenses
in connection with the closing of the transactions contemplated hereby, and
(iii) thereafter, for working capital and general corporate purposes of the
Borrower and its Subsidiaries and in accordance with the terms and provisions of
this Agreement (including to finance Permitted Acquisitions in accordance with
the terms and provisions of this Agreement, including, without limitation, the
provisions set forth in SECTIONS 6.8 and 6.9). Notwithstanding any other
provisions hereof, the proceeds of the Loans may not be transferred in any way,
directly or indirectly, to Lason International except in accordance with the
requirements of SECTION 8.2(V).
2.15 Pro Rata Treatment. (a) Except in the case of Swingline Loans, all
fundings, continuations and conversions of Loans shall be made by the Lenders
pro rata on the basis of their
33
<PAGE> 40
respective Commitments (in the case of the initial funding of Loans pursuant to
SECTION 2.2) or on the basis of their respective outstanding Loans (in the case
of continuations and conversions of Loans pursuant to SECTION 2.11, and
additionally in all cases in the event the Commitments have expired or have
been terminated), as the case may be from time to time. All payments on
account of principal of or interest on any Loans, fees or any other Obligations
owing to or for the account of any one or more Lenders shall be apportioned
ratably among such Lenders in proportion to the amounts of such principal,
interest, fees or other Obligations owed to them respectively.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, or otherwise, other
than pursuant to SECTION 11.7) applicable to the payment of any of the
Obligations that exceeds its ratable share (according to the proportion of (i)
the amount of such Obligations due and payable to such Lender at such time to
(ii) the aggregate amount of such Obligations due and payable to all Lenders at
such time) of payments on account of such Obligations then or therewith obtained
by all the Lenders to which such payments are required to have been made, such
Lender shall forthwith purchase from the other Lenders such participations in
such Obligations as shall be necessary to cause such purchasing Lender to share
the excess payment or other recovery ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each such other Lender
shall be rescinded and each such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such other Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to the provisions of this subsection may, to the
fullest extent permitted by law, exercise any and all rights of payment
(including, without limitation, setoff, banker's lien or counterclaim) with
respect to such participation as fully as if such participant were a direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled under this
subsection to share in the benefits of any recovery on such secured claim.
2.16 Increased Costs; Change in Circumstances; Illegality; etc. (a) If,
at any time after the date hereof and from time to time, the introduction of or
any change in any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender with any
guideline or request from any such Governmental Authority (whether or not having
the force of law), shall (i) subject such Lender to any tax or other charge, or
change the basis of taxation of payments to such Lender, in respect of any of
its LIBOR Loans or any other amounts payable hereunder or its obligation to
make, fund or maintain any LIBOR Loans (other than any change in the rate or
basis of tax on the overall net income of such Lender or its applicable Lending
Office), (ii) impose, modify or deem applicable any reserve, special deposit or
similar
34
<PAGE> 41
requirement (other than as a result of any change in the Reserve
Requirement) against assets of, deposits with or for the account of, or credit
extended by, such Lender or its applicable Lending Office, or (iii) impose on
such Lender or its applicable Lending Office any other condition, and the result
of any of the foregoing shall be to increase the cost to such Lender of making
or maintaining any LIBOR Loans or issuing or participating in Letters of Credit
or to reduce the amount of any sum received or receivable by such Lender
hereunder (including in respect of Letters of Credit), the Borrower will,
promptly upon demand therefor by such Lender, pay to such Lender such additional
amounts as shall compensate such Lender for such increase in costs or reduction
in return.
(b) If, at any time after the date hereof and from time to time, any
Lender shall have reasonably determined that the introduction of or any change
in any applicable law, rule or regulation regarding capital adequacy or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by such Lender
with any guideline or request from any such Governmental Authority (whether or
not having the force of law), has or would have the effect, as a consequence of
such Lender's Commitment, Loans or issuance of or participations in Letters of
Credit hereunder, of reducing the rate of return on the capital of such Lender
or any Person controlling such Lender to a level below that which such Lender or
controlling Person could have achieved but for such introduction, change or
compliance (taking into account such Lender's or controlling Person's policies
with respect to capital adequacy), the Borrower will, promptly upon demand
therefor by such Lender therefor, pay to such Lender such additional amounts as
will compensate such Lender or controlling Person for such reduction in return.
(c) If, on or prior to the first day of any Interest Period, (y) the
Agent shall have determined that adequate and reasonable means do not exist for
ascertaining the applicable LIBOR Rate for such Interest Period or (z) the Agent
shall have received written notice from the Required Lenders of their
determination that the rate of interest referred to in the definition of "LIBOR
Rate" upon the basis of which the Adjusted LIBOR Rate for LIBOR Loans for such
Interest Period is to be determined will not adequately and fairly reflect the
cost to such Lenders of making or maintaining LIBOR Loans during such Interest
Period, the Agent will forthwith so notify the Borrower and the Lenders. Upon
such notice, (i) all then outstanding LIBOR Loans shall automatically, on the
expiration date of the respective Interest Periods applicable thereto (unless
then repaid in full), be converted into Base Rate Loans, (ii) the obligation of
the Lenders to make, to convert Base Rate Loans into, or to continue, LIBOR
Loans shall be suspended (including pursuant to the Borrowing to which such
Interest Period applies), and (iii) any Notice of Borrowing or Notice of
Conversion/Continuation given at any time thereafter with respect to LIBOR Loans
shall be deemed to be a request for Base Rate Loans, in each case until the
Agent or the Required Lenders, as the case may be, shall have determined that
the circumstances giving rise to such suspension no longer exist (and the
Required Lenders, if making such determination, shall have so notified the
Agent), and the Agent shall have so notified the Borrower and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any
time after the date hereof and from time to time, any Lender shall have
determined in good faith that the
35
<PAGE> 42
introduction of or any change in any applicable law, rule or regulation or in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance
with any guideline or request from any such Governmental Authority (whether or
not having the force of law), has or would have the effect of making it
unlawful for such Lender to make or to continue to make or maintain LIBOR
Loans, such Lender will forthwith so notify the Agent and the Borrower. Upon
such notice, (i) each of such Lender's then outstanding LIBOR Loans shall
automatically, on the expiration date of the respective Interest Period
applicable thereto (or, to the extent any such LIBOR Loan may not lawfully be
maintained as a LIBOR Loan until such expiration date, upon such notice), be
converted into a Base Rate Loan, (ii) the obligation of such Lender to make, to
convert Base Rate Loans into, or to continue, LIBOR Loans shall be suspended
(including pursuant to any Borrowing for which the Agent has received a Notice
of Borrowing but for which the Borrowing Date has not arrived), and (iii) any
Notice of Borrowing or Notice of Conversion/Continuation given at any time
thereafter with respect to LIBOR Loans shall, as to such Lender, be deemed to
be a request for a Base Rate Loan, in each case until such Lender shall have
determined that the circumstances giving rise to such suspension no longer
exist and shall have so notified the Agent, and the Agent shall have so
notified the Borrower.
(e) Determinations by the Agent or any Lender for purposes of
this Section of any increased costs, reduction in return, market
contingencies, illegality or any other matter shall, absent manifest error,
be conclusive, provided that such determinations are made in good faith.
No failure by the Agent or any Lender at any time to demand payment of any
amounts payable under this Section shall constitute a waiver of its right
to demand payment of any additional amounts arising at any subsequent
time. Nothing in this Section shall require or be construed to require
the Borrower to pay any interest, fees, costs or other amounts in excess of
that permitted by applicable law.
2.17 Taxes. (a) Any and all payments by the Borrower hereunder or under
any Note shall be made, in accordance with the terms hereof and thereof, free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, other than net income and franchise taxes imposed on the Agent
or any Lender by the United States or by the jurisdiction under the laws of
which the Agent or such Lender, as the case may be, is organized or in which its
principal office or (in the case of a Lender) its applicable Lending Office is
located, or any political subdivision or taxing authority thereof (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to the Agent or any Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section), the Agent or such Lender, as the case may be, receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower will make such deductions, (iii) the Borrower will pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower will deliver to the Agent
or such Lender, as the case may be, evidence of such payment.
36
<PAGE> 43
(b) The Borrower will indemnify the Agent and each Lender for the full
amount of Taxes (including, without limitation, any Taxes imposed by any
jurisdiction on amounts payable under this Section) paid by the Agent or such
Lender, as the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally asserted. This indemnification shall be made within 30
days from the date the Agent or such Lender, as the case may be, makes written
demand therefor.
(c) Each of the Agent and the Lenders agrees that if it subsequently
recovers, or receives a permanent net tax benefit with respect to, any amount of
Taxes (i) previously paid by it and as to which it has been indemnified by or on
behalf of the Borrower or (ii) previously deducted by the Borrower (including,
without limitation, any Taxes deducted from any additional sums payable under
clause (i) of subsection (a) above), the Agent or such Lender, as the case may
be, shall reimburse the Borrower to the extent of the amount of any such
recovery or permanent net tax benefit (but only to the extent of indemnity
payments made, or additional amounts paid, by or on behalf of the Borrower under
this Section with respect to the Taxes giving rise to such recovery or tax
benefit); provided, however, that the Borrower, upon the request of the Agent or
such Lender, agrees to repay to the Agent or such Lender, as the case may be,
the amount paid over to the Borrower (together with any penalties, interest or
other charges), in the event the Agent or such Lender is required to repay such
amount to the relevant taxing authority or other Governmental Authority. The
determination by the Agent or any Lender of the amount of any such recovery or
permanent net tax benefit shall, in the absence of manifest error, be conclusive
and binding.
(d) If any Lender is incorporated or organized under the laws of a
jurisdiction other than the United States of America or any state thereof (a
"Non-U.S. Lender") and claims exemption from United States withholding tax
pursuant to the Internal Revenue Code, such Non-U.S. Lender will deliver to
each of the Agent and the Borrower, on or prior to the Closing Date (or, in the
case of a Non-U.S. Lender that becomes a party to this Agreement as a result of
an assignment after the Closing Date, on the effective date of such
assignment), (i) in the case of a Non-U.S. Lender that is a "bank" for purposes
of Section 881(c)(3)(A) of the Internal Revenue Code, a properly completed
Internal Revenue Service Form 4224 or 1001, as applicable (or successor forms),
certifying that such Non-U.S. Lender is entitled to an exemption from or a
reduction of withholding or deduction for or on account of United States
federal income taxes in connection with payments under this Agreement or any of
the Notes, together with a properly completed Internal Revenue Service Form W-8
or W-9, as applicable (or successor forms), and (ii) in the case of a Non-U.S.
Lender that is not a "bank" for purposes of Section 881(c)(3)(A) of the
Internal Revenue Code, a certificate in form and substance reasonably
satisfactory to the Agent and the Borrower and to the effect that (x) such
Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the
Internal Revenue Code, is not subject to regulatory or other legal requirements
as a bank in any jurisdiction, and has not been treated as a bank for purposes
of any tax, securities law or other filing or submission made to any
governmental authority, any application made to a rating agency or
qualification for any exemption from any tax, securities law or other legal
requirements, (y) is not a 10-percent shareholder for purposes of Section
881(c)(3)(B) of the Internal Revenue Code and (z) is not a controlled foreign
corporation receiving interest from a related person for purposes of Section
881(c)(3)(C) of the Internal
37
<PAGE> 44
Revenue Code, together with a properly completed Internal Revenue Service Form
W-8 or W-9, as applicable (or successor forms). Each such Non-U.S. Lender
further agrees to deliver to each of the Agent and the Borrower an additional
copy of each such relevant form on or before the date that such form expires or
becomes obsolete or after the occurrence of any event (including a change in
its applicable Lending Office) requiring a change in the most recent forms so
delivered by it, in each case certifying that such Non-U.S. Lender is entitled
to an exemption from or a reduction of withholding or deduction for or on
account of United States federal income taxes in connection with payments under
this Agreement or any of the Notes, unless an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required, which event
renders all such forms inapplicable orthe exemption to which such forms relate
unavailable and such Non-U.S. Lender notifies the Agent and the Borrower that
it is not entitled to receive payments without deduction or withholding of
United States federal income taxes. Each such Non-U.S. Lender will promptly
notify the Agent and the Borrower of any changes in circumstances that would
modify or render invalid any claimed exemption or reduction.
(e) If any Lender is entitled to a reduction in (and not a complete
exemption from) the applicable withholding tax, the Borrower and the Agent may
withhold from any interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such reduction. If any of
the forms or other documentation required under subsection (d) above are not
delivered to the Agent as therein required, then the Borrower and the Agent may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax.
2.18 Compensation. The Borrower will compensate each Lender upon demand
for all losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund or maintain LIBOR
Loans) that such Lender may incur or sustain (i) if for any reason (other than a
default by such Lender) a Borrowing or continuation of, or conversion into, a
LIBOR Loan does not occur on a date specified therefor in a Notice of Borrowing
or Notice of Conversion/Continuation, (ii) if any repayment, prepayment or
conversion of any LIBOR Loan occurs on a date other than the last day of an
Interest Period applicable thereto (including as a consequence of acceleration
of the maturity of the Loans pursuant to SECTION 9.2), (iii) if any prepayment
of any LIBOR Loan is not made on any date specified in a notice of prepayment
given by the Borrower or (iv) as a consequence of any other failure by the
Borrower to make any payments with respect to any LIBOR Loan when due hereunder.
Calculation of all amounts payable to a Lender under this Section shall be made
as though such Lender had actually funded its relevant LIBOR Loan through the
purchase of a Eurodollar deposit bearing interest at the LIBOR Rate in an amount
equal to the amount of such LIBOR Loan, having a maturity comparable to the
relevant Interest Period; provided, however, that each Lender may fund its LIBOR
Loans in any manner it sees fit and the foregoing assumption shall be utilized
only for the calculation of amounts payable under this Section. Determinations
by any Lender for purposes of this Section of any such losses, expenses or
liabilities shall, absent manifest error, be conclusive, provided that such
determinations are made in good faith.
38
<PAGE> 45
2.19 Optional Increase in Commitments.
(a) Subject to the conditions set forth below, the Borrower may,
upon at least thirty (30) days prior written notice to the Agent and the
Lenders, increase the Total Commitments, either by designating a lender not
theretofore a Lender to become a Lender (such designation to be effective only
with the prior written consent of the Agent, which consent shall not be
unreasonably withheld) or by agreeing with an existing Lender that such
Lender's Commitment shall be increased (thus increasing the Total Commitments);
provided that:
(i) no Default or Event of Default shall have occurred
and be continuing hereunder as of the effective date;
(ii) any lender not theretofore a Lender shall meet the
criteria set forth in the definition of Eligible Assignee;
(iii) the representations and warranties made by the
Borrower and contained in ARTICLE V shall be true and correct on and
as of the effective date with the same effect as if made on and as of
such date (other than those representations and warranties that by
their terms speak as of a particular date, which representations and
warranties shall be true and correct as of such particular date);
(iv) the amount of such increase in the Total Commitments
shall not be less than $25,000,000, and shall not cause the Total
Commitments to exceed $200,000,000;
(v) The Borrower and the Lender or lender not
theretofore a Lender, shall execute and deliver to the Agent, for its
acceptance and recording in the register pursuant to SECTION 11.7(B),
a Lender Addition and Acknowledgement Agreement, in form and
substance satisfactory to the Agent and acknowledged by the Agent and
each Subsidiary Guarantor and substantially in the form of EXHIBIT J
attached hereto;
(vi) no existing Lender shall be obligated in any way to
increase its Commitment;
(vii) the Borrower shall pay any amount required to be
paid pursuant to SECTION 2.18 hereof resulting from the reallocation
of Loans pursuant to the increase in the Total Revolving Credit
Commitments;
(viii) the Borrower shall have paid commitment fees to
additional Lenders sufficient to induce such Lenders to provide the
requested Commitments; and
(ix) the Agent may request any other documents or
information in its reasonable discretion.
(b) Upon the execution, delivery, acceptance and recording of the
Lender Addition and Acknowledgement Agreement, from and after the effective date
specified in a Lender
39
<PAGE> 46
Addition and Acknowledgement Agreement, which effective date shall be five (5)
Business Days after the delivery thereof to the Agent, such existing Lender
shall have a Commitment as therein set forth or such other Lender shall become a
Lender with a Commitment as therein set forth and all the rights and obligations
of a Lender with such a Commitment hereunder.
(c) Upon its receipt of a Lender Addition and Acknowledgement
Agreement together with any Note or Notes subject to such addition and
assumption and the written consent to such addition and assumption, the Agent
shall, if such Lender Addition and Acknowledgement Agreement has been completed
and is substantially in the form of EXHIBIT E:
(i) accept such Lender Addition and Acknowledgement Agreement;
(ii) record the information contained therein in the Register;
and
(iii) give prompt notice thereof to the Lenders and the Borrower.
Within five (5) Business Days after receipt of notice, the Borrower shall
execute and deliver to the Agent, in exchange for the surrendered Note or Notes
of any existing Lender or with respect to any Lender not theretofore a Lender, a
new Note or Notes to the order of the applicable Lenders in amounts equal to the
Commitments of such Lenders pursuant to the Lender Addition and Acknowledgement
Agreement. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such Commitments, shall be dated the
effective date of such Lender Addition and Acknowledgement Agreement and shall
otherwise be in substantially the form of the existing Notes. Each surrendered
Note and/or Notes shall be canceled and returned to Borrower.
ARTICLE III
LETTERS OF CREDIT
3.1 Issuance. Subject to and upon the terms and conditions herein set
forth, so long as no Default or Event of Default has occurred and is continuing,
the Issuing Lender will, at any time and from time to time on and after the
Closing Date and prior to the earlier of (i) the seventh day prior to the
Maturity Date and (ii) the Termination Date, and upon request by the Borrower in
accordance with the provisions of SECTION 3.2, issue for the account of the
Borrower one or more irrevocable standby letters of credit denominated in
Dollars and in a form customarily used or otherwise approved by the Issuing
Lender (together with all amendments, modifications and supplements thereto,
substitutions therefor and renewals and restatements thereof, collectively, the
"Letters of Credit"). The Stated Amount of each Letter of Credit shall not be
less than $100,000. Notwithstanding the foregoing:
(a) No Letter of Credit shall be issued the Stated Amount upon
issuance of which (i) when added to the aggregate Letter of Credit Exposure of
the Lenders at such time, would exceed $3,000,000 or (ii) when added to the sum
of (x) the aggregate Letter of Credit Exposure
40
<PAGE> 47
of all Lenders at such time, (y) the aggregate principal amount of all Revolving
Loans then outstanding, and (z) the aggregate principal amount of all Swingline
Loans then outstanding, would exceed the aggregate Commitments at such time;
(b) No Letter of Credit shall be issued that by its terms expires later
than the seventh day prior to the Maturity Date or, in any event, more than one
(1) year after its date of issuance; provided, however, that a Letter of Credit
may, if requested by the Borrower, provide by its terms, and on terms acceptable
to the Issuing Lender, for renewal for successive periods of one year or less
(but not beyond the seventh day prior to the Maturity Date), unless and until
the Issuing Lender shall have delivered a notice of nonrenewal to the
beneficiary of such Letter of Credit; and
(c) The Issuing Lender shall be under no obligation to issue any Letter
of Credit if, at the time of such proposed issuance, (i) any order, judgment or
decree of any Governmental Authority or arbitrator shall purport by its terms to
enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any
Requirement of Law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing
Lender refrain from, the issuance of letters of credit generally or such Letter
of Credit in particular or shall impose upon the Issuing Lender with respect to
such Letter of Credit any restriction or reserve or capital requirement (for
which the Issuing Lender is not otherwise compensated) not in effect on the
Closing Date, or any unreimbursed loss, cost or expense that was not applicable,
in effect or known to the Issuing Lender as of the Closing Date and that the
Issuing Lender in good faith deems material to it, or (ii) the Issuing Lender
shall have actual knowledge, or shall have received notice from any Lender,
prior to the issuance of such Letter of Credit that one or more of the
conditions specified in SECTIONS 4.1 (if applicable) or 4.2 are not then
satisfied (or have not been waived in writing as required herein) or that the
issuance of such Letter of Credit would violate the provisions of subsection (a)
above.
3.2 Notices. Whenever the Borrower desires the issuance of a Letter of
Credit, the Borrower will give the Issuing Lender written notice with a copy to
the Agent not later than 11:00 a.m., Charlotte time, three (3) Business Days (or
such shorter period as is acceptable to the Issuing Lender in any given case)
prior to the requested date of issuance thereof. Each such notice (each, a
"Letter of Credit Notice") shall be irrevocable, shall be given in the form of
EXHIBIT B-4 and shall specify (i) the requested date of issuance, which shall be
a Business Day, (ii) the requested Stated Amount and expiry date of the Letter
of Credit, and (iii) the name and address of the requested beneficiary or
beneficiaries of the Letter of Credit. The Borrower will also complete any
application procedures and documents required by the Issuing Lender in
connection with the issuance of any Letter of Credit. Upon its issuance of any
Letter of Credit, the Issuing Lender will promptly notify the Agent of such
issuance, and the Agent will give prompt notice thereof to each Lender.
3.3 Participations. Immediately upon the issuance of any Letter of
Credit, the Issuing Lender shall be deemed to have sold and transferred to each
Lender, and each Lender shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Lender,
41
<PAGE> 48
without recourse or warranty, an undivided interest and participation, pro rata
(based on the percentage of the aggregate Commitments represented by such
Lender's Commitment), in such Letter of Credit, each drawing made thereunder and
the obligations of the Borrower under this Agreement with respect thereto and
any Collateral or other security therefor or guaranty pertaining thereto;
provided, however, that the fee relating to Letters of Credit described in
SECTION 2.9(D) shall be payable directly to the Issuing Lender as provided
therein, and the Lenders shall have no right to receive any portion thereof.
Upon any change in the Commitments of any of the Lenders pursuant to SECTION
11.7(A), with respect to all outstanding Letters of Credit and Reimbursement
Obligations there shall be an automatic adjustment to the participations
pursuant to this Section to reflect the new pro rata shares of the assigning
Lender and the Assignee.
3.4 Reimbursement. The Borrower hereby agrees to reimburse the Issuing
Lender by making payment to the Agent, for the account of the Issuing Lender, in
immediately available funds, for any payment made by the Issuing Lender under
any Letter of Credit (each such amount so paid until reimbursed, together with
interest thereon payable as provided hereinbelow, a "Reimbursement Obligation")
immediately after, and in any event within one (1) Business Day after its
receipt of notice of, such payment (provided that any such Reimbursement
Obligation shall be deemed timely satisfied (but nevertheless subject to the
payment of interest thereon as provided hereinbelow) if satisfied pursuant to a
Borrowing of Loans made on or prior to the next Business Day following the date
of the Borrower's receipt of notice of such payment), together with interest on
the amount so paid by the Issuing Lender, to the extent not reimbursed prior to
1:00 p.m., Charlotte time, on the date of such payment or disbursement, for the
period from the date of the respective payment to the date the Reimbursement
Obligation created thereby is satisfied, at the Adjusted Base Rate applicable to
Loans as in effect from time to time during such period, such interest also to
be payable on demand. The Issuing Lender will provide the Agent and the Borrower
with prompt notice of any payment or disbursement made under any Letter of
Credit, although the failure to give, or any delay in giving, any such notice
shall not release, diminish or otherwise affect the Borrower's obligations under
this Section or any other provision of this Agreement. The Agent will promptly
pay to the Issuing Lender any such amounts received by it under this Section.
3.5 Payment by Loans. In the event that the Issuing Lender makes any
payment under any Letter of Credit and the Borrower shall not have timely
satisfied in full its Reimbursement Obligation to the Issuing Lender pursuant
to SECTION 3.4, and to the extent that any amounts then held in the Cash
Collateral Account established pursuant to SECTION 3.8 shall be insufficient to
satisfy such Reimbursement Obligation in full, the Issuing Lender will promptly
notify the Agent, and the Agent will promptly notify each Lender, of such
failure. If the Agent gives such notice prior to 11:00 a.m., Charlotte time, on
any Business Day, each Lender will make available to the Agent, for the account
of the Issuing Lender, its pro rata share (based on the percentage of the
aggregate Commitments represented by such Lender's Commitment) of the amount of
such payment on such Business Day in immediately available funds. If the Agent
gives such notice after 11:00 a.m., Charlotte time, on any Business Day, each
such Lender shall make its pro rata share of such amount available to the Agent
on the next succeeding Business Day. If and to the extent any Lender shall not
have so made its pro rata share of the amount of such payment available to the
Agent, such Lender agrees to pay to the Agent, for the account of the Issuing
42
<PAGE> 49
Lender, forthwith on demand such amount, together with interest thereon at the
Federal Funds Rate for each day from such date until the date such amount is
paid to the Agent. The failure of any Lender to make available to the Agent
its pro rata share of any payment under any Letter of Credit shall not relieve
any other Lender of its obligation hereunder to make available to the Agent its
pro rata share of any payment under any Letter of Credit on the date required,
as specified above, but no Lender shall be responsible for the failure of any
other Lender to make available to the Agent such other Lender's pro rata share
of any such payment. Each such payment by a Lender under this Section of its
pro rata share of an amount paid by the Issuing Lender shall constitute a Loan
by such Lender (the Borrower being deemed to have given a timely Notice of
Borrowing therefor) and shall be treated as such for all purposes of this
Agreement; provided that for purposes of determining the aggregate Unutilized
Commitments immediately prior to giving effect to the application of the
proceeds of such Loans, the Reimbursement Obligation being satisfied thereby
shall be deemed not to be outstanding at such time
3.6 Payment to Lenders. Whenever the Issuing Lender receives a payment
in respect of a Reimbursement Obligation as to which the Agent has received, for
the account of the Issuing Lender, any payments from the Lenders pursuant to
SECTION 3.5, the Issuing Lender will promptly pay to the Agent, and the Agent
will promptly pay to each Lender that has paid its pro rata share thereof, in
immediately available funds, an amount equal to such Lender's ratable share
(based on the proportionate amount funded by such Lender to the aggregate amount
funded by all Lenders) of such Reimbursement Obligation.
3.7 Obligations Absolute. The Reimbursement Obligations of the
Borrower, and the obligations of the Lenders under SECTION 3.5 to make payments
to the Agent, for the account of the Issuing Lender, with respect to Letters of
Credit, shall be irrevocable, shall remain in effect until the Issuing Lender
shall have no further obligations to make any payments or disbursements under
any circumstances with respect to any Letter of Credit, and, except to the
extent resulting from any gross negligence or willful misconduct on the part of
the Issuing Lender, shall be absolute and unconditional, shall not be subject to
counterclaim, setoff or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(a) Any lack of validity or enforceability of this Agreement, any of
the other Credit Documents or any documents or instruments relating to any
Letter of Credit;
(b) Any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations in respect of any Letter of
Credit or any other amendment, modification or waiver of or any consent to
departure from any Letter of Credit or any documents or instruments relating
thereto, in each case whether or not the Borrower has notice or knowledge
thereof;
(c) The existence of any claim, setoff, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit,
any transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting), the Agent, the Issuing
43
<PAGE> 50
Lender, any Lender or other Person, whether in connection with this Agreement,
any Letter of Credit, the transactions contemplated hereby or any unrelated
transactions (including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
(d) Any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
(provided that such draft, certificate or other document appears on its face to
comply with the terms of such Letter of Credit), any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
telecopier or otherwise, or any errors in translation or in interpretation of
technical terms;
(e) Any defense based upon the failure of any drawing under a Letter
of Credit to conform to the terms of the Letter of Credit (provided that any
draft, certificate or other document presented pursuant to such Letter of
Credit appears on its face to comply with the terms thereof), any nonapplication
or misapplication by the beneficiary or any transferee of the proceeds of such
drawing or any other act or omission of such beneficiary or transferee in
connection with such Letter of Credit;
(f) The exchange, release, surrender or impairment of any Collateral or
other security for the Obligations;
(g) The occurrence of any Default or Event of Default; or
(h) Any other circumstance or event whatsoever, including, without
limitation, any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor.
Any action taken or omitted to be taken by the Issuing Lender under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall be binding upon the Borrower and
each Lender and shall not create or result in any liability of the Issuing
Lender to the Borrower or any Lender. It is expressly understood and agreed
that, for purposes of determining whether a wrongful payment under a Letter of
Credit resulted from the Issuing Lender's gross negligence or willful
misconduct, (i) the Issuing Lender's acceptance of documents that appear on
their face to comply with the terms of such Letter of Credit, without
responsibility for further investigation, regardless of any notice or
information to the contrary, (ii) the Issuing Lender's exclusive reliance on the
documents presented to it under such Letter of Credit as to any and all matters
set forth therein, including the amount of any draft presented under such Letter
of Credit, whether or not the amount due to the beneficiary thereunder equals
the amount of such draft and whether or not any document presented pursuant to
such Letter of Credit proves to be insufficient in any respect (so long as such
document appears on its face to comply with the terms of such Letter of Credit),
and whether or not any other statement or any other document presented pursuant
to such Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever, and (iii) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit
44
<PAGE> 51
with the terms thereof shall, in each case, be deemed not to constitute gross
negligence or willful misconduct of the Issuing Lender.
3.8 Cash Collateral Account. At any time and from time to time (i)
after the occurrence and during the continuance of an Event of Default, the
Agent, at the direction or with the consent of the Required Lenders, may require
the Borrower to deliver to the Agent such additional amount of cash as is equal
to the aggregate Stated Amount of all Letters of Credit at any time outstanding
(whether or not any beneficiary under any Letter of Credit shall have drawn or
be entitled at such time to draw thereunder) and (ii) in the event of a
prepayment under SECTION 2.6(B) remains after prepayment of all outstanding
Loans and Reimbursement Obligations and termination of the Commitments, as
contemplated by SECTION 2.6(D), the Agent will retain such amount as may then be
required to be retained, such amounts in each case under clauses (i) and (ii)
above to be held by the Agent in a cash collateral account (the "Cash Collateral
Account"). The Borrower hereby grants to the Agent, for the benefit of the
Issuing Lender and the Lenders, a Lien upon and security interest in the Cash
Collateral Account and all amounts held therein from time to time as security
for Letter of Credit Exposure, and for application to the Borrower's
Reimbursement Obligations as and when the same shall arise. The Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account. Other than any interest on the investment of such amounts in
Cash Equivalents, which investments shall be made at the direction of the
Borrower (unless a Default or Event of Default shall have occurred and be
continuing, in which case the determination as to investments shall be made at
the option and in the discretion of the Agent), amounts in the Cash Collateral
Account shall not bear interest. Interest and profits, if any, on such
investments shall accumulate in such account. In the event of a drawing, and
subsequent payment by the Issuing Lender, under any Letter of Credit at any time
during which any amounts are held in the Cash Collateral Account, the Agent will
deliver to the Issuing Lender an amount equal to the Reimbursement Obligation
created as a result of such payment (or, if the amounts so held are less than
such Reimbursement Obligation, all of such amounts) to reimburse the Issuing
Lender therefor. Any amounts remaining in the Cash Collateral Account after the
expiration of all Letters of Credit and reimbursement in full of the Issuing
Lender for all of its obligations thereunder shall be held by the Agent, for the
benefit of the Borrower, to be applied against the Obligations in such order and
manner as the Agent may direct. If the Borrower is required to provide cash
collateral pursuant to SECTION 2.6(B), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower on demand, provided that after
giving effect to such return (i) the sum of (x) the aggregate principal amount
of all Revolving Loans outstanding at such time, (y) the aggregate Letter of
Credit Exposure of all Lenders at such time and (z) the aggregate principal
amount of all Swingline Loans outstanding at such time would not exceed the
aggregate Commitments at such time and (ii) no Default or Event of Default shall
have occurred and be continuing at such time. If the Borrower is required to
provide cash collateral as a result of an Event of Default, such amount (to the
extent not applied as aforesaid) shall be returned to the Borrower within three
(3) Business Days after all Events of Default have been cured or waived.
3.9 Effectiveness. Notwithstanding any termination of the
Commitments or repayment of the Loans, or both, the obligations of the Borrower
under this Article shall remain in full force
45
<PAGE> 52
and effect until the Issuing Lender and the Lenders shall have no further
obligations to make any payments or disbursements under any circumstances with
respect to any Letter of Credit.
ARTICLE IV
CONDITIONS OF BORROWING
4.1 Conditions of Initial Borrowing. The obligation of each
Lender to make Loans in connection with the initial Borrowing hereunder, and the
obligation of the Issuing Lender to issue Letters of Credit hereunder on the
Closing Date, is subject to the satisfaction of the following conditions
precedent:
(a) The Agent shall have received the following, each dated as of
the Closing Date (unless otherwise specified) and, except for the Notes and any
certificates or instruments required to be delivered under the Pledge and
Security Agreement, in sufficient copies for each Lender:
(i) A Revolving Note for each Lender that is a party hereto
as of the Closing Date, in the amount of such Lender's Commitment, and
a Swingline Note for the Swingline Lender in the amount of the
Swingline Commitment, in each case duly completed in accordance with
the relevant provisions of SECTION 2.4 and executed by the Borrower;
(ii) the Pledge Agreement, duly completed and executed by the
Borrower, together with any certificates evidencing the Capital Stock
being pledged thereunder as of the Closing Date and undated
assignments separate from certificate for any such certificate, duly
executed in blank, and any promissory notes being pledged thereunder,
duly endorsed in blank;
(iii) the Subsidiary Guaranty, duly completed and executed by
each Subsidiary of the Borrower;
(iv) the Pledge and Security Agreement, duly completed and
executed by the Subsidiaries of the Borrower, together with any
certificates evidencing the Capital Stock being pledged thereunder as
of the Closing Date and undated assignments separate from certificate
for any such certificate, duly executed in blank, and any promissory
notes being pledged thereunder, duly endorsed in blank;
(v) the favorable opinion of Seyburn, Kahn, Ginn, Bess,
Deitch & Serlin, special counsel to the Borrower, as to the matters
set forth on EXHIBIT H addressed to the Agent and the Lenders and
addressing such other matters as the Agent or any Lender may
reasonably request.
(b) The Agent shall have received a certificate, signed by the
president, the chief executive officer or the chief financial officer of the
Borrower, in form and substance satisfactory
46
<PAGE> 53
to the Agent, certifying that (i) all representations and warranties of the
Borrower contained in this Agreement and the other Credit Documents are true and
correct as of the Closing Date, both immediately before and after giving effect
to the consummation of the transactions contemplated hereby, the making of the
initial Loans hereunder and the application of the proceeds thereof, (ii) no
Default or Event of Default has occurred and is continuing, both immediately
before and after giving effect to the consummation of the transactions
contemplated hereby, the making of the initial Loans hereunder and the
application of the proceeds thereof, (iii) both immediately before and after
giving effect to the consummation of the transactions contemplated hereby, the
making of the initial Loans hereunder and the application of the proceeds
thereof, no Material Adverse Change has occurred since March 31, 1998, and there
exists no event, condition or state of facts that could reasonably be expected
to result in a Material Adverse Change, and (iv) all conditions to the initial
extensions of credit hereunder set forth in this Section and in SECTION 4.2 have
been satisfied or waived as required hereunder.
(c) The Agent shall have received a certificate of the secretary or an
assistant secretary of each of the Borrower and its Subsidiaries, in form and
substance satisfactory to the Agent, certifying (i) that attached thereto is a
true and complete copy of the articles or certificate of incorporation and all
amendments thereto of the Borrower or such Subsidiary, as the case may be,
certified as of a recent date by the Secretary of State (or comparable
Governmental Authority) of its jurisdiction of organization, and that the same
has not been amended since the date of such certification, (ii) that attached
thereto is a true and complete copy of the bylaws of the Borrower or such
Subsidiary, as the case may be, as then in effect and as in effect at all times
from the date on which the resolutions referred to in clause (iii) below were
adopted to and including the date of such certificate, and (iii) that attached
thereto is a true and complete copy of resolutions adopted by the board of
directors of the Borrower or such Subsidiary, as the case may be, authorizing
the execution, delivery and performance of this Agreement and the other Credit
Documents to which it is a party, and as to the incumbency and genuineness of
the signature of each officer of the Borrower or such Subsidiary, as the case
may be, executing this Agreement or any of such other Credit Documents, and
attaching all such copies of the documents described above.
(d) The Agent shall have received (i) a certificate as of a recent date
of the good standing of each of the Borrower and its Subsidiaries under the laws
of its jurisdiction of organization, from the Secretary of State (or comparable
Governmental Authority) of such jurisdiction, and (ii) a certificate as of a
recent date of the qualification of each of the Borrower and its Subsidiaries to
conduct business as a foreign corporation in each jurisdiction where it is so
qualified as of the Closing Date, from the Secretary of State (or comparable
Governmental Authority) of such jurisdiction.
(e) All legal matters, documentation, and corporate or other
proceedings incident to the transactions contemplated hereby shall be
satisfactory in form and substance to the Agent; all approvals, permits and
consents of any Governmental Authorities or other Persons required in connection
with the execution and delivery of this Agreement and the other Credit Documents
and the consummation of the transactions contemplated hereby and thereby shall
have been obtained, without the imposition of conditions that are not acceptable
to the Agent, and all related filings, if any, shall have been made, and all
such approvals, permits, consents and filings shall be
47
<PAGE> 54
in full force and effect and the Agent shall have received such copies thereof
as it shall have requested; all applicable waiting periods shall have expired
without any adverse action being taken by any Governmental Authority having
jurisdiction; and no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before, and no
order, injunction or decree shall have been entered by, any court or other
Governmental Authority, in each case to enjoin, restrain or prohibit, to obtain
substantial damages in respect of, or that is otherwise related to or arises out
of, this Agreement, any of the other Credit Documents or the consummation of the
transactions contemplated hereby or thereby, or that, in the opinion of the
Agent, could reasonably be expected to have a Material Adverse Effect.
(f) The Agent shall have received certified reports from an independent
search service satisfactory to it listing any judgment or tax lien filing or
Uniform Commercial Code financing statement that (i) names the Borrower as
debtor in any of the jurisdictions listed beneath its name on Annex A to the
Pledge and Security Agreement or (ii) names any Subsidiary Guarantor as debtor
in any of the jurisdictions listed beneath its name on Annex A to the Pledge and
Security Agreement, and the results thereof shall be satisfactory to the Agent.
(g) The Agent shall have received evidence in form and substance
satisfactory to it that all filings, recordings, registrations and other actions
(including, without limitation, the filing of duly completed and executed UCC-1
financing statements in each jurisdiction listed on Annex A to the Pledge and
Security Agreement) necessary or, in the reasonable opinion of the Agent,
desirable to perfect the Liens created by the Security Documents shall have been
completed, or arrangements satisfactory to the Agent for the completion thereof
shall have been made.
(h) Since March 31, 1998, both immediately before and after giving
effect to the consummation of the transactions contemplated by this Agreement,
there shall not have occurred any Material Adverse Change or any event,
condition or state of facts that could reasonably be expected to result in a
Material Adverse Change.
(i) The Borrower shall have paid (i) to First Union, the unpaid
balance of the fees described in the Fee Letter, (ii) to the Agent, the initial
payment of the annual administrative fee described in the Fee Letter, and (iii)
all other fees and expenses of the Agent and the Lenders required hereunder or
under any other Credit Document to be paid on or prior to the Closing Date
(including fees and expenses of counsel) in connection with this Agreement and
the transactions contemplated hereby.
(j) The Agent shall have received a Financial Condition Certificate,
together with the Pro Forma Balance Sheet and the Projections as described in
SECTIONS 5.11(B) and 5.11(C), all of which shall be in form and substance
satisfactory to the Agent.
(k) The Agent shall have received a Covenant Compliance Worksheet,
duly completed and certified by the chief financial officer of the Borrower and
in form and substance satisfactory to the Agent, demonstrating the Borrower's
compliance with the financial covenants set forth in SECTIONS 7.1 through 7.4,
determined on a pro forma basis as of March 31, 1998 after giving
48
<PAGE> 55
effect to the making of the initial Loans hereunder and the consummation of the
transactions contemplated hereby.
(l) The Agent shall have received from the Borrower its consolidated
operating budget for the period from December 31, 1998 through December 31,
2003, and the same shall be in form and substance satisfactory to the Agent.
(m) The Agent shall have received evidence in form and substance
reasonably satisfactory to it that all of the requirements of SECTION 6.6 and
those provisions of the Pledge and Security Agreement relating to the
maintenance of insurance have been satisfied, including receipt of certificates
of insurance evidencing the insurance coverages described on SCHEDULE 5.17 and
all other or additional coverages required under the Pledge and Security
Agreement and naming the Agent as loss payee or additional insured, as its
interests may appear.
(n) The Agent shall have received an Account Designation Letter,
together with written instructions from an Authorized Officer, including wire
transfer information, directing the payment of the proceeds of the initial Loans
to be made hereunder.
(o) The Agent and each Lender shall have received such other
documents, certificates, opinions and instruments in connection with the
transactions contemplated hereby as it shall have reasonably requested.
4.2 Conditions of All Borrowings. The obligation of each Lender
to make any Loans hereunder, including the initial Loans (but excluding
Revolving Loans made for the purpose of repaying Refunded Swingline Loans
pursuant to SECTION 2.2(E)), and the obligation of the Issuing Lender to issue
any Letters of Credit hereunder, is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or date of issuance:
(a) The Agent shall have received a Notice of Borrowing in accordance
with SECTION 2.2(B), or (together with the Swingline Lender) a Notice
of Swingline Borrowing in accordance with SECTION 2.2(D), or (together with the
Issuing Lender) a Letter of Credit Notice in accordance with SECTION 3.2, as
applicable;
(b) Each of the representations and warranties contained in ARTICLE V
and in the other Credit Documents shall be true and correct on and as of such
Borrowing Date (including the Closing Date, in the case of the initial Loans
made hereunder) or date of issuance with the same effect as if made on and as of
such date, both immediately before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date (except to the extent any
such representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty shall be true and
correct in all material respects as of such date); and
(c) No Default or Event of Default shall have occurred and be
continuing on such date, both immediately before and after giving effect to the
Loans to be made or Letter of Credit to be issued on such date.
49
<PAGE> 56
Each giving of a Notice of Borrowing, a Notice of Swingline Borrowing
or a Letter of Credit Notice, and the consummation of each Borrowing or issuance
of a Letter of Credit, shall be deemed to constitute a representation by the
Borrower that the statements contained in subsections (b) and (c) above are
true, both as of the date of such notice or request and as of the relevant
Borrowing Date or date of issuance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and to
induce the Lenders to extend the credit contemplated hereby, the Borrower
represents and warrants to the Agent and the Lenders as follows:
5.1 Corporate Organization and Power. Each of the Borrower and its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
full corporate power and authority to execute, deliver and perform the Credit
Documents to which it is or will be a party, to own and hold its property and to
engage in its business as presently conducted, and (iii) is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the nature of its business or the ownership of its properties requires it
to be so qualified, except where the failure to be so qualified would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect.
5.2 Authorization; Enforceability. Each of the Borrower and its
Subsidiaries has taken, or on the Closing Date will have taken, all necessary
corporate action to execute, deliver and perform each of the Credit Documents to
which it is or will be a party, and has, or on the Closing Date (or any later
date of execution and delivery) will have, validly executed and delivered each
of the Credit Documents to which it is or will be a party. This Agreement
constitutes, and each of the other Credit Documents upon execution and delivery
will constitute, the legal, valid and binding obligation of each of the Borrower
and its Subsidiaries that is a party hereto or thereto, enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, by general equitable principles or by
principles of good faith and fair dealing.
5.3 No Violation. The execution, delivery and performance by each of
the Borrower and its Subsidiaries of this Agreement and each of the other Credit
Documents to which it is or will be a party, and compliance by it with the terms
hereof and thereof, do not and will not (i) violate any provision of its
articles or certificate of incorporation or bylaws or contravene any other
Requirement of Law applicable to it, (ii) conflict with, result in a breach of
or constitute (with notice, lapse of time or both) a default under any
indenture, agreement or other instrument to which it is a party, by which it or
any of its properties is bound or to which it is subject, or
50
<PAGE> 57
(iii) except for the Liens granted in favor of the Agent pursuant to the
Security Documents, result in or require the creation or imposition of any Lien
upon any of its properties or assets. No Subsidiary is a party to any agreement
or instrument or otherwise subject to any restriction or encumbrance that
restricts or limits its ability to make dividend payments or other distributions
in respect of its Capital Stock, to repay Indebtedness owed to the Borrower or
any other Subsidiary, to make loans or advances to the Borrower or any other
Subsidiary, or to transfer any of its assets or properties to the Borrower or
any other Subsidiary, in each case other than such restrictions or encumbrances
existing under or by reason of the Credit Documents or applicable Requirements
of Law.
5.4 Governmental and Third-Party Authorization; Permits. (a) No
consent, approval, authorization or other action by, notice to, or registration
or filing with, any Governmental Authority or other Person is or will be
required as a condition to or otherwise in connection with the due execution,
delivery and performance by each of the Borrower and its Subsidiaries of this
Agreement or any of the other Credit Documents to which it is or will be a party
or the legality, validity or enforceability hereof or thereof, other than (i)
filings of Uniform Commercial Code financing statements and other instruments
and actions necessary to perfect the Liens created by the Security Documents and
(ii) consents and filings the failure to obtain or make which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Each of the Borrower and its Subsidiaries has, and is in good
standing with respect to, all governmental approvals, licenses, permits and
authorizations necessary to conduct its business as presently conducted and to
own or lease and operate its properties, except for those the failure to obtain
which would not be reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect.
5.5 Litigation. There are no actions, investigations, suits or
proceedings pending or, to the knowledge of the Borrower, threatened, at law, in
equity or in arbitration, before any court, other Governmental Authority or
other Person, (i) against or affecting the Borrower, any of its Subsidiaries or
any of their respective properties that would, if adversely determined, be
reasonably likely to have a Material Adverse Effect, or (ii) with respect to
this Agreement or any of the other Credit Documents.
5.6 Taxes. Each of the Borrower and its Subsidiaries has timely filed
all federal, state and local tax returns and reports required to be filed by it
and has paid all taxes, assessments, fees and other charges levied upon it or
upon its properties that are shown thereon as due and payable, other than those
that are being contested in good faith and by proper proceedings and for which
adequate reserves have been established in accordance with GAAP. Such returns
accurately reflect in all material respects all liability for taxes of the
Borrower and its Subsidiaries for the periods covered thereby. There is no
ongoing audit or examination or, to the knowledge of the Borrower, other
investigation by any Governmental Authority of the tax liability of the Borrower
or any of its Subsidiaries, and there is no unresolved claim by any Governmental
Authority concerning the tax liability of the Borrower or any of its
Subsidiaries for any period for which tax returns have been or were required to
have been filed, other than claims for which adequate reserves have been
established in accordance with GAAP. Neither the Borrower nor any of its
51
<PAGE> 58
Subsidiaries has waived or extended or has been requested to waive or extend the
statute of limitations relating to the payment of any taxes.
5.7 Subsidiaries. SCHEDULE 5.7 sets forth a list, as of the Closing
Date, of all of the Subsidiaries and Inactive Subsidiaries of the Borrower and,
as to each such Subsidiary, the percentage ownership (direct and indirect) of
the Borrower in each class of its capital stock and each direct owner thereof.
Except for the shares of capital stock expressly indicated on SCHEDULE 5.7,
there are no shares of capital stock, warrants, rights, options or other equity
securities, or other Capital Stock of any Subsidiary of the Borrower outstanding
or reserved for any purpose. All outstanding shares of capital stock of each
Subsidiary of the Borrower are duly and validly issued, fully paid and
nonassessable. The Borrower is the sole legal, record and beneficial owner of,
and has good and valid title to, all such capital stock, free and clear of all
Liens other than the Liens created pursuant to the Pledge and Security
Agreement.
5.8 Full Disclosure. All factual information heretofore or
contemporaneously furnished to the Agent or any Lender in writing by or on
behalf of the Borrower or any of its Subsidiaries for purposes of or in
connection with this Agreement and the transactions contemplated hereby is, and
all other such factual information hereafter furnished to the Agent or any
Lender in writing by or on behalf of the Borrower or any of its Subsidiaries
will be, true and accurate in all material respects on the date as of which such
information is dated or certified (or, if such information has been amended or
supplemented, on the date as of which any such amendment or supplement is dated
or certified) and not made incomplete by omitting to state a material fact
necessary to make the statements contained therein, in light of the
circumstances under which such information was provided, not misleading.
5.9 Margin Regulations. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
Margin Stock. No proceeds of the Loans will be used, directly or indirectly, to
purchase or carry any Margin Stock, to extend credit for such purpose or for any
other purpose that would violate or be inconsistent with Regulations G, T, U or
X or any provision of the Exchange Act.
5.10 No Material Adverse Change. There has been no Material
Adverse Change since March 31, 1998, and there exists no event, condition or
state of facts that could reasonably be expected to result in a Material Adverse
Change.
5.11 Financial Matters. (a) The Borrower has heretofore furnished to
the Agent copies of (i) the audited consolidated balance sheets of the Borrower
and its Subsidiaries as of December 31, 1997, 1996, and 1995, and the related
statements of income and cash flows for the fiscal years ended December 31,
1997, 1996 and 1995, together with the opinion of Coopers & Lybrand thereon, and
(ii) the unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as of March 31, 1998, and the related statements of income and cash
flows for the three-month period then ended. Such financial statements have been
prepared in accordance with GAAP (subject, with respect to the unaudited
financial statements, to the absence of notes required by GAAP and to normal
year-end adjustments) and present fairly the financial condition
52
<PAGE> 59
of the Borrower and its Subsidiaries on a consolidated basis as of the
respective dates thereof and the consolidated results of operations of the
Borrower and its Subsidiaries for the respective periods then ended. Except as
fully reflected in the most recent financial statements referred to above and
the notes thereto, there are no material liabilities or obligations with respect
to the Borrower or any of its Subsidiaries of any nature whatsoever (whether
absolute, contingent or otherwise and whether or not due).
(b) The Borrower has prepared, and has heretofore furnished to the
Agent a copy of, annual projected balance sheets and statements of income and
cash flows of the Borrower for the five-year period beginning with the year
ended December 31, 1998, giving effect to the initial extensions of credit made
under this Agreement, and the payment of transaction fees and expenses related
to the foregoing (the "Projections"). In the opinion of management of the
Borrower, the assumptions used in the preparation of the Projections were fair,
complete and reasonable when made and continue to be fair, complete and
reasonable as of the date hereof. The Projections have been prepared in good
faith by the executive and financial personnel of the Borrower, are complete and
represent a reasonable estimate of the future performance and financial
condition of the Borrower, subject to the uncertainties and approximations
inherent in any projections.
(c) Each of the Borrower and its Subsidiaries, after giving effect to
the consummation of the transactions contemplated hereby, (i) has capital
sufficient to carry on its businesses as conducted and as proposed to be
conducted, (ii) has assets with a fair saleable value, determined on a going
concern basis, (y) not less than the amount required to pay the probable
liability on its existing debts as they become absolute and matured and (z)
greater than the total amount of its liabilities (including identified
contingent liabilities, valued at the amount that can reasonably be expected to
become absolute and matured), and (iii) does not intend to, and does not believe
that it will, incur debts or liabilities beyond its ability to pay such debts
and liabilities as they mature.
5.12 Ownership of Properties. Each of the Borrower and its Subsidiaries
(i) has good and marketable title to all real property owned by it, (ii) holds
interests as lessee under valid leases in full force and effect with respect to
all material leased real and personal property used in connection with its
business, (iii) possesses or has rights to use licenses, patents, copyrights,
trademarks, service marks, trade names and other assets sufficient to enable it
to continue to conduct its business substantially as heretofore conducted and
without any material conflict with the rights of others, and (iv) has good title
to all of its other properties and assets reflected in the most recent financial
statements referred to in SECTION 5.11(A) (except as sold or otherwise disposed
of since the date thereof in the ordinary course of business), in each case
under (i), (ii), (iii) and (iv) above free and clear of all Liens other than
Permitted Liens. SCHEDULE 5.12 lists, as of the Closing Date, all real property
interests of the Borrower and its Subsidiaries, indicating in each case the
identity of the owner, the address of the property, the nature of use of the
premises, and whether such interest is a leasehold or fee ownership interest.
5.13 ERISA. (a) Each of the Borrower and its ERISA Affiliates is
in compliance in all material respects with the applicable provisions of ERISA,
and each Plan is and has been administered in compliance in all material
respects with all applicable Requirements of Law, including, without limitation,
the applicable provisions of ERISA and the Internal Revenue Code.
53
<PAGE> 60
No ERISA Event (i) has occurred within the five-year period prior to the Closing
Date, (ii) has occurred and is continuing, or
(iii) to the knowledge of the Borrower, is reasonably expected to occur with
respect to any Plan. No Plan has any Unfunded Pension Liability as of the most
recent annual valuation date applicable thereto, and neither the Borrower nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
(b) Neither the Borrower nor any ERISA Affiliate has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any ERISA Affiliate would become subject to any liability under
ERISA if the Borrower or any ERISA Affiliate were to withdraw completely from
all Multiemployer Plans as of the most recent valuation date. No Multiemployer
Plan is in "reorganization" or is "insolvent" within the meaning of such terms
under ERISA.
5.14 Environmental Matters. (a) No Hazardous Substances are or have
been generated, used, located, released, treated, disposed of or stored by the
Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, by any
other Person (including any predecessor in interest) or otherwise, in, on or
under any portion of any real property, leased or owned, of the Borrower or any
of its Subsidiaries, except in material compliance with all applicable
Environmental Laws, and no portion of any such real property or, to the
knowledge of the Borrower, any other real property at any time leased, owned or
operated by the Borrower or any of its Subsidiaries, has been contaminated by
any Hazardous Substance; and no portion of any real property, leased or owned,
of the Borrower or any of its Subsidiaries has been or is presently the subject
of an environmental audit, assessment or remedial action.
(b) No portion of any real property, leased or owned, of the Borrower
or any of its Subsidiaries has been used by the Borrower or any of its
Subsidiaries or, to the knowledge of the Borrower, by any other Person, as or
for a mine, a landfill, a dump or other disposal facility, a gasoline service
station, or (other than for petroleum substances stored in the ordinary course
of business) a petroleum products storage facility; no portion of such real
property or any other real property at any time leased, owned or operated by the
Borrower or any of its Subsidiaries has, pursuant to any Environmental Law, been
placed on the "National Priorities List" or "CERCLIS List" (or any similar
federal, state or local list) of sites subject to possible environmental
problems; and there are not and have never been any underground storage tanks
situated on any real property, leased or owned, of the Borrower or any of its
Subsidiaries.
(c) All activities and operations of the Borrower and its Subsidiaries
are in compliance with the requirements of all applicable Environmental Laws,
except to the extent the failure so to comply, individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect. Each of the
Borrower and its Subsidiaries has obtained all licenses and permits under
Environmental Laws necessary to its respective operations; all such licenses and
permits are being maintained in good standing; and each of the Borrower and its
Subsidiaries is in compliance with all terms and conditions of such licenses and
permits, except for such licenses and permits the failure to obtain, maintain or
comply with which would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect. Neither the Borrower nor any of
its Subsidiaries is involved in any suit, action or proceeding, or has received
any notice, complaint or
54
<PAGE> 61
other request for information from any Governmental Authority or other Person,
with respect to any actual or alleged Environmental Claims that, if adversely
determined, would be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect; and, to the knowledge of the Borrower, there are
no threatened actions, suits, proceedings or investigations with respect to any
such Environmental Claims, nor any basis therefor.
5.15 Compliance With Laws. Each of the Borrower and its Subsidiaries
has timely filed all material reports, documents and other materials required to
be filed by it under all applicable Requirements of Law with any Governmental
Authority, has retained all material records and documents required to be
retained by it under all applicable Requirements of Law, and is otherwise in
compliance with all applicable Requirements of Law in respect of the conduct of
its business and the ownership and operation of its properties, except for such
Requirements of Law the failure to comply with which, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.
5.16 Regulated Industries. Neither the Borrower nor any of its
Subsidiaries is (i) an "investment company," a company "controlled" by an
"investment company," or an "investment advisor," within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding company," a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
5.17 Insurance. SCHEDULE 5.17 sets forth a true and complete
summary of all insurance policies or arrangements carried or maintained by the
Borrower and its Subsidiaries as of the Closing Date, indicating in each case
the insurer, policy number, expiration, amount and type of coverage and
deductibles. The assets, properties and business of the Borrower and its
Subsidiaries are insured against such hazards and liabilities, under such
coverages and in such amounts, as are customarily maintained by prudent
companies similarly situated and under policies issued by insurers of recognized
responsibility.
5.18 Material Contracts. SCHEDULE 5.18 lists, as of the Closing
Date, each "material contract" (within the meaning of Item 601(b)(10) of
Regulation S-K under the Exchange Act) to which the Borrower or any of its
Subsidiaries is a party, by which any of them or their respective properties is
bound or to which any of them is subject (collectively, "Material Contracts"),
and also indicates the parties, subject matter and term thereof. As of the
Closing Date, (i) each Material Contract is in full force and effect and is
enforceable by the Borrower or the Subsidiary that is a party thereto in
accordance with its terms, and (ii) neither the Borrower nor any of its
Subsidiaries (nor, to the knowledge of the Borrower, any other party thereto) is
in breach of or default under any Material Contract in any material respect or
has given notice of termination or cancellation of any Material Contract.
5.19 Security Documents. The provisions of each of the Security
Documents (whether executed and delivered prior to or on the Closing Date or
thereafter) are and will be effective to create in favor of the Agent, for its
benefit and the benefit of the Lenders, a valid and enforceable security
interest in and Lien upon all right, title and interest of each of the Borrower
and its
55
<PAGE> 62
Subsidiaries that is a party thereto in and to the Collateral purported
to be pledged by it thereunder and described therein, and upon (i) the initial
extension of credit hereunder, (ii) the filing of appropriately completed
Uniform Commercial Code financing statements and continuations thereof in the
jurisdictions specified therein, (iii) the filing of appropriately completed
short-form assignments in the U.S. Patent and Trademark Office and the U.S.
Copyright Office, and (iv) the possession by the Agent of any certificates
evidencing the securities pledged thereby, such security interest and Lien shall
constitute a fully perfected and first priority security interest in and Lien
upon such right, title and interest of the Borrower or such Subsidiary, as
applicable, in and to such Collateral, to the extent that such security interest
and Lien can be perfected by such filings, actions and possession, subject only
to Permitted Liens.
5.20 Labor Relations. Neither the Borrower nor any of its Subsidiaries
is engaged in any unfair labor practice within the meaning of the National Labor
Relations Act of 1947, as amended. There is (i) no unfair labor practice
complaint before the National Labor Relations Board, or grievance or arbitration
proceeding arising out of or under any collective bargaining agreement, pending
or, to the knowledge of the Borrower, threatened, against the Borrower or any of
its Subsidiaries, (ii) no strike, lock-out, slowdown, stoppage, walkout or other
labor dispute pending or, to the knowledge of the Borrower, threatened, against
the Borrower or any of its Subsidiaries, and (iii) to the knowledge of the
Borrower, no petition for certification or union election or union organizing
activities taking place with respect to the Borrower or any of its Subsidiaries.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and all
Reimbursement Obligations together with all other amounts then due and owing
hereunder:
6.1 Financial Statements. The Borrower will deliver to the Agent
at the address provided in SECTION 11.5 for notices to the Agent, and to each
Lender at the address for such Lender, for notices appearing on the signature
pages hereto:
(a) As soon as available and in any event within forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
beginning with the fiscal quarter ending June 30, 1998, unaudited consolidated
balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal
quarter and unaudited consolidated statements of income and cash flows for the
Borrower and its Subsidiaries for the fiscal quarter then ended and for that
portion of the fiscal year then ended, in each case setting forth comparative
consolidated figures as of the end of and for the corresponding period and
year-to-date in the preceding fiscal year, all in reasonable detail and prepared
in accordance with GAAP (subject to the absence of notes required by GAAP and
subject to normal year-end adjustments) applied on a basis consistent with that
of the
56
<PAGE> 63
preceding quarter or containing disclosure of the effect on the financial
condition or results of operations of any change in the application of
accounting principles and practices during such quarter; and
(b) As soon as available and in any event within ninety (90) days
after the end of each fiscal year, beginning with the fiscal year ending
December 31, 1998, an audited consolidated balance sheet of the Borrower and
its Subsidiaries as of the end of such fiscal year and audited consolidated
statements of income, retained earnings and cash flows for the Borrower and its
Subsidiaries for the fiscal year then ended, including the notes thereto, in
each case setting forth comparative figures as of the end of and for the
preceding fiscal year, all in reasonable detail and certified by the
independent certified public accounting firm regularly retained by the Borrower
or another independent certified public accounting firm of recognized national
standing reasonably acceptable to the Required Lenders, together with (y) a
report thereon by such accountants that is not qualified as to going concern or
scope of audit and to the effect that such financial statements present fairly
the consolidated financial condition and results of operations of the Borrower
and its Subsidiaries as of the dates and for the periods indicated in
accordance with GAAP applied on a basis consistent with that of the preceding
year or containing disclosure of the effect on the financial condition or
results of operations of any change in the application of accounting principles
and practices during such year, and (z) a report by such accountants to the
effect that, based on and in connection with their examination of the financial
statements of the Borrower and its Subsidiaries, they obtained no knowledge of
the occurrence or existence of any Default or Event of Default relating to
accounting or financial reporting matters, or a statement specifying the nature
and period of existence of any such Default or Event of Default disclosed by
their audit; provided, however, that such accountants shall not be liable by
reason of the failure to obtain knowledge of any Default or Event of Default
that would not be disclosed or revealed in the course of their audit
examination.
6.2 Other Business and Financial Information. The Borrower will
deliver to each Lender:
(a) Concurrently with each delivery of the financial statements
described in SECTION 6.1, (i) a Compliance Certificate with respect to the
period covered by the financial statements then being delivered, executed by a
Financial Officer of the Borrower, together with a Covenant Compliance Worksheet
reflecting the computation of the financial covenants set forth in SECTIONS 7.1
through 7.4 as of the last day of the period covered by such financial
statements, and (ii) management's discussion and analysis of such financial
statements;
(b) As soon as available and in any event within sixty (60) days after
the end of each fiscal year, beginning with the fiscal year ending December 31,
1998, a consolidated operating budget for the Borrower and its Subsidiaries for
the succeeding fiscal year (prepared on a quarterly basis), consisting of a
consolidated balance sheet and consolidated statements of income and cash flows,
together with management's discussion and analysis of such budget and a
certificate of a Financial Officer of the Borrower to the effect that such
budgets have been prepared in good faith and are reasonable estimates of the
financial position and results of operations of the Borrower and its
Subsidiaries for the period covered thereby; and as soon as
57
<PAGE> 64
available from time to time thereafter, any modifications or revisions to or
restatements of such budget;
(c) Promptly upon receipt thereof, copies of any "management
letter" submitted to the Borrower or any of its Subsidiaries by its certified
public accountants in connection with each annual, interim or special audit, and
promptly upon completion thereof, any response reports from the Borrower or any
such Subsidiary in respect thereof;
(d) Promptly upon the sending, filing or receipt thereof, copies of
(i) all financial statements, reports, notices and proxy statements that
the Borrower or any of its Subsidiaries shall send or make available generally
to its shareholders, (ii) all regular, periodic and special reports,
registration statements and prospectuses (other than on Form S-8) that the
Borrower or any of its Subsidiaries shall render to or file with the Securities
and Exchange Commission, the National Association of Securities Dealers, Inc.
or any national securities exchange, and (iii) all press releases and other
statements made available generally by the Borrower or any of its Subsidiaries
to the public concerning material developments in the business of the Borrower
or any of its Subsidiaries;
(e) Promptly upon (and in any event within five (5) Business Days
after) any Responsible Officer of the Borrower obtaining knowledge thereof,
written notice of any of the following:
(i) the occurrence of any Default or Event of Default,
together with a written statement of a Responsible Officer of the
Borrower specifying the nature of such Default or Event of
Default, the period of existence thereof and the action that the
Borrower has taken and proposes to take with respect thereto;
(ii) the institution or threatened institution of any
action, suit, investigation or proceeding against or affecting the
Borrower or any of its Subsidiaries, including any such investigation
or proceeding by any Governmental Authority (other than routine
periodic inquiries, investigations or reviews), that would, if
adversely determined, be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect, and any material
development in any litigation or other proceeding previously reported
pursuant to SECTION 5.5 or this subsection;
(iii) the receipt by the Borrower or any of its
Subsidiaries from any Governmental Authority of (y) any notice
asserting any failure by the Borrower or any of its Subsidiaries to
be in compliance with applicable Requirements of Law or that threatens
the taking of any action against the Borrower or such Subsidiary or
sets forth circumstances that, if taken or adversely determined, would
be reasonably likely to have a Material Adverse Effect, or (z) any
notice of any actual or threatened suspension, limitation or
revocation of, failure to renew, or imposition of any restraining
order, escrow or impoundment of funds in connection with, any license,
permit, accreditation or authorization of the Borrower or any of its
Subsidiaries, where such action would be reasonably likely to have a
Material Adverse Effect;
58
<PAGE> 65
(iv) the occurrence of any ERISA Event, together with (x)
a written statement of a Responsible Officer of the Borrower
specifying the details of such ERISA Event and the action
that the Borrower has taken and proposes to take with respect
thereto, (y) a copy of any notice with respect to such ERISA Event
that may be required to be filed with the PBGC and (z) a copy of any
notice delivered by the PBGC to the Borrower or such ERISA Affiliate
with respect to such ERISA Event;
(v) the occurrence of any material default under, or any
proposed or threatened termination or cancellation of, any Material
Contract or other material contract or agreement to which the
Borrower or any of its Subsidiaries is a party, the termination
or cancellation of which would be reasonably likely to have a
Material Adverse Effect;
(vi) the occurrence of any of the following: (x) the
assertion of any Environmental Claim against or affecting the
Borrower, any of its Subsidiaries or any of their respective
real property, leased or owned; (y) the receipt by the Borrower or any
of its Subsidiaries of notice of any alleged violation of or
noncompliance with any Environmental Laws; or (z) the taking of any
remedial action by the Borrower, any of its Subsidiaries or any other
Person in response to the actual or alleged generation, storage,
release, disposal or discharge of any Hazardous Substances on, to,
upon or from any real property leased or owned by the Borrower or any
of its Subsidiaries; but in each case under clauses (x), (y) and (z)
above, only to the extent the same would be reasonably likely to have
a Material Adverse Effect; and
(vii) any other matter or event that has, or would be
reasonably likely to have, a Material Adverse Effect, together with a
written statement of a Responsible Officer of the Borrower setting
forth the nature and period of existence thereof and the action that
the Borrower has taken and proposes to take with respect thereto; and
(f) As promptly as reasonably possible, such other information about
the business, condition (financial or otherwise), operations or properties
of the Borrower or any of its Subsidiaries (including any Plan and any
information required to be filed under ERISA) as the Agent or any Lender may
from time to time reasonably request.
6.3 Corporate Existence; Franchises; Maintenance of Properties. The
Borrower will, and will cause each of its Subsidiaries to, (i) maintain and
preserve in full force and effect its corporate existence, except as expressly
permitted otherwise by SECTION 8.1, (ii) obtain, maintain and preserve in full
force and effect all other rights, franchises, licenses, permits,
certifications, approvals and authorizations required by Governmental
Authorities and necessary to the ownership, occupation or use of its properties
or the conduct of its business, except to the extent the failure to do so would
not be reasonably likely to have a Material Adverse Effect, and (iii) keep all
material properties in good working order and condition (normal wear and tear
excepted) and from time to time make all necessary repairs to and renewals and
replacements of such properties, except to the extent that any of such
properties are obsolete or are being replaced.
59
<PAGE> 66
6.4 Compliance with Laws. The Borrower will, and will cause each
of its Subsidiaries to, comply in all respects with all Requirements of
Law applicable in respect of the conduct of its business and the ownership
and operation of its properties, except to the extent the failure so to
comply would not be reasonably likely to have a Material Adverse Effect.
6.5 Payment of Obligations. The Borrower will, and will cause each of
its Subsidiaries to, (i) pay all liabilities and obligations as and when due
(subject to any applicable subordination provisions), except to the extent
failure to do so would not be reasonably likely to have a Material Adverse
Effect, and (ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it, upon its income or profits or upon any of
its properties, prior to the date on which penalties would attach thereto, and
all lawful claims that, if unpaid, might become a Lien upon any of the
properties of the Borrower or any of its Subsidiaries; provided, however, that
neither the Borrower nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim that is being contested in good
faith and by proper proceedings and as to which the Borrower or such Subsidiary
is maintaining adequate reserves with respect thereto in accordance with GAAP.
6.6 Insurance. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurance
companies insurance with respect to its assets, properties and business,
against such hazards and liabilities, of such types and in such amounts, as is
customarily maintained by companies in the same or similar businesses
similarly situated, and maintain such other or additional insurance on such
terms and subject to such conditions as may be required under any Security
Document.
6.7 Maintenance of Books and Records; Inspection. The Borrower will,
and will cause each of its Subsidiaries to, (i) maintain adequate books,
accounts and records, in which full, true and correct entries shall be made of
all financial transactions in relation to its business and properties, and
prepare all financial statements required under this Agreement, in each case in
accordance with GAAP and in compliance with the requirements of any Governmental
Authority having jurisdiction over it, and (ii) permit employees or agents of
the Agent or any Lender to inspect its properties and examine or audit its
books, records, working papers and accounts and make copies and memoranda of
them, and to discuss its affairs, finances and accounts with its officers and
employees and, upon notice to the Borrower, the independent public accountants
of the Borrower and its Subsidiaries (and by this provision the Borrower
authorizes such accountants to discuss the finances and affairs of the Borrower
and its Subsidiaries), all at such times and from time to time, upon reasonable
notice and during business hours, as may be reasonably requested.
6.8 Permitted Acquisitions. (a) Subject to the provisions of
subsection (b), (c) and (d) below and the requirements contained in the
definition of Permitted Acquisition, and subject to the other terms and
conditions of this Agreement, the Borrower may from time to time on or after
the Closing Date effect Permitted Acquisitions, provided that, with respect to
each Permitted Acquisition:
60
<PAGE> 67
(i) no Default or Event of Default shall have occurred
and be continuing at the time of the consummation of such Permitted
Acquisition or would exist immediately after giving effect thereto;
and
(ii) the Borrower shall deliver to the Agent, at or before
the closing of such Acquisition, certified copies of resolutions of
the board of directors or comparable governing body of each Person
that is the subject of such Permitted Acquisition (each, a "Target")
authorizing the Acquisition and a copy of the legal opinion
delivered by legal counsel to the Target opining as to the due
authorization of the Acquisition, together with a letter from such
counsel authorizing the Agent to rely on such opinion.
(b) Not less than five (5) Business Days prior to the
consummation of any Permitted cquisition with respect to which the
Acquisition Amount exceeds $5,000,000, and not less than ten (10) Business Days
prior to the consummation of any Permitted Acquisition with respect to which
the consent of the Required Lenders is required pursuant to subsections (c) or
(d) below, the Borrower shall have delivered to the Agent and each Lender the
following:
(i) a reasonably detailed description of the material terms
of such Permitted Acquisition (including, without limitation, the
purchase price and method and structure of payment) and of each Target;
(ii) historical financial statements of the Target (or, if
there are two or more Targets that are the subject of such Permitted
Acquisition and that are part of the same consolidated group,
consolidated historical financial statements for all such Targets) for
the two (2) most recent fiscal years available and, if available, for
any interim periods since the most recent fiscal year-end;
(iii) projected income statements, if available, of the
Borrower and its Subsidiaries (giving effect to such Permitted
Acquisition and the consolidation with the Borrower of each relevant
Target) for the three-year period following the consummation of such
Permitted Acquisition, in reasonable detail, together with any
appropriate statement of assumptions and pro forma adjustments; and
(iv) a certificate, in form and substance reasonably
satisfactory to the Agent, executed by a Financial Officer of the
Borrower setting forth the Acquisition Amount and further to the effect
that, to the best of such individual's knowledge, (x) the consummation
of such Permitted Acquisition will not result in a violation of any
provision of this Section, and after giving effect to such Permitted
Acquisition and any Borrowings made in connection therewith, the
Borrower will be in compliance with the financial covenants contained
in SECTIONS 7.1 through 7.4, such compliance determined with regard to
calculations made on a pro forma basis in accordance with GAAP as if
each Target had been consolidated with the Borrower for those periods
applicable to such covenants (such calculations to be attached to the
certificate), (y) the Borrower believes in good faith that it will
continue to comply with such financial covenants for a period of one
year following the date of the consummation of such Permitted
Acquisition, and (z) after giving effect to
61
<PAGE> 68
such Permitted Acquisition and any Borrowings in connection therewith,
the Borrower believes in good faith that it will have sufficient
availability under the Commitments to meet its ongoing working capital
requirements.
(c) If the Total Leverage Ratio at the time of any Acquisition is
greater than 2.5 to 1.0, the Borrower shall have obtained the written consent of
the Required Lenders for any Acquisition for an Acquisition Amount greater than
$15,000,000.
(d) The Borrower shall have obtained the written consent of the
Required Lenders for any Acquisition for an Acquisition Amount greater than
$25,000,000.
(e) As soon as reasonably practicable after the consummation of any
Permitted Acquisition, the Borrower will deliver to the Agent and each Lender a
copy of the fully executed acquisition agreement (including schedules and
exhibits thereto) and other material documents and closing papers delivered in
connection therewith.
(f) The consummation of each Permitted Acquisition shall be deemed to
be a representation and warranty by the Borrower that (except as shall have been
approved in writing by the Required Lenders) all conditions thereto set forth in
this Section and in the description furnished under clause (i) of subsection (b)
above have been satisfied, that the same is permitted in accordance with the
terms of this Agreement, and that the matters certified to by the Financial
Officer of the Borrower in the certificate referred to in clause (iv) of
subsection (b) above are, to the best of such individual's knowledge, true and
correct in all material respects as of the date such certificate is given, which
representation and warranty shall be deemed to be a representation and warranty
as of the date thereof for all purposes hereunder, including, without
limitation, for purposes of SECTIONS 4.2 and 9.1.
6.9 Creation or Acquisition of Subsidiaries. Subject to the
provisions of SECTION 8.5, the Borrower may from time to time create or
acquire new Wholly Owned Subsidiaries in connection with Permitted Acquisitions
or otherwise, and the Wholly Owned Subsidiaries of the Borrower may create or
acquire new Wholly Owned Subsidiaries, provided that:
(a) Concurrently with the creation or direct or indirect acquisition
by the Borrower thereof, each such new Subsidiary will execute and deliver to
the Agent (i) a joinder to the Subsidiary Guaranty, pursuant to which such new
Subsidiary shall become a party thereto and shall guarantee the payment in full
of the Obligations of the Borrower under this Agreement and the other Credit
Documents, and (ii) a joinder to the Pledge and Security Agreement, pursuant to
which such new Subsidiary shall become a party thereto and shall grant to the
Agent a first priority perfected Lien upon and security interest in its accounts
receivable, inventory, equipment, general intangibles and other personal
property as Collateral for its obligations under the Subsidiary Guaranty,
subject only to Permitted Liens; provided, however, that the pledge of any
assets located outside of the United States by Lason International shall be
required only upon demand of the Agent as provided in SECTION 6.14; and provided
further that if any acquired entity is merged into the Borrower or any
Subsidiary Guarantor in connection with such Acquisition, the acquired and
merged entity shall not be required to become a Subsidiary Guarantor.
62
<PAGE> 69
(b) Concurrently with the creation or acquisition of any new Subsidiary
all or a portion of the Capital Stock of which is directly owned by the
Borrower, the Borrower will execute and deliver to the Agent an amendment or
supplement to the Pledge and Security Agreement pursuant to which all of the
Capital Stock of such new Subsidiary owned by the Borrower shall be pledged to
the Agent, together with the certificates evidencing such Capital Stock and
undated stock powers duly executed in blank; and concurrently with (and in any
event within ten (10) Business Days thereafter) the creation or acquisition of
any new Subsidiary all or a portion of the Capital Stock of which is directly
owned by another Subsidiary (the "Parent Subsidiary"), the Parent Subsidiary
will execute and deliver to the Agent an appropriate joinder, amendment or
supplement to the Pledge and Security Agreement, pursuant to which all of the
Capital Stock of such new Subsidiary owned by such Parent Subsidiary shall be
pledged to the Agent, together with the certificates evidencing such Capital
Stock and undated stock powers duly executed in blank; and
(c) As promptly as reasonably possible, the Borrower and its
Subsidiaries will deliver any such other documents, certificates and opinions
(including opinions of local counsel in the jurisdiction of organization of each
such new Subsidiary), in form and substance reasonably satisfactory to the
Agent, as the Agent may reasonably request in connection therewith and will take
such other action as the Agent may reasonably request to create in favor of the
Agent a perfected security interest in the Collateral being pledged pursuant to
the documents described above.
6.10 Additional Security. The Borrower will, and will cause each of its
Subsidiaries to, grant to the Agent from time to time security interests,
mortgages and other Liens in and upon such assets and properties of the Borrower
or such Subsidiary as are not covered by the Security Documents executed and
delivered on the Closing Date or pursuant to SECTION 6.10 and as may be
reasonably requested from time to time by the Required Lenders (including,
without limitation, Liens on assets acquired by the Borrower or a Subsidiary in
connection with any Permitted Acquisition). Such security interests, mortgages
and Liens shall be granted pursuant to documentation in form and substance
reasonably satisfactory to the Agent and shall constitute valid and perfected
security interests and Liens, subject to no Liens other than Permitted Liens.
Without limitation of the foregoing, in connection with the grant of any
mortgage or deed of trust with respect to any interest in real property, the
Borrower will, and will cause each applicable Subsidiary to, at the Borrower's
expense, prepare, obtain and deliver to the Agent any environmental assessments,
appraisals, surveys, title insurance and other matters or documents as the Agent
may reasonably request or as may be required under applicable banking laws and
regulations.
6.11 Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, make, execute, endorse, acknowledge and deliver any amendments,
modifications or supplements hereto and restatements hereof and any other
agreements, instruments or documents, and take any and all such other actions,
as may from time to time be reasonably requested by the Agent or the Required
Lenders to perfect and maintain the validity and priority of the Liens granted
pursuant to the Security Documents and to effect, confirm or further assure or
protect and preserve the
63
<PAGE> 70
interests, rights and remedies of the Agent and the Lenders under this
Agreement and the other Credit Documents.
6.12 Landlord Agreements. The Borrower shall use commercially
reasonable efforts to obtain and deliver to the Agent within 90 days after the
Closing Date consent and subordination agreements from owners of premises leased
to the Borrower or any Subsidiary on which any Equipment and Inventory (both as
defined in the Pledge and Security Agreement) is located with a value greater
than $500,000.
6.13 Year 2000 Compatibility. The Borrower will take all action
necessary to assure that Borrower's computer based systems are able to operate
and effectively process data including dates on and after January 1, 2000. At
the request of the Agent, the Borrower will provide the Agent with assurance
acceptable to the Agent of the Borrower's Year 2000 compatibility.
6.14 Acquisitions by Lason International. The Borrower shall at any
time at the request of the Agent, which shall be made at the sole discretion of
the Agent, cause Lason International to deliver to the Agent such documents as
shall be sufficient to grant to the Agent a security interest in such amounts of
the Capital Stock and assets owned by Lason International and any of its
Subsidiaries as the Agent may determine. All such documents shall be in form and
content satisfactory to the Agent.
ARTICLE VII
FINANCIAL COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and all
Reimbursement Obligations together with all other amounts then due and owing
hereunder:
7.1 Senior Leverage Ratio. The Borrower will not permit the Senior
Leverage Ratio as of the last day of any fiscal quarter to be greater than (a)
3.5 to 1.0; and (b) 3.0 to 1.0 if at the end of such fiscal quarter Subordinated
Indebtedness is outstanding.
7.2 Total Leverage Ratio. The Borrower will not permit the Total
Leverage Ratio as of the last day of any fiscal quarter during which $75,000,000
or more of Subordinated Indebtedness is outstanding to be greater than 4.25 to
1.0.
7.3 Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed
Charge Coverage Ratio as of the last day of any fiscal quarter, beginning with
the fiscal quarter ending (i) March 31, 1998, to be less than 1.25 : 1.0; (ii)
March 31, 1999, to be less than 1.35 : 1.0, (iii) March 31, 2000, to be less
than 1.50 : 1.0; (iv) March 31, 2001, to be less than 1.65 to 1.0; (v) March 31,
2002 and thereafter, to be less than 1.75 to 1.0.
64
<PAGE> 71
7.4 Minimum Consolidated Net Worth. The Borrower will not permit
Consolidated Net Worth as of the last day of any fiscal quarter, beginning with
the fiscal quarter ending December 31, 1997, to be less than the sum of (i)
$100,000,000, plus (ii) 50% of the aggregate of Consolidated Net Income for each
fiscal quarter ending after December 31, 1997 (provided that Consolidated Net
Income for any such fiscal quarter shall be taken into account for purposes of
this calculation only if positive), plus (iii) 100% of the aggregate amount of
all increases in the stated capital and additional paid-in capital accounts of
the Borrower and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, resulting from the issuance of equity securities
(including pursuant to the exercise of options, rights or warrants or pursuant
to the conversion of convertible securities) or other Capital Stock after
December 31, 1997, plus (iv) 100% of the Net Cash Proceeds from any Equity
Issuance after December 31, 1997.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments, the termination or expiration of all Letters of Credit and the
payment in full of all principal and interest with respect to the Loans and all
Reimbursement Obligations together with all other amounts then due and owing
hereunder:
8.1 Merger; Consolidation. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, liquidate, wind up or dissolve, or enter
into any consolidation, merger or other combination, or agree to do any of the
foregoing; provided, however, that:
(i) the Borrower may merge or consolidate with another Person so
long as (x) the Borrower is the surviving entity, (y) unless such other Person
is a Wholly Owned Subsidiary immediately prior to giving effect thereto, such
merger or consolidation shall constitute a Permitted Acquisition and the
applicable conditions and requirements of SECTIONS 6.9 and 6.10 shall be
satisfied, and (z) immediately after giving effect thereto, no Default or Event
of Default would exist; and
(ii) any Subsidiary may merge or consolidate with another Person so
long as (x) the surviving entity is the Borrower or a Subsidiary Guarantor, (y)
unless such other Person is a Wholly Owned Subsidiary immediately prior to
giving effect thereto, such merger or consolidation shall constitute a Permitted
Acquisition and the applicable conditions and requirements of SECTIONS 6.9 and
6.10 shall be satisfied, and (z) immediately after giving effect thereto, no
Default or Event of Default would exist.
8.2 Indebtedness. The Borrower will not, and will not permit or cause
any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness other than:
(i) Indebtedness incurred under this Agreement, the Notes and the
Subsidiary Guaranty;
65
<PAGE> 72
(ii) Indebtedness existing on the Closing Date and described in
SCHEDULE 8.2;
(iii) (a) Indebtedness other than Indebtedness described in (i) above
secured on a pari passu basis with such Indebtedness by the Capital
Stock and all assets of the Borrower and the Subsidiaries in an amount
not exceeding the greater of (1) $50,000,000 or (2) an amount consented
to by the Required Lenders (such consent not to be unreasonably
withheld), on terms and conditions satisfactory to the Agent and the
Lenders, and (b) unsecured Indebtedness of the Borrower in an amount
not exceeding $150,000,000 that is expressly subordinated and made
junior in right and time of payment to the Obligations and that is
evidenced by one or more written agreements or instruments having
terms, conditions and provisions (including, without limitation,
provisions relating to principal amount, maturity, covenants, defaults,
interest, and subordination) satisfactory in form and substance to the
Required Lenders in their sole discretion and which shall provide, at a
minimum and without limitation, that such Indebtedness (a) shall mature
by its terms no earlier than the second anniversary of the Maturity
Date, (b) shall not require any scheduled payment of principal prior to
the first anniversary of the Maturity Date, and (c) shall have
covenants and undertakings that, taken as a whole, are materially less
restrictive than those contained herein (the Indebtedness described
hereinabove, "Subordinated Indebtedness"); provided that, as further
conditions to the issuance of any Subordinated Indebtedness, (1)
immediately after giving effect to the issuance of such Subordinated
Indebtedness, no Default or Event of Default shall exist, (2) all
agreements and instruments evidencing or governing such Subordinated
Indebtedness shall have been approved in writing by the Required
Lenders (or the Agent on their behalf), and (3) prior to or
concurrently with the issuance of such Subordinated Indebtedness, the
Borrower shall have delivered to each Lender a certificate, signed by a
Financial Officer of the Borrower, satisfactory in form and substance
to the Required Lenders and to the effect that, after giving effect to
the incurrence of such Subordinated Indebtedness, the Borrower is in
compliance with the financial covenants set forth in SECTIONS 7.1
through 7.4, such compliance being determined with regard to
calculations made on a pro forma basis in accordance with GAAP as of
the last day of the fiscal quarter then most recently ended and as if
such Subordinated Indebtedness had been incurred on the first day of
the period applicable to such covenants (such calculations to be
attached to such certificate);
(iv) accrued expenses (including salaries, accrued vacation and other
compensation), current trade or other accounts payable and other
current liabilities arising in the ordinary course of business and not
incurred through the borrowing of money, provided that the same shall
be paid when due except to the extent being contested in good faith and
by appropriate proceedings;
(v) loans and advances by the Borrower or any Subsidiary Guarantor to
any other Subsidiary Guarantor or by any Subsidiary Guarantor to the
Borrower, provided that any such loan or advance is subordinated in
right and time of payment to the Obligations and is evidenced by a
promissory note, in form and substance satisfactory to the Agent,
pledged to the Agent pursuant to the Security Documents and provided
further
66
<PAGE> 73
that the aggregate of all loans or advances by the Borrower or any
Subsidiary Guarantor to Lason International may not at any time exceed
$500,000 without advance written consent of the Required Lenders;
(vi) Indebtedness of the Borrower under Hedge Agreements required
pursuant to, and entered into in accordance with, SECTION 6.8;
(vii) purchase money Indebtedness of the Borrower and its Subsidiaries
incurred solely to finance the payment of all or part of the purchase
price of any equipment, real property or other fixed assets acquired in
the ordinary course of business, including Indebtedness in respect of
capital lease obligations, and any renewals, refinancings or
replacements thereof (subject to the limitations on the principal
amount thereof set forth in this clause (vii)), which Indebtedness
shall not exceed $1,000,000 in aggregate principal amount outstanding
at any time;
(viii) Indebtedness of the Borrower or Services evidenced by Seller
Notes in an aggregate amount at any time of up to $5,000,000;
(ix) other unsecured Indebtedness approved in writing by the Agent;
and
(x) other secured Indebtedness consented to by the Required Lenders,
not to be unreasonably withheld, and approved in writing by the Agent.
8.3 Liens. The Borrower will not, and will not permit or cause any
of its Subsidiaries to, directly or indirectly, make, create, incur, assume or
suffer to exist, any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or file or permit the filing
of, or permit to remain in effect, any financing statement or other similar
notice of any Lien with respect to any such property, asset, income or profits
under the Uniform Commercial Code of any state or under any similar recording
or notice statute, or agree to do any of the foregoing, other than the
following (collectively, "Permitted Liens"):
(i) Liens created under the Security Documents;
(ii) Liens in existence on the Closing Date and set forth on SCHEDULE
8.3;
(iii) Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics, materialmen and landlords, and other similar Liens incurred
in the ordinary course of business for sums not constituting borrowed
money that are not overdue for a period of more than thirty (30) days
or that are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance
with GAAP (if so required);
(iv) Liens (other than any Lien imposed by ERISA, the creation or
incurrence of which would result in an Event of Default under SECTION
9.1(K)) incurred in the ordinary course of business in connection with
worker's compensation, unemployment
67
<PAGE> 74
insurance or other forms of governmental insurance or benefits, or to
secure the performance of letters of credit, bids, tenders, statutory
obligations, surety and appeal bonds, leases, government contracts and
other similar obligations (other than obligations for borrowed money)
entered into in the ordinary course of business;
(v) Liens for taxes, assessments or other governmental charges
or statutory obligations that are not delinquent or remain payable
without any penalty or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP (if so required);
(vi) Liens securing the purchase money Indebtedness permitted
under clause (vii) of SECTION 8.2, provided that any such Lien
(a) shall attach to such property concurrently with or within ten (10)
days after the acquisition thereof by the Borrower or such Subsidiary,
(b) shall not exceed the lesser of (y) the fair market value of such
property or (z) the cost thereof to the Borrower or such Subsidiary
and (c) shall not encumber any other property of the Borrower or any
of its Subsidiaries;
(vii) any attachment or judgment Lien not constituting an Event of
Default under SECTION 9.1(I) that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP (if so required);
(vii) Liens arising from the filing, for notice purposes only, of
financing statements in respect of true leases;
(xi) Liens securing Indebtedness permitted under SECTION 8.2(III)
(A) hereof; and
(x) with respect to any real property occupied by the Borrower
or any of its Subsidiaries, all easements, rights of way, licenses
and similar encumbrances on title that do not materially impair the
use of such property for its intended purposes.
8.4 Disposition of Assets. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, sell, assign, lease, convey, transfer or
otherwise dispose of (whether in one or a series of transactions) all or any
portion of its assets, business or properties (including, without limitation,
any Capital Stock of any Subsidiary), or enter into any arrangement with any
Person providing for the lease by the Borrower or any Subsidiary as lessee of
any asset that has been sold or transferred by the Borrower or such Subsidiary
to such Person, or agree to do any of the foregoing, except for:
(i) sales of inventory in the ordinary course of business;
(ii) the sale or exchange of used or obsolete equipment to the
extent (y) the proceeds of such sale are applied towards, or such
equipment is exchanged for,
68
<PAGE> 75
replacement equipment or (z) such equipment is no longer necessary
for the operations of the Borrower or its applicable Subsidiary in the
ordinary course of business;
(iii) the transfer to Services or to Lason Systems, Inc. of
Capital Stock or assets acquired in an Acquisition subject to the
terms and conditions of this Agreement; and
(iv) the sale, lease or other disposition of assets by a
Subsidiary of the Borrower to the Borrower or to a Subsidiary
Guarantor (other than Lason International) if, immediately after
giving effect thereto, no Default or Event of Default would exist.
8.5 Investments. The Borrower will not, and will not permit or cause
any of its Subsidiaries to, directly or indirectly, purchase, own, invest in or
otherwise acquire any Capital Stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any other Person, or purchase
or otherwise acquire (whether in one or a series of related transactions) any
portion of the assets, business or properties of another Person (including
pursuant to an Acquisition), or create or acquire any Subsidiary, or become a
partner or joint venturer in any partnership or joint venture (collectively,
"Investments"), or make a commitment or otherwise agree to do any of the
foregoing, other than:
(i) Cash Equivalents;
(ii) Investments consisting of purchases and acquisitions of
inventory, supplies, materials and equipment in the ordinary course of
business,
(iii) Investments consisting of loans and advances to employees
for reasonable travel, relocation and business expenses in the ordinary
course of business, extensions of trade credit in the ordinary course
of business, and prepaid expenses incurred in the ordinary course of
business;
(iv) without duplication, Investments consisting of
intercompany Indebtedness permitted under clause (iv) of SECTION 8.2;
(v) Investments existing on the Closing Date and described in
SCHEDULE 8.5;
(vi) Investments consisting of the making of capital
contributions or the purchase of Capital Stock (a) by the Borrower or
any Subsidiary in any other Wholly Owned Subsidiary (but not including
Lason International) that is (or immediately after giving effect to
such Investment will be) a Subsidiary Guarantor, provided that the
Borrower complies with the provisions of SECTION 6.10, and (b) by any
Subsidiary in the Borrower; and
(vii) Permitted Acquisitions.
69
<PAGE> 76
8.6 Restricted Payments. (a) The Borrower will not, and will not
permit or cause any of its Subsidiaries to, directly or indirectly, declare or
make any dividend payment, or make any other distribution of cash, property or
assets, in respect of any of its Capital Stock or any warrants, rights or
options to acquire its Capital Stock, or purchase, redeem, retire or otherwise
acquire for value any shares of its Capital Stock or any warrants, rights
or options to acquire its Capital Stock, or set aside funds for any of the
foregoing in any fiscal year, except that:
(i) the Borrower may declare and make dividend payments or other
distributions payable solely in its common stock; and
(ii) each Wholly Owned Subsidiary of the Borrower may declare and
make dividend payments or other distributions to the Borrower or
another Wholly Owned Subsidiary, to the extent not prohibited under
applicable Requirements of Law.
(b) The Borrower will not, and will not permit or cause any of
its Subsidiaries to, make (or give any notice in respect of) any
voluntary or optional payment or prepayment of principal on any Subordinated
Indebtedness, or directly or indirectly make any redemption (including
pursuant to any change of control provision), retirement, defeasance or other
acquisition for value of any Subordinated Indebtedness, or make any deposit or
otherwise set aside funds for any of the foregoing purposes.
8.7 Transactions with Affiliates. The Borrower will not, and will
not permit or cause any of its Subsidiaries to, enter into any transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any officer, director,
stockholder or other Affiliate of the Borrower or any Subsidiary, except in the
ordinary course of its business and upon fair and reasonable terms that are no
less favorable to it than would obtain in a comparable arm's length transaction
with a Person other than an Affiliate of the Borrower or such Subsidiary;
provided, however, that nothing contained in this Section shall prohibit:
(i) transactions described on SCHEDULE 8.7 or otherwise expressly
permitted under this Agreement; and
(ii) the payment by the Borrower of reasonable and customary fees to
members of its board of directors.
8.8 Lines of Business. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, engage in any business other than the
businesses engaged in by it on the date hereof and businesses and activities
reasonably related thereto.
8.9 Certain Amendments. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, (i) amend, modify or waive, or permit the
amendment, modification or waiver of, any provision of any agreement or
instrument evidencing or governing any Subordinated Indebtedness, the effect
of which would be to (a) increase the principal amount due thereunder, (b)
shorten or accelerate the time of payment of any amount due thereunder, (c)
increase the applicable interest rate or amount of any fees or costs due
thereunder, (d) amend any of the
70
<PAGE> 77
subordination provisions thereunder (including any of the definitions relating
thereto), (e) make any covenant therein more restrictive or add any new
covenant, or (f) otherwise materially and adversely affect the Lenders, or
breach or otherwise violate any of the subordination provisions applicable
thereto, including, without limitation, restrictions against payment of
principal and interest thereon, or (ii) amend, modify or change any provision
of its articles or certificate of incorporation or bylaws, or the terms of any
class or series of its Capital Stock, other than in a manner that could not
reasonably be expected to adversely affect the Lenders.
8.10 Limitation on Certain Restrictions. The Borrower will not, and
will not permit or cause any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any restriction
or encumbrance on (i) the ability of the Borrower and its Subsidiaries to
perform and comply with their respective obligations under the Credit Documents
or (ii) the ability of any Subsidiary of the Borrower to make any dividend
payments or other distributions in respect of its Capital Stock, to repay
Indebtedness owed to the Borrower or any other Subsidiary, to make loans or
advances to the Borrower or any other Subsidiary, or to transfer any of its
assets or properties to the Borrower or any other Subsidiary, in each case other
than such restrictions or encumbrances existing under or by reason of the Credit
Documents or applicable Requirements of Law.
8.11 No Other Negative Pledges. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, directly or indirectly, enter into
or suffer to exist any agreement or restriction that prohibits or conditions the
creation, incurrence or assumption of any Lien upon or with respect to any part
of its property or assets, whether now owned or hereafter acquired, or agree to
do any of the foregoing, other than as set forth in (i) this Agreement and the
Security Documents, (ii) any agreement or instrument creating a Permitted Lien
(but only to the extent such agreement or restriction applies to the assets
subject to such Permitted Lien), and (iii) operating leases of real or personal
property entered into by the Borrower or any of its Subsidiaries as lessee in
the ordinary course of business.
8.12 Fiscal Year. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, change the ending date of its fiscal year to a
date other than December 31.
8.13 Accounting Changes. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, make or permit any material change
in its accounting policies or reporting practices, except as may be required by
GAAP.
8.14 Inactive Subsidiaries. The Borrower will not permit the
Inactive Subsidiaries to engage in any kind of business or operations or incur
any Indebtedness without the prior written consent of the Required Lenders.
8.15 Borrower Activities. The Borrower will not engage in any
business or operations except for the ownership of Services and Lason
International without the prior written consent of the Required Lenders.
71
<PAGE> 78
ARTICLE IX
EVENTS OF DEFAULT
9.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Borrower shall fail to pay any principal of any Loan, any
Reimbursement Obligation or any other Obligation when due;
(b) The Borrower shall fail to pay any interest on any Loan, any
Reimbursement Obligation or any other Obligation when due, and such failure
continues for five (5) or more Business Days;
(c) The Borrower shall fail to observe, perform or comply with any
condition, covenant or agreement contained in any of SECTIONS 2.14, 6.1, 6.2,
6.3(I), 6.8, 6.9, 6.10 or in ARTICLE VII or ARTICLE VIII;
(d) The Borrower or any of its Subsidiaries shall fail to observe,
perform or comply with any condition, covenant or agreement contained in this
Agreement or any of the other Credit Documents other than those enumerated in
subsections (a) and (b) above, and such failure (i) is deemed by the terms of
the relevant Credit Document to constitute an Event of Default or (ii) shall
continue unremedied for any grace period specifically applicable thereto or, if
no such grace period is applicable, for a period of thirty (30) days after the
earlier of (y) the date on which a Responsible Officer of the Borrower acquires
knowledge thereof and (z) the date on which written notice thereof is delivered
by the Agent or any Lender to the Borrower;
(e) Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries in this Agreement, any of the other
Credit Documents or in any certificate, instrument, report or other document
furnished in connection herewith or therewith or in connection with the
transactions contemplated hereby or thereby shall prove to have been false or
misleading in any material respect as of the time made, deemed made or
furnished;
(f) The Borrower or any of its Subsidiaries shall (i) fail to pay when
due (whether by scheduled maturity, acceleration or otherwise and after giving
effect to any applicable grace period) any principal of or interest on any
Indebtedness (other than the Indebtedness incurred pursuant to this Agreement)
having an aggregate principal amount of at least $500,000 or (ii) fail to
observe, perform or comply with any condition, covenant or agreement contained
in any agreement or instrument evidencing or relating to any such Indebtedness,
or any other event shall occur or condition exist in respect thereof, and the
effect of such failure, event or condition is to cause, or permit the holder or
holders of such Indebtedness (or a trustee or agent on its or their behalf) to
cause (with the giving of notice, lapse of time, or both), such Indebtedness to
become due, or to be prepaid, redeemed, purchased or defeased, prior to its
stated maturity;
72
<PAGE> 79
(g) The Borrower or any of its Subsidiaries shall (i) file a voluntary
petition or commence a voluntary case seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts or any other
relief under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate manner, any
petition or case of the type described in subsection (g) below, (iii) apply for
or consent to the appointment of or taking possession by a custodian, trustee,
receiver or similar official for or of itself or all or a substantial part of
its properties or assets, (iv) fail generally, or admit in writing its
inability, to pay its debts generally as they become due, (v) make a general
assignment for the benefit of creditors or (vi) take any corporate action to
authorize or approve any of the foregoing;
(h) Any involuntary petition or case shall be filed or commenced
against the Borrower or any of its Subsidiaries seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts, the appointment
of a custodian, trustee, receiver or similar official for it or all or a
substantial part of its properties or any other relief under the Bankruptcy Code
or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, and such petition or case shall continue undismissed and
unstayed for a period of sixty (60) days; or an order, judgment or decree
approving or ordering any of the foregoing shall be entered in any such
proceeding;
(i) Any one or more money judgments, writs or warrants of attachment,
executions or similar processes involving an aggregate amount (exclusive of
amounts fully bonded or covered by insurance as to which the surety or insurer,
as the case may be, has acknowledged its liability in writing) in excess of
$500,000 shall be entered or filed against the Borrower or any of its
Subsidiaries or any of their respective properties and the same shall not be
dismissed, stayed or discharged for a period of sixty (60) days or in any event
later than five days prior to the date of any proposed sale thereunder;
(j) Any Security Document to which the Borrower or any of its
Subsidiaries is now or hereafter a party shall for any reason cease to be in
full force and effect or cease to be effective to give the Agent a valid and
perfected security interest in and Lien upon the Collateral purported to be
covered thereby, subject to no Liens other than Permitted Liens, in each case
unless any such cessation occurs in accordance with the terms thereof or is due
to any act or failure to act on the part of the Agent or any Lender; or the
Borrower or any such Subsidiary shall assert any of the foregoing; or any
Subsidiary of the Borrower or any Person acting on behalf of any such Subsidiary
shall deny or disaffirm such Subsidiary's obligations under the Subsidiary
Guaranty;
(k) Any ERISA Event or any other event or condition shall occur or
exist with respect to any Plan or Multiemployer Plan and, as a result thereof,
together with all other ERISA Events and other events or conditions then
existing, the Borrower and its ERISA Affiliates have incurred or would be
reasonably likely to incur liability to any one or more Plans or Multiemployer
Plans or to the PBGC (or to any combination thereof) in excess of $500,000;
(l) Any one or more licenses, permits, accreditations or authorizations
of the Borrower or any of its Subsidiaries shall be suspended, limited or
terminated or shall not be
73
<PAGE> 80
renewed, or any other action shall be taken, by any Governmental Authority in
response to any alleged failure by the Borrower or any of its Subsidiaries to be
in compliance with applicable Requirements of Law, and such action, individually
or in the aggregate, has or would be reasonably likely to have a Material
Adverse Effect;
(m) Any one or more Environmental Claims shall have been asserted
against the Borrower or any of its Subsidiaries (or a reasonable basis shall
exist therefor); the Borrower and its Subsidiaries have incurred or would be
reasonably likely to incur liability as a result thereof; and such liability,
individually or in the aggregate, has or would be reasonably likely to have a
Material Adverse Effect;
(n) The Borrower or any of its Subsidiaries shall be in breach of or
default under the terms of any one or more agreements for the lease of real
property upon which Collateral having an aggregate fair market value in excess
of $500,000 is maintained, and the effect of such breach or default is to
terminate, or permit the other party or parties thereto to terminate, such lease
or leases; or any agreement or contract to which the Borrower or any of its
Subsidiaries is a party shall be terminated or shall, for any other reason, fail
to be in full force and effect and enforceable in accordance with its terms, and
such event or condition, together with all other such events or conditions, if
any, has or would be reasonably likely to have a Material Adverse Effect;
(o) Any of the following shall occur: (i) any Person or group of
Persons acting in concert as a partnership or other group shall, as a result of
a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become, after the date hereof, the "beneficial
owner" (within the meaning of such term under Rule 13d-3 under the Exchange Act)
of securities of the Borrower representing 25% or more of the combined voting
power of the then outstanding securities of the Borrower ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors; or (ii) the Board of Directors of the Borrower shall
cease to consist of a majority of the individuals who constituted the Board of
Directors as of the date hereof or who shall have become a member thereof
subsequent to the date hereof after having been nominated, or otherwise approved
in writing, by at least a majority of individuals who constituted the Board of
Directors of the Borrower as of the date hereof (or their replacements approved
as herein required).
9.2 Remedies: Termination of Commitments, Acceleration, etc. Upon and
at any time after the occurrence and during the continuance of any Event of
Default, the Agent shall at the direction, or may with the consent, of the
Required Lenders, take any or all of the following actions at the same or
different times:
(a) Declare the Commitments, the Swingline Commitment, and the Issuing
Lender's obligation to issue Letters of Credit, to be terminated, whereupon the
same shall terminate (provided that, upon the occurrence of an Event of Default
pursuant to SECTION 9.1(G) or SECTION 9.1(H), the Commitments, the Swingline
Commitment and the Issuing Lender's obligation to issue Letters of Credit shall
automatically be terminated);
74
<PAGE> 81
(b) Declare all or any part of the outstanding principal amount of the
Loans to be immediately due and payable, whereupon the principal amount so
declared to be immediately due and payable, together with all interest accrued
thereon and all other amounts payable under this Agreement, the Notes and the
other Credit Documents, shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate or other notice or
legal process of any kind, all of which are hereby knowingly and expressly
waived by the Borrower (provided that, upon the occurrence of an Event of
sDefault pursuant to SECTION 9.1(G) or SECTION 9.1(H), all of the outstanding
principal amount of the Loans and all other amounts described in this subsection
(b) shall automatically become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by the
Borrower);
(c) Direct the Borrower to deposit (and the Borrower hereby agrees,
forthwith upon receipt of notice of such direction from the Agent, to deposit)
with the Agent from time to time such additional amount of cash as is equal to
the aggregate Stated Amount of all Letters of Credit then outstanding (whether
or not any beneficiary under any Letter of Credit shall have drawn or be
entitled at such time to draw thereunder), such amount to be held by the Agent
in the Cash Collateral Account as security for the Letter of Credit Exposure as
described in SECTION 3.8; and
(d) Exercise all rights and remedies available to it under this
Agreement, the other Credit Documents and applicable law.
9.3 Remedies: Set-Off. In addition to all other rights and remedies
available under the Credit Documents or applicable law or otherwise, upon and at
any time after the occurrence and during the continuance of any Event of
Default, each Lender may, and each is hereby authorized by the Borrower, at any
such time and from time to time, to the fullest extent permitted by applicable
law, without presentment, demand, protest or other notice of any kind, all of
which are hereby knowingly and expressly waived by the Borrower, to set off and
to apply any and all deposits (general or special, time or demand, provisional
or final) and any other property at any time held (including at any branches or
agencies, wherever located), and any other indebtedness at any time owing, by
such Lender to or for the credit or the account of the Borrower against any or
all of the Obligations to such Lender now or hereafter existing, whether or not
such Obligations may be contingent or unmatured, the Borrower hereby granting to
each Lender a continuing security interest in and Lien upon all such deposits
and other property as security for such Obligations. Each Lender agrees promptly
to notify the Borrower and the Agent after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application.
ARTICLE X
THE AGENT
10.1 Appointment. Each Lender hereby irrevocably appoints and
authorizes First Union to act as Agent hereunder and under the other Credit
Documents and to take such actions as
75
<PAGE> 82
agent on its behalf hereunder and under the other Credit Documents, and to
exercise such powers and to perform such duties, as are specifically delegated
to the Agent by the terms hereof or thereof, together with such other powers and
duties as are reasonably incidental thereto.
10.2 Nature of Duties. The Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
other Credit Documents. The Agent shall not have, by reason of this Agreement or
any other Credit Document, a fiduciary relationship in respect of any Lender;
and nothing in this Agreement or any other Credit Document, express or implied,
is intended to or shall be so construed as to impose upon the Agent any
obligations or liabilities in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein. The Agent may execute
any of its duties under this Agreement or any other Credit Document by or
through agents or attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact that it selects with
reasonable care. The Agent shall be entitled to consult with legal counsel,
independent public accountants and other experts selected by it with respect to
all matters pertaining to this Agreement and the other Credit Documents and its
duties hereunder and thereunder and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts. The Lenders hereby acknowledge that the Agent
shall not be under any duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement or any other Credit
Document unless it shall be requested in writing to do so by the Required
Lenders (or, where a higher percentage of the Lenders is expressly required
hereunder, such Lenders).
10.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action taken or omitted to be taken by it or such Person under or
in connection with the Credit Documents, except for its or such Person's own
gross negligence or willful misconduct, (ii) responsible in any manner to any
Lender for any recitals, statements, information, representations or warranties
herein or in any other Credit Document or in any document, instrument,
certificate, report or other writing delivered in connection herewith or
therewith, for the execution, effectiveness, genuineness, validity,
enforceability or sufficiency of this Agreement or any other Credit Document, or
for the financial condition of the Borrower, its Subsidiaries or any other
Person, or (iii) required to ascertain or make any inquiry concerning the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document or the existence or possible existence of
any Default or Event of Default, or to inspect the properties, books or records
of the Borrower or any of its Subsidiaries.
10.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any notice, statement, consent or other
communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons. The Agent may deem and treat each Lender as the owner of its interest
hereunder for all purposes hereof unless and until a written notice of the
assignment, negotiation or transfer thereof shall have been given to the Agent
in accordance with the provisions of this Agreement. The Agent shall be entitled
to refrain from taking or omitting to take any action in connection with this
76
<PAGE> 83
Agreement or any other Credit Document (i) if such action or omission would, in
the reasonable opinion of the Agent, violate any applicable law or any provision
of this Agreement or any other Credit Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first have been indemnified to its
satisfaction by the Lenders against any and all liability and expense (other
than liability and expense arising from its own gross negligence or willful
misconduct) that may be incurred by it by reason of taking, continuing to take
or omitting to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Agent as a result of the
Agent's acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Lenders (or, where
a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such instructions and any action taken or failure to act pursuant
thereto shall be binding upon all of the Lenders (including all subsequent
Lenders).
10.5 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representation
or warranty to it and that no act by the Agent or any such Person hereinafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that (i) it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries
and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder, and (ii) it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action hereunder and under the
other Credit Documents and to make such investigation as it deems necessary to
inform itself as to the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except as expressly provided in this Agreement and the other Credit Documents,
the Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
concerning the business, prospects, operations, properties, financial or other
condition or creditworthiness of the Borrower, its Subsidiaries or any other
Person that may at any time come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
10.6 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default unless the Agent
shall have received written notice from the Borrower or a Lender referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent will give notice thereof to the Lenders as soon as
reasonably practicable; provided, however, that if any such notice has also been
furnished to the Lenders, the Agent shall have no obligation to notify the
Lenders with respect thereto. The Agent shall (subject to SECTIONS 10.4 and
11.6) take such action with respect to such Default or Event of
77
<PAGE> 84
Default as shall reasonably be directed by the Required Lenders; provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Required Lenders or all of the
Lenders.
10.7 Indemnification. To the extent the Agent is not reimbursed by or
on behalf of the Borrower, and without limiting the obligation of the Borrower
to do so, the Lenders agree (i) to indemnify the Agent and its officers,
directors, employees, agents, attorneys-in-fact and Affiliates, ratably in
proportion to their respective percentages as used in determining the Required
Lenders as of the date of determination, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including, without limitation, attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including,
without limitation, at any time following the repayment in full of the Loans and
the termination of the Commitments) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement or any
other Credit Document or any documents contemplated by or referred to herein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Agent under or in connection with any of the foregoing, and (ii) to
reimburse the Agent upon demand, ratably in proportion to their respective
percentages as used in determining the Required Lenders as of the date of
determination, for any expenses incurred by the Agent in connection with the
preparation, negotiation, execution, delivery, administration, amendment,
modification, waiver or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or any of the other Credit Documents
(including, without limitation, reasonable attorneys' fees and expenses and
compensation of agents and employees paid for services rendered on behalf of the
Lenders); provided, however, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent resulting from the gross
negligence or willful misconduct of the party to be indemnified.
10.8 The Agent in its Individual Capacity. With respect to its
Commitment, the Loans made by it, the Letters of Credit issued or participated
in by it and the Note or Notes issued to it, the Agent in its individual
capacity and not as Agent shall have the same rights and powers under the Credit
Documents as any other Lender and may exercise the same as though it were not
performing the agency duties specified herein; and the terms "Lenders,"
"Required Lenders," "holders of Notes" and any similar terms shall, unless the
context clearly otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may accept deposits from, lend money to,
make investments in, and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower, any of its Subsidiaries
or any of their respective Affiliates as if the Agent were not performing the
agency duties specified herein, and may accept fees and other consideration from
any of them for services in connection with this Agreement and otherwise without
having to account for the same to the Lenders.
78
<PAGE> 85
10.9 Successor Agent. The Agent may resign at any time by giving ten
(10) days' prior written notice to the Borrower and the Lenders. Upon any such
notice of resignation, the Required Lenders will, with the prior written consent
of the Borrower (which consent shall not be unreasonably withheld), appoint from
among the Lenders a successor to the Agent (provided that the Borrower's consent
shall not be required in the event a Default or Event of Default shall have
occurred and be continuing). If no successor to the Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within such ten-day period, then the retiring Agent may, on behalf of the
Lenders and after consulting with the Lenders and the Borrower, appoint a
successor Agent from among the Lenders. Upon the acceptance of any appointment
as Agent by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder and under the other Credit Documents. After any retiring
Agent's resignation as Agent, the provisions of this Article shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.
If no successor to the Agent has accepted appointment as Agent by the thirtieth
(30th) day following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective, and the
Lenders shall thereafter perform all of the duties of the Agent hereunder and
under the other Credit Documents until such time, if any, as the Required
Lenders appoint a successor Agent as provided for hereinabove.
10.10 Collateral Matters. (a) The Agent is hereby authorized on behalf
of the Lenders, without the necessity of any notice to or further consent from
the Lenders, from time to time (but without any obligation) to take any action
with respect to the Collateral and the Security Documents that may be necessary
to perfect and maintain perfected the Liens upon the Collateral granted pursuant
to the Security Documents.
(b) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments, termination or expiration of
all outstanding Letters of Credit and payment in full of all of the Obligations,
(ii) constituting property sold or to be sold or disposed of as part of or in
connection with any disposition expressly permitted hereunder or under any other
Credit Document or to which the Required Lenders have consented or (iii)
otherwise pursuant to and in accordance with the provisions of any applicable
Credit Document. Upon request by the Agent at any time, the Lenders will confirm
in writing the Agent's authority to release Collateral pursuant to this
subsection (b).
10.11 Issuing Lender and Swingline Lender. The provisions of this
Article (other than SECTION 10.9) shall apply to the Issuing Lender and
Swingline Lender mutatis mutandis to the same extent as such provisions apply to
the Agent.
10.12 Co-Agents. Notwithstanding any other provision of this Agreement
or any of the other Credit Documents, the Co-Agents are named as such for
recognition purposes only, and in their capacities as such shall have no powers,
rights, duties, responsibilities or liabilities with respect to this Agreement
and the other Credit Documents and the transactions contemplated hereby and
thereby.
79
<PAGE> 86
ARTICLE XI
MISCELLANEOUS
11.1 Fees and Expenses. The Borrower agrees (i) whether or not the
transactions contemplated by this Agreement shall be consummated, to pay upon
demand all reasonable out-of-pocket costs and expenses of the Agent (including,
without limitation, the reasonable fees and expenses of counsel to the Agent) in
connection with (w) the Agent's due diligence investigation in connection with,
and the preparation, negotiation, execution, delivery and syndication of, this
Agreement and the other Credit Documents, and any amendment, modification or
waiver hereof or thereof or consent with respect hereto or thereto, (x) the
administration, monitoring and review of the Loans and the Collateral
(including, without limitation, out-of-pocket expenses for travel, meals,
long-distance telephone calls, wire transfers, facsimile transmissions and
copying and with respect to the engagement of appraisers, consultants, auditors
or similar Persons by the Agent at any time, whether before or after the
Closing, to render opinions concerning the Borrower's financial condition and
the value of the Collateral), (y) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral and (z) the
creation, perfection and maintenance of the perfection of the Agent's Liens upon
the Collateral, including, without limitation, Lien search, filing and recording
fees, (ii) to pay upon demand all reasonable out-of-pocket costs and expenses of
the Agent and each Lender (including, without limitation, reasonable attorneys'
fees and expenses) in connection with (y) any refinancing or restructuring of
the credit arrangement provided under this Agreement, whether in the nature of a
"work-out," in any insolvency or bankruptcy proceeding or otherwise and whether
or not consummated, and (z) the enforcement, attempted enforcement or
preservation of any rights or remedies under this Agreement or any of the other
Credit Documents, whether in any action, suit or proceeding (including any
bankruptcy or insolvency proceeding) or otherwise, and (iii) to pay and hold the
Agent and each Lender harmless from and against all liability for any
intangibles, documentary, stamp or other similar taxes, fees and excises, if
any, including any interest and penalties, and any finder's or brokerage fees,
commissions and expenses (other than any fees, commissions or expenses of
finders or brokers engaged by the Agent or any Lender), that may be payable in
connection with the transactions contemplated by this Agreement and the other
Credit Documents.
11.2 Indemnification. The Borrower agrees, whether or not the
transactions contemplated by this Agreement shall be consummated, to indemnify
and hold the Agent and each Lender and each of their respective directors,
officers, employees, agents and Affiliates (each, an "Indemnified Person")
harmless from and against any and all claims, losses, damages, obligations,
liabilities, penalties, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) of any kind or nature whatsoever,
whether direct, indirect or consequential (collectively, "Indemnified Costs"),
that may at any time be imposed on, incurred by or asserted against any such
Indemnified Person as a result of, arising from or in any way relating to the
preparation, execution, performance or enforcement of this Agreement or any of
the other Credit Documents, any of the transactions contemplated herein or
therein or any transaction financed or
80
<PAGE> 87
to be financed in whole or in part, directly or indirectly, with the proceeds of
any Loans or Letters of Credit (including, without limitation, in connection
with the actual or alleged generation, presence, discharge or release of any
Hazardous Substances on, into or from, or the transportation of Hazardous
Substances to or from, any real property at any time owned or leased by the
Borrower or any of its Subsidiaries, any other Environmental Claims or any
violation of or liability under any Environmental Law), or any action, suit or
proceeding (including any inquiry or investigation) by any Person, whether
threatened or initiated, related to any of the foregoing, and in any case
whether or not such Indemnified Person is a party to any such action, proceeding
or suit or a subject of any such inquiry or investigation; provided, however,
that no Indemnified Person shall have the right to be indemnified hereunder for
any Indemnified Costs to the extent resulting from the gross negligence or
willful misconduct of such Indemnified Person. All of the foregoing Indemnified
Costs of any Indemnified Person shall be paid or reimbursed by the Borrower, as
and when incurred and upon demand.
11.3 Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE
OTHER CREDIT DOCUMENTS HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN, AND SHALL
BE DEEMED TO HAVE BEEN MADE IN, NORTH CAROLINA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED
THAT EACH LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, AS IN EFFECT FROM TIME
TO TIME (THE "UNIFORM CUSTOMS"), AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM
CUSTOMS, THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF). THE BORROWER HEREBY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH
CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE
OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER ANY OF THE
OTHER CREDIT DOCUMENTS, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER CREDIT DOCUMENTS, OR ANY PROCEEDING TO WHICH THE AGENT OR
ANY LENDER OR THE BORROWER IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING
OUT OF, OR IN CONNECTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT OR ANY LENDER OR THE
BORROWER. THE BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE
RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER
WAIVES ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER
VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. THE
81
<PAGE> 88
BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED
MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH HEREINBELOW, AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID
AND PROPERLY ADDRESSED. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE
AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION.
11.4 Arbitration; Preservation and Limitation of Remedies. (a) Upon
demand of any party hereto, whether made before or after institution of any
judicial proceeding, any claim or controversy arising out of, or relating to
this Agreement or any other Credit Document between or among the Borrower, its
Subsidiaries, the Agent and the Lenders, or any of them, (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to Hedge
Agreements.
(b) All arbitration hearings shall be conducted in the city in which
the office of Bank first stated above is located. A hearing shall begin within
90 days of demand for arbitration and all hearings shall be concluded within 120
days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000. Arbitrators shall
be licensed attorneys selected from the Commercial Financial Dispute Arbitration
Panel of the AAA. The parties do not waive applicable Federal or state
substantive law except as provided herein.
(c) Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any party
may exercise before or after an arbitration proceeding is brought. The parties
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale or under applicable law by judicial foreclosure
including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment. Any
claim or controversy with regard to any party's entitlement to such
82
<PAGE> 89
remedies is a Dispute. The parties acknowledge that by agreeing to binding
arbitration they have irrevocably waived any right they may have to a jury trial
with regard to a Dispute.
11.5 Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered to the party to be notified at the following
addresses:
(a) if to the Borrower, to Lason, Inc., 1305 Stephenson Highway,
Troy, Michigan 48083, Attention: Mr. William J. Rauwerdink, Telecopy
No. (248) 597-5818, with a copy to Seyburn, Kahn, Ginn, Bess, Deitch &
Serlin, Attention: Mr. Lawrence Deitch, Telecopy No. (248) 353-3727;
(b) if to the Agent, to First Union National Bank, One First Union
Center, TW-10, 301 South College Street, Charlotte, North Carolina
28288-0608, Attention: Syndication Agency Services, Telecopy No. (704)
383-0288; and
(c) if to any Lender, to it at the address set forth on its
signature page hereto (or if to any Lender not a party hereto as of the
date hereof, at the address set forth in its Assignment and
Acceptance);
or in each case, to such other address as any party may designate for itself by
like notice to all other parties hereto. All such notices and communications
shall be deemed to have been given (i) if mailed as provided above by any method
other than overnight delivery service, on the third Business Day after deposit
in the mails, (ii) if mailed by overnight delivery service, telegraphed,
telexed, telecopied or cabled, when delivered for overnight delivery, delivered
to the telegraph company, confirmed by telex answerback, transmitted by
telecopier or delivered to the cable company, respectively, or (iii) if
delivered by hand, upon delivery; provided that notices and communications to
the Agent shall not be effective until received by the Agent.
11.6 Amendments, Waivers, etc. No amendment, modification, waiver or
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Credit Document, shall be effective
unless in a writing signed by the Required Lenders (or by the Agent at the
direction or with the consent of the Required Lenders), and then the same shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such amendment, modification, waiver,
discharge, termination or consent shall:
(a) unless agreed to by each Lender directly affected thereby, (i)
reduce or forgive the principal amount of any Loan, reduce the rate of or
forgive any interest thereon, or reduce or forgive any fees or other Obligations
(other than fees payable to the Agent for its
83
<PAGE> 90
own account), or (ii) extend the Maturity Date or any other date fixed for the
payment of any principal of or interest on any Loan (other than additional
interest payable under SECTION 2.8(B) at the election of the Required Lenders,
as provided therein), any fees (other than fees payable to the Agent for its own
account) or any other Obligations or extend the expiry date of any Letter of
Credit beyond the seventh day prior to the Maturity Date;
(b) unless agreed to by all of the Lenders, (i) increase or extend any
Commitment of any Lender (it being understood that a waiver of any Event of
Default, if agreed to by the requisite Lenders hereunder, shall not constitute
such an increase), (ii) change the percentage of the aggregate Commitments or of
the aggregate unpaid principal amount of the Loans, or the number or percentage
of Lenders, that shall be required for the Lenders or any of them to take or
approve, or direct the Agent to take, any action hereunder (including as set
forth in the definition of "Required Lenders"), (iii) except as may be otherwise
specifically provided in this Agreement or in any other Credit Document, release
all or substantially all of the Collateral or release any Subsidiary Guarantor
from its obligations under the Subsidiary Guaranty, or (iv) change any provision
of SECTION 2.15 or this Section; and
(c) unless agreed to by the Issuing Lender, the Swingline Lender or the
Agent in addition to the Lenders required as provided hereinabove to take such
action, affect the respective rights or obligations of the Issuing Lender, the
Swingline Lender or the Agent, as applicable, hereunder or under any of the
other Credit Documents;
and provided further that the Fee Letter and any Hedge Agreement to which any
Lender is a party may be amended or modified, and any rights thereunder waived,
in a writing signed by the parties thereto.
11.7 Assignments, Participations. (a) Each Lender may assign to one or
more other Eligible Assignees (each, an "Assignee") all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the outstanding Loans made by it, the Note or
Notes held by it and its participations in Letters of Credit); provided,
however, that (i) any such assignment (other than an assignment to a Lender or
an Affiliate of a Lender) shall not be made without the prior written consent of
the Agent and the Borrower (to be evidenced by its counterexecution of the
relevant Assignment and Acceptance), which consent shall not be unreasonably
withheld (provided that the Borrower's consent shall not be required in the
event a Default or Event of Default shall have occurred and be continuing), (ii)
each such assignment shall be of a uniform, and not varying, percentage of all
of the assigning Lender's rights and obligations under this Agreement, (iii)
except in the case of an assignment to a Lender or an Affiliate of a Lender, no
such assignment shall be in an aggregate principal amount (determined as of the
date of the Assignment and Acceptance with respect to such assignment) less than
(y) $5,000,000, determined by combining the amount of the assigning Lender's
outstanding Loans, Letter of Credit Exposure and Unutilized Commitment being
assigned pursuant to such assignment (or, if less, the entire Commitment of the
assigning Lender) or (z) in the case of Swingline Loans, the entire Swingline
Commitment and the full amount of outstanding Swingline Loans, and (iv) the
parties to each such assignment will execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment, and will pay a nonrefundable
processing fee of $3,000 to the Agent for its own account. Upon such execution,
delivery, acceptance and recording of the Assignment and Acceptance, from and
after the effective date specified therein,
84
<PAGE> 91
which effective date shall be at least five Business Days after the execution
thereof (unless the Agent shall otherwise agree), (A) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of the assigning Lender hereunder with respect
thereto and (B) the assigning Lender shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (other than rights under the provisions of
this Agreement and the other Credit Documents relating to indemnification or
payment of fees, costs and expenses, to the extent such rights relate to the
time prior to the effective date of such Assignment and Acceptance) and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of such
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). The terms and provisions of each Assignment
and Acceptance shall, upon the effectiveness thereof, be incorporated into and
made a part of this Agreement, and the covenants, agreements and obligations of
each Lender set forth therein shall be deemed made to and for the benefit of the
Agent and the other parties hereto as if set forth at length herein.
(b) The Agent will maintain at its address for notices referred to
herein a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and each Lender at any reasonable time
and from time to time upon reasonable prior notice.
(c) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an Assignee and, if required,
counterexecuted by the Borrower, together with the Note or Notes subject to such
assignment and the processing fee referred to in subsection (a) above, the Agent
will (i) accept such Assignment and Acceptance, (ii) on the effective date
thereof, record the information contained therein in the Register and (iii) give
notice thereof to the Borrower and the Lenders. Within five (5) Business Days
after its receipt of such notice, the Borrower, at its own expense, will execute
and deliver to the Agent, in exchange for the surrendered Note or Notes, a new
Note or Notes to the order of the Assignee (and, if the assigning Lender has
retained any portion of its rights and obligations hereunder, to the order of
the assigning Lender), prepared in accordance with the provisions of SECTION 2.4
as necessary to reflect, after giving effect to the assignment, the Commitments
of the Assignee and (to the extent of any retained interests) the assigning
Lender, dated the date of the replaced Note or Notes and otherwise in
substantially the form of EXHIBIT A. The Agent will return canceled Notes to the
Borrower.
(d) Each Lender may, without the consent of the Borrower, the Agent or
any other Lender, sell to one or more other Persons (each, a "Participant")
participations in any portion comprising less than all of its rights and
obligations under this Agreement (including, without
85
<PAGE> 92
limitation, a portion of its Commitment, the outstanding Loans made by it, the
Note or Notes held by it and its participations in Letters of Credit); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged and such Lender shall remain solely responsible for the performance of
such obligations, (ii) no Lender shall sell any participation that, when taken
together with all other participations, if any, sold by such Lender, covers all
of such Lender's rights and obligations under this Agreement (other than to an
Affiliate of such Lender), (iii) the Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lende s rights and obligations under this Agreement, and no Lender shall
permit any Participant to have any voting rights or any right to control the
vote of such Lender with respect to any amendment, modification, waiver, consent
or other action hereunder or under any other Credit Document (except as to
actions that would (x) reduce or forgive the principal amount of any Loan,
reduce the rate of or forgive any interest thereon, or reduce or forgive any
fees or other Obligations, (y) extend the Maturity Date or any other date fixed
for the payment of any principal of or interest on any Loan, any fees or any
other Obligations, or (z) increase or extend any Commitment of any Lender), and
(iv) no Participant shall have any rights under this Agreement or any of the
other Credit Documents, each Participant's rights against the granting Lender in
respect of any participation to be those set forth in the participation
agreement, and all amounts payable by the Borrower hereunder shall be determined
as if such Lender had not granted such participation. Notwithstanding the
foregoing, each Participant shall have the rights of a Lender for purposes of
SECTIONS 2.16(A), 2.16(B), 2.17, 2.18 and 9.3, and shall be entitled to the
benefits thereto, to the extent that the Lender granting such participation
would be entitled to such benefits if the participation had not been made,
provided that no Participant shall be entitled to receive any greater amount
pursuant to any of such Sections than the Lender granting such participation
would have been entitled to receive in respect of the amount of the
participation made by such Lender to such Participant had such participation not
been made.
(e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; provided, however, that no such pledge or assignment shall
release a Lender from any of its obligations hereunder.
(f) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the Assignee or Participant or proposed Assignee or Participant any
information relating to the Borrower and its Subsidiaries furnished to it by or
on behalf of any other party hereto, provided that such Assignee or Participant
or proposed Assignee or Participant agrees in writing to keep such information
confidential to the same extent required of the Lenders under SECTION 11.13.
11.8 No Waiver. The rights and remedies of the Agent and the Lenders
expressly set forth in this Agreement and the other Credit Documents are
cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise. No failure or delay on the
part of the Agent or any Lender in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude other or further exercise thereof or
the exercise of any other right, power or
86
<PAGE> 93
privilege or be construed to be a waiver of any Default or Event of Default. No
course of dealing between any of the Borrower and the Agent or the Lenders or
their agents or employees shall be effective to amend, modify or discharge any
provision of this Agreement or any other Credit Document or to constitute a
waiver of any Default or Event of Default. No notice to or demand upon the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right
of the Agent or any Lender to exercise any right or remedy or take any other or
further action in any circumstances without notice or demand.
11.9 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, and all references herein to any party shall be
deemed to include its successors and assigns; provided, however, that (i) the
Borrower shall not sell, assign or transfer any of its rights, interests, duties
or obligations under this Agreement without the prior written consent of all of
the Lenders and (ii) any Assignees and Participants shall have such rights and
obligations with respect to this Agreement and the other Credit Documents as are
provided for under and pursuant to the provisions of SECTION 11.7.
11.10 Survival. All representations, warranties and agreements made by
or on behalf of the Borrower or any of its Subsidiaries in this Agreement and in
the other Credit Documents shall survive the execution and delivery hereof or
thereof, the making and repayment of the Loans and the issuance and repayment of
the Letters of Credit. In addition, notwithstanding anything herein or under
applicable law to the contrary, the provisions of this Agreement and the other
Credit Documents relating to indemnification or payment of fees, costs and
expenses, including, without limitation, the provisions of SECTIONS 2.16(A),
2.16(B), 2.17, 2.18, 10.7, 11.1 and 11.2, shall survive the payment in full of
all Loans and Letters of Credit, the termination of the Commitments and all
Letters of Credit, and any termination of this Agreement or any of the other
Credit Documents.
11.11 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
11.12 Construction. The headings of the various articles, sections and
subsections of this Agreement have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof. Except as otherwise expressly provided herein and in the other Credit
Documents, in the event of any inconsistency or conflict between any provision
of this Agreement and any provision of any of the other Credit Documents, the
provision of this Agreement shall control.
11.13 Confidentiality. Each Lender agrees to keep confidential,
pursuant to its customary procedures for handling confidential information of a
similar nature and in accordance with safe and sound banking practices, all
nonpublic information provided to it by or on behalf of
87
<PAGE> 94
the Borrower or any of its Subsidiaries in connection with this Agreement or any
other Credit Document; provided, however, that any Lender may disclose such
information (i) to its directors, employees and agents and to its auditors,
counsel and other professional advisors, (ii) at the demand or request of any
bank regulatory authority, court or other Governmental Authority having or
asserting jurisdiction over such Lender, as may be required pursuant to subpoena
or other legal process, or otherwise in order to comply with any applicable
Requirement of Law, (iii) in connection with any proceeding to enforce its
rights hereunder or under any other Credit Document or any other litigation or
proceeding related hereto or to which it is a party, (iv) to the Agent or any
other Lender, (v) to the extent the same has become publicly available other
than as a result of a breach of this Agreement and (vi) pursuant to and in
accordance with the provisions of SECTION 11.7(F).
11.14 Counterparts; Effectiveness. This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto and receipt by the Agent and the Borrower of written
or telephonic notification of such execution and authorization of delivery
thereof.
11.15 Disclosure of Information. The Borrower agrees and consents to
the Agent's disclosure of information relating to this transaction to Gold
Sheets and other similar bank trade publications. Such information will consist
of deal terms and other information customarily found in such publications.
11.16 Entire Agreement. THIS AGREEMENT AND THE OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF, (B) SUPERSEDE ANY AND ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF, INCLUDING, WITHOUT LIMITATION, THE COMMITMENT
LETTER FROM FIRST UNION TO THE BORROWER DATED APRIL 16, 1998, BUT SPECIFICALLY
EXCLUDING THE FEE LETTER, AND (C) MAY NOT BE AMENDED, SUPPLEMENTED, CONTRADICTED
OR OTHERWISE MODIFIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
88
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
LASON, INC.
By: Gary L. Monroe
-----------------
Title: President and CEO
-------------------
(signatures continued)
89
<PAGE> 96
FIRST UNION NATIONAL BANK, as Agent
and as a Lender
By: Henry R. Biedrzycki
------------------------
Commitment:
$25,000,000 Title: Vice President
---------------------
Instructions for wire
transfers to the Agent:
First Union National Bank
ABA Routing No. 053000219
Charlotte, North Carolina
Account No. 5000000009035
Account Name: Lason, Inc.
Attention: Syndication Agency
Services
Address for notices as a Lender:
First Union National Bank
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Henry R. Biedrzycki
Telephone: (704) 374-4914
Telecopy: (704) 374-3300
Lending Office:
First Union National Bank
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Henry R. Biedrzycki
Telephone: (704) 374-4914
Telecopy: (704) 374-3300
(signatures continued)
90
<PAGE> 97
NBD BANK
By: Mark L. McClure
-------------------
Commitment:
$17,500,000 Title: Vice President
-----------------
Address for notices:
NBD Bank
611 Woodward Avenue, Mail Suite 8074
Detroit, Michigan 48226
Attention: Mark L. McClure
Telephone: (313) 225-2810
Telecopy: (313) 225-2290
Lending Office:
NBD Bank
611 Woodward Avenue, Mail Suite 8074
Detroit, Michigan 48226
Attention: Mark L. McClure
Telephone: (313) 225-2810
Telecopy: (313) 225-2290
(signatures continued)
91
<PAGE> 98
HIBERNIA NATIONAL BANK
By: Angela Bentley
----------------------
Commitment:
$12,500,000 Title: National Accounts Representative
-------------------------------
Address for notices:
Hibernia National Bank
313 Carondelet Street, 12th Floor
New Orleans, Louisiana 70130
Attention: Angela Bentley
Telephone: (504) 533-2319
Telecopy: (504) 533-5544
Lending Office:
Hibernia National Bank
313 Carondelet Street, 12th Floor
New Orleans, Louisiana 70130
Attention: Angela Bentley
Telephone: (504) 533-2319
Telecopy: (504) 533-5544
(signatures continued)
92
<PAGE> 99
COMERICA BANK
By: David C. Bird
Commitment: ------------------
$17,500,000 Title: Vice President
---------------
Address for notices:
Comerica Bank
500 Woodward Avenue, 9th Floor
Detroit, Michigan 48226-3268
Attention: David C. Bird
Telephone: (313) 222-5060
Telecopy: (313) 222-9514
Lending Office:
Comerica Bank
500 Woodward Avenue, 9th Floor
Detroit, Michigan 48226-3268
Attention: David C. Bird
Telephone: (313) 222-5060
Telecopy: (313) 222-9514
(signatures continued)
93
<PAGE> 100
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: Paul A. O'Mara
Commitment: ------------------
$15,000,000 Title: Senior Vice President
----------------------
Address for notices:
Bank of America National Trust and
Savings Association
231 S. LaSalle Street, 6th Floor
Chicago, Illinois 60697
Attention: David A. Hills
Telephone: (312) 828-1620
Telecopy: (312) 974-2019
Lending Office:
Bank of America National Trust and
Savings Association
231 S. LaSalle Street, 6th Floor
Chicago, Illinois 60697
Attention: David A. Hills
Telephone: (312) 828-1620
Telecopy: (312) 974-2019
(signatures continued)
94
<PAGE> 101
NATIONAL CITY BANK
By: [SIG]
Commitment: --------------------
$15,000,000 Title: Senior Vice President
-----------------------
Address for notices:
National City Bank
1001 South Worth
Birmingham, Michigan 48009
Attention: Kenneth Ehrhardt
Telephone: (248) 901-1402
Telecopy: (248) 901-2034
Lending Office:
National City Bank
1001 South Worth
Birmingham, Michigan 48009
Attention: Kenneth Ehrhardt
Telephone: (248) 901-1402
Telecopy: (248) 901-2034
(signatures continued)
95
<PAGE> 102
MICHIGAN NATIONAL BANK
By: Neran Shaya
Commitment: ---------------------------
$12,500,000 Title: Relationship Manager
------------------------
Address for notices:
Michigan National Bank
27777 Inkster 10-36
Farmington Hills, Michigan 48334
Attention: Neran Shaya
Telephone: (248) 473-4212
Telecopy: (248) 473-4345
Lending Office:
Michigan National Bank
27777 Inkster 10-36
Farmington Hills, Michigan 48334
Attention: Neran Shaya
Telephone: (248) 473-4212
Telecopy: (248) 473-4345
(signatures continued)
96
<PAGE> 103
THE FUJI BANK, LIMITED
By: Tetsuo Kamatsu
Commitment: --------------------------------
$10,000,000 Title: Joint General Manager
-----------------------------
Address for notices:
The Fuji Bank, Limited
225 West Wacker, Suite 2000
Chicago, Illinois 60606
Attention: Phil Langheim
Telephone: (312) 621-0518
Telecopy: (312) 621-0539
Lending Office:
The Fuji Bank, Limited
225 West Wacker, Suite 2000
Chicago, Illinois 60606
Attention: Phil Langheim
Telephone: (312) 621-0518
Telecopy: (312) 621-0539
(signatures continued)
97
<PAGE> 104
UNION BANK OF CALIFORNIA, N.A.
By: Gail L. Fletcher
Commitment: -------------------------
$12,500,000 Title: Vice President
----------------------
Address for notices:
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, California 94104
Attention: Gail Fletcher
Telephone: (415) 705-7511
Telecopy: (415) 705-7567
Lending Office:
Union Bank of California, N.A.
350 California Street, 6th Floor
San Francisco, California 94104
Attention: Gail Fletcher
Telephone: (415) 705-7511
Telecopy: (415) 705-7567
(signatures continued)
98
<PAGE> 105
AMSOUTH BANK
By: Bryan Grantham
Commitment: ---------------------------------
$12,500,000 Title: Commercial Banking Officer
------------------------------
Address for notices:
AmSouth Bank
1900 5th Avenue North, 7th Floor
Birmingham, Alabama 35203
Attention: Bryan Grantham
Telephone: (205) 801-0331
Telecopy: (205) 581-7578
Lending Office:
AmSouth Bank
1900 5th Avenue North, 7th Floor
Birmingham, Alabama 35203
Attention: Bryan Grantham
Telephone: (205) 801-0331
Telecopy: (205) 581-7578
99
<PAGE> 1
EXHIBIT 4.3
SECOND AMENDED AND RESTATED PLEDGE AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of the 29th
day of June, 1998 (this "Agreement"), is made by LASON, INC., a Delaware
corporation (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK, as agent
for the banks and other financial institutions (collectively, the "Lenders")
under to the Credit Agreement referred to below (in such capacity, the
"Agent"), for the benefit of the Secured Parties (as hereinafter defined).
Capitalized terms used herein without definition shall have the meanings given
to them in the Credit Agreement referred to below.
RECITALS
A. The Pledgor, the Lenders and the Agent entered into a Second Amended
and Restated Loan Agreement dated as of the date hereof (as amended, modified,
renewed, supplemented, restated or replaced from time to time, the "Credit
Agreement"), pursuant to which the Lenders have agreed to extend revolving
loans aggregating up to $150,000,000, which amount may be increased to an
amount aggregating up to $200,000,000 pursuant to the terms of the Credit
Agreement, to the Pledgor. Capitalized terms that are not defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
B. The Pledgor, the Lenders and the Agent have heretofore entered into an
Amended and Restated Guarantor Pledge Agreement dated February 21, 1997 (the
"Amended and Restated Pledge Agreement"). This Agreement is an amendment to,
and is in substitution and replacement of the Pledgor's Amended and Restated
Pledge Agreement.
C. As a condition to the extension of credit to the Pledgor under the
Credit Agreement, the Lenders are requiring, among other things, that the
Pledgor secure the Pledgor's obligations under the Credit Agreement through a
pledge of the Pledgor's stock in its Subsidiaries as provided herein.
D. The Secured Parties are relying on this Agreement in their decision to
extend credit to the Pledgor under the Credit Agreement, and would not enter
into the Credit Agreement without the execution and delivery of this Agreement
by the Pledgor.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Secured Parties to enter into the Credit Agreement
and to induce the Lenders to extend credit to the Pledgor thereunder, the
Pledgor hereby agrees as follows:
<PAGE> 2
1. Pledge and Grant of Security Interest. The Pledgor hereby pledges,
assigns and delivers to the Agent, for the ratable benefit of the Lenders
(including the Issuing Lender in its capacity as such, and including any Lender
in its capacity as a counterparty to any Hedge Agreement with the Pledgor) and
the Agent (collectively, the "Secured Parties"), and grants to the Agent, for
the ratable benefit of the Secured Parties, a Lien upon and security interest
in, all of the Pledgor's right, title and interest in and to the following, in
each case whether now owned or existing or hereafter acquired or arising
(collectively, the "Collateral"):
(i) all of the issued and outstanding shares, interests or other
equivalents of capital stock of the Subsidiaries as of the date
hereof, at any time now or hereafter owned by the Pledgor, whether
voting or non-voting and whether common or preferred; all partnership,
joint venture, limited liability company or other Pledged Interests in
the Subsidiaries as of the date hereof, at any time now or hereafter
owned by the Pledgor; all options, warrants and other rights to
acquire, and all securities convertible into, any of the foregoing;
all rights to receive interest, income, dividends, distributions,
returns of capital and other amounts (whether in cash, securities,
property, or a combination thereof), and all additional stock,
warrants, options, securities, interests and other property, from time
to time paid or payable or distributed or distributable in respect of
any of the foregoing (but subject to the provisions of Section 7),
including, without limitation, all rights of the Pledgor to receive
amounts due and to become due under or in respect of any partnership
agreement, joint venture agreement, limited liability company
operating agreement, stockholders agreement or other agreement
creating, governing or evidencing any Pledged Interests and to which
the Pledgor is now or hereafter becomes a party, as any such agreement
may be amended, modified, supplemented, restated or replaced from time
to time (collectively, "Ownership Agreements") or upon the termination
thereof; all rights of access to the books and records of the
Subsidiaries; and all other rights, powers, privileges, interests,
claims and other property in any manner arising out of or relating to
any of the foregoing, of whatever kind or character (including any
tangible or intangible property or interests therein), and whether
provided by contract or granted or available under applicable law in
connection therewith, including, without limitation, the Pledgor's
right to vote and to manage and administer the business of the
Subsidiaries pursuant to any applicable Ownership Agreement; together
with all certificates, instruments and entries upon the books of
financial intermediaries at any time evidencing any of the foregoing,
in each case whether now owned or existing or hereafter acquired or
arising (collectively, the "Pledged Interests"); and
(ii) any and all proceeds (as defined in the Uniform Commercial
Code) of or from any and all of the foregoing and, to the extent not
otherwise included in the foregoing, (y) all payments under any
insurance (whether or not the Agent is the loss payee thereunder),
indemnity, warranty or guaranty with respect to any of the foregoing
Collateral and (z) all other amounts from time to time paid or payable
under or with respect to any of the foregoing Collateral
(collectively, "Proceeds"). For purposes of this Agreement, the term
"Proceeds" includes whatever is receivable or received when Collateral
or Proceeds are sold, exchanged, collected or otherwise disposed of,
whether voluntarily or involuntarily.
2
<PAGE> 3
2. Security for Secured Obligations. This Agreement and the Collateral
secure the full and prompt payment, at any time and from time to time as and
when due (whether at the stated maturity, by acceleration or otherwise), of all
liabilities and obligations of the Pledgor, whether now existing or hereafter
incurred, created or arising and whether direct or indirect, absolute or
contingent, due or to become due, under, arising out of or in connection with
the Credit Agreement, or any of the other Credit Documents to which it is or
hereafter becomes a party; and (i) all such liabilities and obligations that,
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due, and (ii) all fees, costs and expenses
payable by the Pledgor under Section 11 (the liabilities and obligations of the
Pledgor described in this Section 2, collectively, the "Secured Obligations").
3. Representations and Warranties. The Pledgor represents and warrants as
follows:
(a) As of the date hereof, (i) the Pledged Interests required to be
pledged hereunder by the Pledgor consist of the number and type of shares of
capital stock (in the case of issuers that are corporations) or the percentage
and type of other Pledged Interests (in the case of issuers other than
corporations) as described beneath in Part I of Annex A. All of the Pledged
Interests have been duly and validly issued and are fully paid and
nonassessable (or, in the case of partnership, limited liability company or
similar Pledged Interests, not subject to any capital call or other additional
capital requirement) and not subject to any preemptive rights, warrants,
options or similar rights or restrictions in favor of third parties or any
contractual or other restrictions upon transfer.
(b) The Pledgor owns all Collateral purported to be pledged by it
hereunder, free and clear of any Liens except for the Liens granted to the
Agent, for the benefit of the Secured Parties, pursuant to this Agreement. No
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any government or
public office, and the Pledgor has not filed or consented to the filing of any
such statement or notice.
(c) This Agreement, together with (i) in the case of uncertificated
Pledged Interests, registration of transfer thereof to the Agent on the
issuer's books or the execution by the issuer of a control agreement satisfying
the requirements of Section 8-106 (or its successor provision) of the Uniform
Commercial Code, and (ii) the delivery to the Agent of all stock certificates
and instruments included in the Collateral (and assuming continued possession
thereof by the Agent), creates, and at all times shall constitute, a valid and
perfected security interest in and Lien upon the Collateral in favor of the
Agent, for the benefit of the Secured Parties, to the extent a security
interest therein can be perfected by such filings or possession, as applicable,
superior and prior to the rights of all other Persons therein (except for the
security interest created by this Agreement), and no other or additional
filings, registrations, recordings or actions are or shall be necessary or
appropriate in order to maintain the perfection and priority of such Lien and
security interest.
(d) No authorization, consent or approval of, or declaration or filing
with, any Governmental Authority is required for the valid execution, delivery
and performance by the Pledgor of this Agreement, the grant by it of the Lien
and security interest in favor of the Agent provided for herein, or the
exercise by the Agent of its rights and remedies hereunder, except for
3
<PAGE> 4
such filings and approvals as may be required in connection with a disposition
of any of the Pledged Interests by laws affecting the offering and sale of
securities generally.
(e) There are no statutory or regulatory restrictions, prohibitions or
limitations on the Pledgor's ability to grant to the Agent a Lien upon and
security interest in the Collateral pursuant to this Agreement or on the
exercise by the Agent of its rights and remedies hereunder (including any
foreclosure upon or collection of the Collateral), and there are no contractual
restrictions on the Pledgor's ability so to grant such Lien and security
interest.
4. Delivery of Collateral. All certificates or instruments representing or
evidencing any Collateral shall be delivered to and held by or on behalf of the
Agent pursuant hereto, shall be in form suitable for transfer by delivery and
shall be delivered together with undated stock powers duly executed in blank,
appropriate endorsements or other necessary instruments of registration,
transfer or assignment, duly executed and in form and substance satisfactory to
the Agent, and in each case such other instruments or documents as the Agent
may reasonably request.
5. Certain Covenants. (a) If the Pledgor shall, at any time and from time
to time after the date hereof, acquire any additional capital stock or other
Pledged Interests of the types described in the definition of the term "Pledged
Interests," the same shall be automatically deemed to be Pledged Interests
hereunder, respectively, and to be pledged to the Agent pursuant to Section 1,
and the Pledgor will forthwith pledge and deposit the same with the Agent and
deliver to the Agent any certificates or instruments therefor, together with
the endorsement of the Pledgor (in the case of any promissory notes or other
instruments), undated stock powers (in the case of Pledged Interests evidenced
by certificates) or other necessary instruments of transfer or assignment, duly
executed in blank and in form and substance satisfactory to the Agent, together
with such other certificates and instruments as the Agent may reasonably
request (including Uniform Commercial Code financing statements or appropriate
amendments thereto), and will promptly thereafter deliver to the Agent a fully
completed and duly executed amendment to this Agreement in the form of Exhibit
A (each, a "Pledge Amendment") in respect thereof. The Pledgor hereby
authorizes the Agent to attach each such Pledge Amendment to this Agreement,
and agrees that all such Collateral listed on any Pledge Amendment shall for
all purposes be deemed Collateral hereunder and shall be subject to the
provisions hereof; provided that the failure of the Pledgor to execute and
deliver any Pledge Amendment with respect to any such additional Collateral as
required hereinabove shall not impair the security interest of the Agent in
such Collateral or otherwise adversely affect the rights and remedies of the
Agent hereunder with respect thereto.
(b) If any Pledged Interests (whether now owned or hereafter acquired)
included in the Collateral are "uncertificated securities" within the meaning
of the Uniform Commercial Code or are otherwise not evidenced by any
certificate or instrument, the Pledgor will promptly notify the Agent thereof
and will promptly take and cause to be taken, all actions required under
Articles 8 and 9 of the Uniform Commercial Code and any other applicable law,
to enable the Agent to acquire "control" of such uncertificated securities
(within the meaning of such term under Section 8-106 (or its successor
provision) of the Uniform Commercial Code) and as may be otherwise necessary or
deemed appropriate by the Agent to perfect the security interest of the Agent
therein.
4
<PAGE> 5
(c) The Pledgor will not sell or otherwise dispose of, grant any option
with respect to, or mortgage, pledge, grant any Lien with respect to or
otherwise encumber any of the Collateral or any interest therein, except for
the security interest created in favor of the Agent hereunder and except as may
be otherwise expressly permitted in accordance with the terms of this Agreement
and the Credit Agreement (including any applicable provisions therein regarding
delivery of proceeds of sale or disposition to the Agent).
(d) The Pledgor will cause the Pledged Interests in its Subsidiaries
pledged hereunder to constitute at all times 100% of the capital stock or other
Pledged Interests in its Subsidiaries, and unless the Agent shall have given
its prior written consent, the Pledgor will not cause or permit its
Subsidiaries to issue or sell any new capital stock, any warrants, options or
rights to acquire the same, or other Pledged Interests of any nature to any
Person other than the Pledgor, or cause, permit or consent to the admission of
any other Person as a stockholder, partner or member of any such issuer.
(e) The Pledgor agrees that it will, at its own cost and expense, take any
and all actions necessary to warrant and defend the right, title and interest
of the Secured Parties in and to the Collateral against the claims and demands
of all other Persons.
6. Voting Rights. So long as no Event of Default shall have occurred and
be continuing, the Pledgor shall be entitled to exercise all voting and other
consensual rights pertaining to its Pledged Interests (subject to its
obligations under Section 5(a)), and for that purpose the Agent will execute
and deliver or cause to be executed and delivered to the Pledgor all such
proxies and other instruments as the Pledgor may reasonably request in writing
to enable the Pledgor to exercise such voting and other consensual rights;
provided, however, that the Pledgor will not cast any vote, give any consent,
waiver or ratification, or take or fail to take any action, in any manner that
would, or could reasonably be expected to, violate or be inconsistent with any
of the terms of this Agreement, the Credit Agreement, or any other Credit
Document, or have the effect of impairing the position or interests of the
Agent or any other Secured Party.
7. Dividends and Other Distributions. So long as no Event of Default shall
have occurred and be continuing (or would occur as a result thereof), and
except as provided otherwise herein, all interest, income, dividends,
distributions and other amounts payable in cash in respect of the Pledged
Interests may be paid to and retained by the Pledgor; provided, however, that
all such interest, income, dividends, distributions and other amounts shall, at
all times after the occurrence and during the continuance of an Event of
Default, be paid to the Agent and retained by it as part of the Collateral
(except to the extent applied upon receipt to the repayment of the Secured
Obligations). The Agent shall also be entitled at all times (whether or not
during the continuance of an Event of Default) to receive directly, and to
retain as part of the Collateral, (i) all interest, income, dividends,
distributions or other amounts paid or payable in cash or other property in
respect of any Pledged Interests in connection with the dissolution,
liquidation, recapitalization or reclassification of the capital of the
applicable issuer to the extent representing (in the reasonable judgment of the
Agent) an extraordinary, liquidating or other distribution in return of
capital, (ii) all additional Pledged Interests or other securities or property
(other than cash) paid or payable or distributed or distributable in respect of
any Pledged Interests in connection with any noncash dividend, distribution,
return of capital, spin-off, stock split, split-up,
5
<PAGE> 6
reclassification, combination of shares or interests or similar rearrangement,
and (iii) without affecting any restrictions against such actions contained in
the Credit Agreement, all additional Pledged Interests or other securities or
property (including cash) paid or payable or distributed or distributable in
respect of any Pledged Interests in connection with any consolidation, merger,
exchange of securities, liquidation or other reorganization. All interest,
income, dividends, distributions or other amounts that are received by the
Pledgor in violation of the provisions of this Section shall be received in
trust for the benefit of the Agent, shall be segregated from other property or
funds of the Pledgor and shall be forthwith delivered to the Agent as
Collateral in the same form as so received (with any necessary endorsements).
8. Remedies. If an Event of Default shall have occurred and be continuing,
the Agent shall be entitled to exercise in respect of the Collateral all of its
rights, powers and remedies provided for herein or otherwise available to it
under any other Credit Document, by law, in equity or otherwise, including all
rights and remedies of a secured party under the Uniform Commercial Code, and
shall be entitled in particular, but without limitation of the foregoing, to
exercise the following rights, which the Pledgor agrees to be commercially
reasonable:
(a) To notify the parties obligated on any of the Collateral of the
security interest in favor of the Agent created hereby and to direct all such
Persons to make payments of all amounts due thereon or thereunder directly to
the Agent or to an account designated by the Agent; and in such instance and
from and after such notice, all amounts and Proceeds (including wire transfers,
checks and other instruments) received by the Pledgor in respect of any
Collateral shall be received in trust for the benefit of the Agent hereunder,
shall be segregated from the other funds of the Pledgor and shall be forthwith
deposited into such account or paid over or delivered to the Agent in the same
form as so received (with any necessary endorsements or assignments), to be
held as Collateral and applied to the Secured Obligations as provided herein;
(b) To transfer to or register in its name or the name of any of its
agents or nominees all or any part of the Collateral, without notice to the
Pledgor and with or without disclosing that such Collateral is subject to the
security interest created hereunder;
(c) To exercise (i) all voting, consensual and other rights and powers
pertaining to the Pledged Interests (whether or not transferred into the name
of the Agent), at any meeting of shareholders, partners, members or otherwise,
and (ii) any and all rights of conversion, exchange, subscription and any other
rights, privileges or options pertaining to the Pledged Interests as if it were
the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Interests upon the
merger, consolidation, reorganization, reclassification, combination of shares
or interests, similar rearrangement or other similar fundamental change in the
structure of the applicable issuer, or upon the exercise by the Pledgor or the
Agent of any right, privilege or option pertaining to such Pledged Interests),
and in connection therewith, the right to deposit and deliver any and all of
the Pledged Interests with any committee, depositary, transfer agent, registrar
or other designated agency upon such terms and conditions as the Agent may
determine, and give all consents, waivers and ratifications in respect of the
Pledged Interests, all without liability except to account for any property
actually received by it, but the Agent shall have no duty to exercise any such
right, privilege or option or give any such consent, waiver or ratification and
shall not be responsible for any failure to do so or delay in
6
<PAGE> 7
so doing; and for the foregoing purposes the Pledgor will promptly execute and
deliver or cause to be executed and delivered to the Agent, upon request, all
such proxies and other instruments as the Agent may reasonably request to
enable the Agent to exercise such rights and powers; AND IN FURTHERANCE OF THE
FOREGOING AND WITHOUT LIMITATION THEREOF, THE PLEDGOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS THE AGENT AS THE TRUE AND LAWFUL PROXY AND
ATTORNEY-IN-FACT OF THE PLEDGOR, WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES, TO EXERCISE ALL SUCH VOTING, CONSENSUAL AND OTHER RIGHTS AND POWERS
TO WHICH ANY HOLDER OF ANY PLEDGED INTERESTS WOULD BE ENTITLED BY VIRTUE OF
HOLDING THE SAME, WHICH PROXY AND POWER OF ATTORNEY, BEING COUPLED WITH AN
INTEREST, IS IRREVOCABLE AND SHALL BE EFFECTIVE FOR SO LONG AS THIS AGREEMENT
SHALL BE IN EFFECT; and
(d) To sell, resell, assign and deliver, in its sole discretion, all or
any of the Collateral, in one or more parcels, on any securities exchange on
which any Pledged Interests may be listed, at public or private sale, at any of
the Agent's offices or elsewhere, for cash, upon credit or for future delivery,
at such time or times and at such price or prices and upon such other terms as
the Agent may deem satisfactory. If any of the Collateral is sold by the Agent
upon credit or for future delivery, the Agent shall not be liable for the
failure of the purchaser to purchase or pay for the same and, in the event of
any such failure, the Agent may resell such Collateral. In no event shall the
Pledgor be credited with any part of the Proceeds of sale of any Collateral
until and to the extent cash payment in respect thereof has actually been
received by the Agent. Each purchaser at any such sale shall hold the property
sold absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of the Pledgor, and the Pledgor hereby expressly
waives all rights of redemption, stay or appraisal, and all rights to require
the Agent to marshal any assets in favor of the Pledgor or any other party or
against or in payment of any or all of the Secured Obligations, that it has or
may have under any rule of law or statute now existing or hereafter adopted. No
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law, as referred to below), all of which are hereby
expressly waived by the Pledgor, shall be required in connection with any sale
or other disposition of any part of the Collateral. If any notice of a proposed
sale or other disposition of any part of the Collateral shall be required under
applicable law, the Agent shall give the Pledgor at least ten (10) days' prior
notice of the time and place of any public sale and of the time after which any
private sale or other disposition is to be made, which notice the Pledgor
agrees is commercially reasonable. The Agent shall not be obligated to make any
sale of Collateral if it shall determine not to do so, regardless of the fact
that notice of sale may have been given. The Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. Upon each public sale and, to the extent
permitted by applicable law, upon each private sale, the Agent may purchase all
or any of the Collateral being sold, free from any equity, right of redemption
or other claim or demand, and may make payment therefor by endorsement and
application (without recourse) of the Secured Obligations in lieu of cash as a
credit on account of the purchase price for such Collateral.
7
<PAGE> 8
9. Application of Proceeds. (a) All Proceeds collected by the Agent upon
any sale, other disposition of or realization upon any of the Collateral,
together with all other moneys received by the Agent hereunder, shall be
applied as follows:
(i) first, to the payment of all costs and expenses of such sale,
disposition or other realization, including the reasonable costs and
expenses of the Agent and the reasonable fees and expenses of its agents
and counsel, all amounts advanced by the Agent for the account of the
Pledgor, and all other amounts payable to the Agent under Section 11;
(ii) second, after payment in full of the amounts specified in clause
(i) above, to the ratable payment of all other Secured Obligations owing
to the Secured Parties; and
(iii) third, after payment in full of the amounts specified in clauses
(i) and (ii) above, and following the termination of this Agreement, to
the Pledgors or any other Person lawfully entitled to receive such
surplus.
(b) For purposes of applying amounts in accordance with this Section, the
Agent shall be entitled to rely upon any Secured Party that has entered into a
Hedge Agreement with the Pledgor for a determination (which such Secured Party
agrees to provide or cause to be provided upon request of the Agent) of the
outstanding Secured Obligations owed to such Secured Party under any such Hedge
Agreement. Unless it has actual knowledge (including by way of written notice
from any such Secured Party) to the contrary, the Agent, in acting hereunder,
shall be entitled to assume that no Hedge Agreements or Secured Obligations in
respect thereof are in existence between any Secured Party and the Pledgor.
(c) The Pledgor shall remain liable to the extent of any deficiency
between the amount of all Proceeds realized upon sale or other disposition of
the Collateral pursuant to this Agreement and the aggregate amount of the sums
referred to in clauses (i) and (ii) of subsection (a) above. Upon any sale of
any Collateral hereunder by the Agent (whether by virtue of the power of sale
herein granted, pursuant to judicial proceeding, or otherwise), the receipt of
the Agent or the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Agent or such officer or be answerable in any
way for the misapplication thereof.
(d) Upon the occurrence and during the continuance of an Event of Default,
the Agent shall have the right to cause to be established and maintained, at
its principal office or such other location or locations as it may establish
from time to time in its discretion, one or more accounts (collectively,
"Collateral Accounts") for the collection of cash Proceeds of the Collateral.
Such Proceeds, when deposited, shall continue to constitute Collateral for the
Secured Obligations and shall not constitute payment thereof until applied as
herein provided. The Agent shall have sole dominion and control over all funds
deposited in any Collateral Account, and such funds may be withdrawn therefrom
only by the Agent. Upon the occurrence and during the continuance of an Event
of Default, the Agent shall have the right to (and, if directed by the Required
Lenders
8
<PAGE> 9
pursuant to the Credit Agreement, shall) apply amounts held in the Collateral
Accounts in payment of the Secured Obligations in the manner provided for in
subsection (a) above.
10. Registration; Private Sales. (a) If, at any time after the occurrence
and during the continuance of an Event of Default, the Pledgor shall have
received from the Agent a written request or requests that the Pledgor cause
any registration, qualification or compliance under any federal or state
securities law or laws to be effected with respect to all or any part of the
Pledged Interests, the Pledgor will, as soon as practicable and at its expense,
use its best efforts to cause such registration to be effected and be kept
effective and will use its best efforts to cause such qualification and
compliance to be effected and be kept effective as may be so requested and as
would permit or facilitate the sale and distribution of such Pledged Interests,
including, without limitation, registration under the Securities Act of 1933,
as amended (the "Securities Act"), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other applicable requirements of Governmental Authorities; provided, that the
Agent shall furnish to the Pledgor such information regarding the Agent as the
Pledgor may reasonably request in writing and as shall be required in
connection with any such registration, qualification or compliance. The Pledgor
will cause the Agent to be kept reasonably advised in writing as to the
progress of each such registration, qualification or compliance and as to the
completion thereof, will furnish to the Agent such number of prospectuses,
offering circulars or other documents incident thereto as the Agent from time
to time may reasonably request, and will indemnify the Agent and all others
participating in the distribution of such Pledged Interests against all claims,
losses, damages and liabilities caused by any untrue statement (or alleged
untrue statement) of a material fact contained therein (or in any related
registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same may have been caused by an untrue statement or omission based upon
information furnished in writing to the Pledgor by the Agent or any other
Secured Party expressly for use therein.
(b) The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws as in
effect from time to time, the Agent may be compelled, with respect to any sale
of all or any part of the Pledged Interests conducted without registration or
qualification under the Securities Act and such state securities laws, to limit
purchasers to any one or more Persons who will represent and agree, among other
things, to acquire such Pledged Interests for their own account, for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges that any such private sales may be made in such manner and under
such circumstances as the Agent may deem necessary or advisable in its sole and
absolute discretion, including at prices and on terms less favorable than those
obtainable through a public sale without such restrictions (including, without
limitation, a public offering made pursuant to a registration statement under
the Securities Act), and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner and agrees that the Agent shall have no obligation to conduct
any public sales and no obligation to delay the sale of any Pledged Interests
for the period of time necessary to permit its registration for public sale
under the Securities Act and applicable state securities laws, and shall not
have any responsibility or liability as a result of its election so not to
conduct any such public sales or delay the sale of any Pledged Interests,
notwithstanding the
9
<PAGE> 10
possibility that a substantially higher price might be realized if the sale
were deferred until after such registration. The Pledgor hereby waives any
claims against the Agent or any other Secured Party arising by reason of the
fact that the price at which any Pledged Interests may have been sold at any
private sale was less than the price that might have been obtained at a public
sale or was less than the aggregate amount of the Secured Obligations, even if
the Agent accepts the first offer received and does not offer such Pledged
Interests to more than one offeree.
(c) The Pledgor agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Agent and the other Secured
Parties, that the Agent and the other Secured Parties have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against
the Pledgors.
11. Indemnity and Expenses. The Pledgor agrees:
(a) To indemnify and hold harmless the Agent, each other Secured Party and
each of their respective directors, officers, employees, agents and affiliates
from and against any and all claims, damages, demands, losses, obligations,
judgments and liabilities (including, without limitation, reasonable attorneys'
fees and expenses) in any way arising out of or in connection with this
Agreement and the transactions contemplated hereby, except to the extent the
same shall arise as a result of the gross negligence or willful misconduct of
the party seeking to be indemnified; and
(b) To pay and reimburse the Agent upon demand for all reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) that the Agent may incur in connection with (i) the custody, use or
preservation of, or the sale of, collection from or other realization upon, any
of the Collateral, including the reasonable expenses of re-taking, holding,
preparing for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, (ii) the exercise or enforcement of any rights or remedies
granted hereunder (including, without limitation, under Sections 8 and 10),
under any of the other Credit Documents or otherwise available to it (whether
at law, in equity or otherwise), or (iii) the failure by the Pledgor to perform
or observe any of the provisions hereof. The provisions of this Section shall
survive the execution and delivery of this Agreement, the repayment of any of
the Secured Obligations, the termination of the Commitments and the termination
or expiration of all Letters of Credit under the Credit Agreement, the
termination of this Agreement or any other Credit Document, and the termination
of, and settlement of the Pledgor's obligations under, any Hedge Agreement to
which the Pledgor and any Lender are parties.
12. The Agent; Standard of Care. The Agent will hold all items of the
Collateral at any time received under this Agreement in accordance with the
provisions hereof. The obligations of the Agent as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement and the other Credit Documents, are only those expressly
set forth in this Agreement and the other Credit Documents. The Agent shall act
hereunder at the direction, or with the consent, of the Required Lenders on the
terms and conditions set forth in the Credit Agreement. The powers conferred on
the Agent hereunder are solely to protect its interest, on behalf of the
Secured Parties, in the Collateral, and shall not
10
<PAGE> 11
impose any duty upon it to exercise any such powers. Except for treatment of
the Collateral in its possession in a manner substantially equivalent to that
which the Agent, in its individual capacity, accords its own property of a
similar nature, and the accounting for moneys actually received by it
hereunder, the Agent shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to the Collateral. Neither the Agent nor any other
Secured Party shall be liable to the Pledgor (i) for any loss or damage
sustained by the Pledgor, or (ii) for any loss, damage, depreciation or other
diminution in the value of any of the Collateral that may occur as a result of
or in connection with or that is in any way related to any exercise by the
Agent or any other Secured Party of any right or remedy under this Agreement,
any failure to demand, collect or realize upon any of the Collateral or any
delay in doing so, or any other act or failure to act on the part of the Agent
or any other Secured Party, except to the extent that the same is caused by its
own gross negligence or willful misconduct.
13. Further Assurances; Attorney-in-Fact. (a) The Pledgor agrees that it
will join with the Agent to execute and, at its own expense, file and refile
under the Uniform Commercial Code such financing statements, continuation
statements and other documents and instruments in such offices as the Agent may
reasonably deem necessary or appropriate, and wherever required or permitted by
law, in order to perfect and preserve the Agent's security interest in the
Collateral, and hereby authorizes the Agent to file financing statements and
amendments thereto relating to all or any part of the Collateral without the
signature of the Pledgor where permitted by law, and agrees to do such further
acts and things and to execute and deliver to the Agent such additional
conveyances, assignments, agreements and instruments as the Agent may
reasonably require or deem advisable to perfect, establish, confirm and
maintain the security interest and Lien provided for herein, to carry out the
purposes of this Agreement or to further assure and confirm unto the Agent its
rights, powers and remedies hereunder.
(b) The Pledgor hereby irrevocably appoints the Agent its lawful
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor, the Agent or otherwise, and with full power of
substitution in the premises (which power of attorney, being coupled with an
interest, is irrevocable for so long as this Agreement shall be in effect),
from time to time in the Agent's discretion after the occurrence and during the
continuance of an Event of Default to take any action and to execute any
instruments that the Agent may deem necessary or advisable to accomplish the
purpose of this Agreement, including, without limitation:
(i) to sign the name of the Pledgor on any financing statement,
continuation statement, notice or other similar document that, in the
Agent's opinion, should be made or filed in order to perfect or continue
perfected the security interest granted under this Agreement;
(ii) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) to receive, endorse and collect any checks, drafts, instruments,
chattel paper and other orders for the payment of money made payable to
the Pledgor
11
<PAGE> 12
representing any interest, income, dividend, distribution or other amount
payable in respect of any of the Collateral and to give full discharge for
the same;
(iv) to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or advisable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral; and
(v) to use, sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with any and all of the Collateral as fully
and completely as though the Agent were the absolute owner of the
Collateral for all purposes, and to do from time to time, at the Agent's
option and the Pledgors' expense, all other acts and things deemed
necessary by the Agent to protect, preserve or realize upon the Collateral
and to more completely carry out the purposes of this Agreement.
(c) If the Pledgor fails to perform any covenant or agreement contained in
this Agreement after written request to do so by the Agent (provided that no
such request shall be necessary at any time after the occurrence and during the
continuance of an Event of Default), the Agent may itself perform, or cause the
performance of, such covenant or agreement and may take any other action that
it deems necessary and appropriate for the maintenance and preservation of the
Collateral or its security interest therein, and the reasonable expenses so
incurred in connection therewith shall be payable by the Pledgor under Section
11.
14. Waivers. The Pledgor, to the greatest extent not prohibited by
applicable law, hereby (i) agrees that it will not invoke, claim or assert the
benefit of any rule of law or statute now or hereafter in effect (including,
without limitation, any right to prior notice or judicial hearing in connection
with the Agent's possession, custody or disposition of any Collateral or any
appraisal, valuation, stay, extension, moratorium or redemption law), or take
or omit to take any other action, that would or could reasonably be expected to
have the effect of delaying, impeding or preventing the exercise of any rights
and remedies in respect of the Collateral, the absolute sale of any of the
Collateral or the possession thereof by any purchaser at any sale thereof, and
waives the benefit of all such laws and further agrees that it will not hinder,
delay or impede the execution of any power granted hereunder to the Agent, but
that it will permit the execution of every such power as though no such laws
were in effect, (ii) waives all rights that it has or may have under any rule
of law or statute now existing or hereafter adopted to require the Agent to
marshal any Collateral or other assets in favor of the Pledgor or any other
party or against or in payment of any or all of the Secured Obligations, and
(iii) waives all rights that it has or may have under any rule of law or
statute now existing or hereafter adopted to demand, presentment, protest,
advertisement or notice of any kind (except notices expressly provided for
herein).
15. No Waiver. The rights and remedies of the Secured Parties expressly
set forth in this Agreement and the other Credit Documents are cumulative and
in addition to, and not exclusive of, all other rights and remedies available
at law, in equity or otherwise. No failure or delay on the part of any Secured
Party in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege or be construed to be a waiver of any Default
or Event of Default. No course of dealing
12
<PAGE> 13
between the Pledgor and the Secured Parties or their agents or employees shall
be effective to amend, modify or discharge any provision of this Agreement or
any other Credit Document or to constitute a waiver of any Default or Event of
Default. No notice to or demand upon the Pledgor in any case shall entitle the
Pledgor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of any Secured Party to
exercise any right or remedy or take any other or further action in any
circumstances without notice or demand.
16. Pledgor's Obligations Absolute. The Pledgor agrees that its
obligations hereunder, and the security interest granted to and all rights,
remedies and powers of the Agent hereunder, are irrevocable, absolute and
unconditional and shall not be discharged, limited or otherwise affected by
reason of any of the following, whether or not the Pledgor has knowledge
thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Secured Obligations, or any amendment, modification or
supplement to, restatement of, or consent to any rescission or waiver of
or departure from, any provisions of the Credit Agreement, any other
Credit Document or any agreement or instrument delivered pursuant to any
of the foregoing;
(ii) the invalidity or unenforceability of any Secured Obligations or
any provisions of the Credit Agreement, any other Credit Document or any
agreement or instrument delivered pursuant to any of the foregoing;
(iii) the addition of pledgors hereunder or the taking, acceptance or
release of any Secured Obligations or additional Collateral or other
security therefor;
(iv) any sale, exchange, release, substitution, compromise,
nonperfection or other action or inaction in respect of any Collateral or
other direct or indirect security for any Secured Obligations, or any
discharge, modification, settlement, compromise or other action or
inaction in respect of any Secured Obligations;
(v) any agreement not to pursue or enforce or any failure to pursue or
enforce (whether voluntarily or involuntarily as a result of operation of
law, court order or otherwise) any right or remedy in respect of any
Secured Obligations or any Collateral or other security therefor, or any
failure to create, protect, perfect, secure, insure, continue or maintain
any Liens in any such Collateral or other security;
(vi) the exercise of any right or remedy available under the Credit
Documents, at law, in equity or otherwise in respect of any Collateral or
other security for any Secured Obligations, in any order and by any manner
thereby permitted, including, without limitation, foreclosure on any such
Collateral or other security by any manner of sale thereby permitted,
whether or not every aspect of such sale is commercially reasonable;
(vii) any bankruptcy, reorganization, arrangement, liquidation,
insolvency, dissolution, termination, reorganization or like change in the
corporate structure or existence of the Pledgor or any other Person
directly or indirectly liable for any Secured Obligations;
13
<PAGE> 14
(viii) any manner of application of any payments by or amounts
received or collected from any Person, by whomsoever paid and howsoever
realized, whether in reduction of any Secured Obligations or any other
obligations of the Pledgor or any other Person directly or indirectly
liable for any Secured Obligations, regardless of what Secured Obligations
may remain unpaid after any such application; or
(ix) any other circumstance that might otherwise constitute a legal or
equitable discharge of, or a defense, set-off or counterclaim available
to, the Pledgor or a surety or guarantor generally, other than the
occurrence of all of the following: (x) the payment in full of the Secured
Obligations, (y) the termination of the Commitments and the termination or
expiration of all Letters of Credit under the Credit Agreement, and (z)
the termination of, and settlement of all obligations of the Pledgor
under, each Hedge Agreement to which the Pledgor and any Lender are
parties (the events in clauses (x), (y) and (z) above, collectively, the
"Termination Requirements").
17. Enforcement. By its acceptance of the benefits of this Agreement, each
Lender agrees that this Agreement may be enforced only by the Agent, acting
upon the instructions or with the consent of the Required Lenders as provided
for in the Credit Agreement, and that no Lender shall have any right
individually to enforce or seek to enforce this Agreement or to realize upon
any Collateral or other security given to secure the payment and performance of
the Secured Obligations.
18. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by the Pledgor from,
any provision of this Agreement, shall be effective unless in a writing
executed and delivered in accordance with Section 11.6 of the Credit Agreement,
and then the same shall be effective only in the specific instance and for the
specific purpose for which given.
19. Continuing Security Interest; Term; Successors and Assigns;
Assignment; Termination and Release; Survival. This Agreement shall create a
continuing security interest in the Collateral and shall secure the payment and
performance of all of the Secured Obligations as the same may arise and be
outstanding at any time and from time to time from and after the date hereof,
and shall (i) remain in full force and effect until the occurrence of the
Termination Requirements, (ii) be binding upon and enforceable against the
Pledgor and its successors and assigns (provided, however, that the Pledgor may
not sell, assign or transfer any of its rights, interests, duties or
obligations hereunder without the prior written consent of the Lenders) and
(iii) inure to the benefit of and be enforceable by each Secured Party and its
successors and assigns. Upon any sale or other disposition by the Pledgor of
any Collateral in a transaction expressly permitted hereunder or under or
pursuant to the Credit Agreement or any other applicable Credit Document, the
Lien and security interest created by this Agreement in and upon such
Collateral shall be automatically released, and upon the satisfaction of all of
the Termination Requirements, this Agreement and the Lien and security interest
created hereby shall terminate; and in connection with any such release or
termination, the Agent, at the request and expense of the Pledgor, will execute
and deliver to the Pledgor such documents and instruments evidencing such
release or termination as the Pledgor may reasonably request and will assign,
transfer and deliver to the Pledgor, without recourse and without
representation or warranty, such of the
14
<PAGE> 15
Collateral as may then be in the possession of the Agent (or, in the case of
any partial release of Collateral, such of the Collateral so being released as
may be in its possession). All representations, warranties, covenants and
agreements herein shall survive the execution and delivery of this Agreement
and any Pledge Amendment or Pledge Accession.
20. Additional Pledgors. The Pledgor recognizes that the provisions of the
Credit Agreement require certain Persons that become Subsidiaries of the
Pledgor, and that are not already parties thereto, to execute and deliver a
Pledge Accession, whereupon each such Person shall become a pledgor under the
Second Amended and Restated Subsidiary Guaranty Agreement, dated as of the date
hereof, with the same force and effect as if originally a pledgor thereunder on
the date hereof, and agrees that its obligations hereunder shall not be
discharged, limited or otherwise affected by reason of the same, or by reason
of the Agent's actions in effecting the same or in releasing any pledgor
thereunder, in each case without the necessity of giving notice to or obtaining
the consent of the Pledgor.
21. Other Terms. All terms in this Agreement that are not capitalized
shall have the meanings provided by the Uniform Commercial Code to the extent
the same are used or defined therein. As used in this Agreement, "Uniform
Commercial Code" shall mean the Uniform Commercial Code as the same may be in
effect from time to time in the State of North Carolina; provided that if, by
reason of applicable law, the validity or perfection of any security interest
in any Collateral granted under this Agreement is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than North Carolina, then
as to the validity or perfection, as the case may be, of such security
interest, "Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect in such other jurisdiction.
22. Notices. All notices and other communications provided for hereunder
shall be given to the parties in the manner and subject to the other notice
provisions set forth in the Credit Agreement.
23. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
24. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
25. Construction. The headings of the various sections and subsections of
this Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular.
26. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and
15
<PAGE> 16
delivered shall be an original, but all of which shall together constitute one
and the same instrument.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
under seal by their duly authorized officers as of the date first above
written.
LASON, INC.
By: GARY L. MONROE
--------------------------------------
Title: PRESIDENT AND CEO
-----------------------------------
Accepted and agreed to:
FIRST UNION NATIONAL BANK,
as Agent
By: HENRY R. BIEDRZYCKI
----------------------------------
Title: HENRY R. BIEDRZYCKI
-------------------------------
Vice President
17
<PAGE> 18
Annex A to Pledge Agreement
First Union National Bank, as Agent
Lason, Inc.
June ______, 1998
-----------------------------------
PLEDGED INTERESTS
<TABLE>
<CAPTION>
Percentage of
Certificate No. of Shares/ outstanding
Number (if Units (if interests in
Pledgor Name of Issuer Type of Interests (applicable) applicable) Issuer
------- -------------- ----------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Lason, Inc.
</TABLE>
<PAGE> 19
EXHIBIT A to Pledge Agreement
First Union National Bank, as Agent
Lason, Inc.
June ______, 1998
-----------------------------------
PLEDGE AMENDMENT
THIS PLEDGE AMENDMENT, dated as of _______________, _____, is delivered by
LASON, INC. (the "Pledgor") pursuant to Section 5 of the Pledge Agreement
referred to hereinbelow. The Pledgor hereby agrees that this Pledge Amendment
may be attached to the Second Amended and Restated Pledge Agreement, dated as
of June __, 1998, made by the Pledgor in favor of First Union National Bank, as
Agent (as amended, modified or supplemented from time to time, the "Pledge
Agreement," capitalized terms defined therein being used herein as therein
defined), and that the Pledged Interests listed on Annex A to this Pledge
Amendment shall be deemed to be part of the Pledged Interests within the
meaning of the Pledge Agreement and shall become part of the Collateral and
shall secure all of the Secured Obligations as provided in the Pledge
Agreement. This Pledge Amendment and its attachments are hereby incorporated
into the Pledge Agreement and made a part thereof.
LASON, INC.
By: ____________________________________
Title: _________________________________
<PAGE> 20
Schedule 1
Information to be added to Annex A of the Pledge Agreement:
Pledged Interests
<TABLE>
<CAPTION>
Percentage of
Outstanding
Type of Certificate No. of shares Interests
Name of Issuer Interests Number (if applicable) in Issuer
- -------------- --------- ------ --------------- ---------
<S> <C>
Lason Services, Inc. 100%
Lason International, Inc. 100%
</TABLE>
<PAGE> 1
EXHIBIT 4.4
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT, dated
as of the 29th day of June, 1998 (this "Agreement"), is made by each of the
undersigned Subsidiaries of LASON, INC., a Delaware corporation (the
"Borrower"), and by each other Subsidiary that, after the date hereof, executes
an instrument of accession hereto substantially in the form of Exhibit D (a
"Pledge Accession"; the undersigned and such other Subsidiaries, collectively,
the "Pledgors"), in favor of FIRST UNION NATIONAL BANK, as agent for the banks
and other financial institutions (collectively, the "Lenders") party to the
Credit Agreement referred to below (in such capacity, the "Agent"), for the
benefit of the Secured Parties (as hereinafter defined). Capitalized terms used
herein without definition shall have the meanings given to them in the Credit
Agreement referred to below.
RECITALS
A. Certain of the undersigned Subsidiaries, the Lenders and the Agent
have heretofore entered into an Amended and Restated Security Agreement dated
February 21, 1997 (the "Amended and Restated Security Agreement"). This
Agreement is an amendment to, and is in substitution and replacement of the
Amended and Restated Security Agreement.
B. Certain of the undersigned Subsidiaries, the Lenders and the Agent
have heretofore entered into an Amended and Restated Pledge Agreement dated
February 21, 1997 (the "Amended and Restated Pledge Agreement"). This Agreement
is an amendment to, and is in substitution and replacement of the Amended and
Restated Pledge Agreement.
C. Certain of the undersigned Subsidiaries, the Lenders and the Agent
have heretofore entered into an Amended and Restated Subsidiary Guarantor
Security Agreement dated February 21, 1997 (the "Subsidiary Guarantors' Amended
and Restated Security Agreement"). This Agreement is an amendment to, and is in
substitution and replacement of the Subsidiary Guarantors' Amended and Restated
Security Agreement.
D. The Borrower, the Lenders and the Agent have entered into a Second
Amended and Restated Credit Agreement dated as of the date hereof (together with
any amendments, modifications and supplements thereto, any replacements,
renewals, extensions and restatements thereof, and any substitutes therefor, in
whole or in part, the "Credit Agreement"), the provisions of which are hereby
incorporated by reference. Capitalized terms that are not defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
<PAGE> 2
E. Pursuant to the terms and conditions of the Credit Agreement, the
Lenders have agreed to make certain loans in the aggregate principal amount of
up to $150,000,000, which amount may be increased up to $200,000,000 under the
terms and conditions of the Credit Agreement.
F. As a condition to the extension of credit to the Borrower under the
Credit Agreement, the Lenders are requiring, among other things, that the
Borrower secure its Obligations through the pledge of its Equity Interest in
each of its Subsidiaries as provided herein.
G. As a further condition to the extension of credit to the Borrower
under the Credit Agreement, each of the Pledgors that is a party to this
Agreement as of the date hereof has entered into a Second Amended and Restated
Subsidiary Guaranty dated as of the date hereof (as amended, modified or
supplemented from time to time, the "Subsidiary Guaranty"), pursuant to which
each such Pledgor has guaranteed to the Secured Parties the payment in full of
the Obligations of the Borrower under the Credit Agreement and the other Credit
Documents. Additionally, certain other Subsidiaries of the Borrower may from
time to time after the date hereof enter into the Subsidiary Guaranty, pursuant
to which such Subsidiaries will guarantee to the Secured Parties the payment in
full of the Obligations of the Borrower under the Credit Agreement and the other
Credit Documents.
H. As a further condition to the extension of credit to the Borrower
under the Credit Agreement, the Lenders are requiring, among other things, that
the Subsidiaries secure their Obligations by granting the Agent, for the benefit
of the Lenders, a security interest in the Collateral on the terms and
conditions set forth herein.
G. The Secured Parties are relying on this Agreement in their decision
to extend credit to the Borrower under the Credit Agreement, and would not enter
into the Credit Agreement without the execution and delivery of this Agreement
by the Pledgors.
H. The Pledgors will obtain benefits as a result of the extension of
credit to the Borrower under the Credit Agreement, which benefits are hereby
acknowledged, and, accordingly, desire to execute and deliver this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Secured Parties to enter into the Credit Agreement
and to induce the Lenders to extend credit to the Borrower thereunder, each
Pledgor hereby agrees as follows:
2
<PAGE> 3
ARTICLE I
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, in addition to the
terms defined elsewhere herein, the following terms shall have the meanings set
forth below:
"Accounts" shall mean, collectively, all of each Pledgor's accounts, as
defined in the Uniform Commercial Code, including, without limitation, all of
such Pledgor's accounts receivable, all rights to payment for goods sold or
leased or to be sold or to be leased (including all rights to returned or
repossessed goods) or for services rendered at any time or for services to be
rendered (including any rights to stoppage in transit, repossession and
reclamation and other rights of an unpaid vendor or secured party), all rights
under or evidenced by book debts, notes, bills, drafts or acceptances, all
Instruments evidencing or relating to any of the foregoing, and all rights under
security agreements, guarantees, indemnities and other instruments and contracts
securing or otherwise relating to any of the foregoing, in each case whether now
owned or existing or hereafter acquired or arising.
"Collateral" shall have the meaning given to such term in SECTION 2.1.
"Collateral Accounts" shall have the meaning given to such term in
SECTION 6.3.
"Contracts" shall mean, collectively, all rights of each Pledgor under
all leases, contracts and agreements to which such Pledgor is now or hereafter a
party, including, without limitation, all rights, privileges and powers under
Investment Agreements and Licenses, together with any and all extensions,
modifications, amendments and renewals of such leases, contracts and agreements
and all rights of such Pledgor to receive moneys due or to become due thereunder
or pursuant thereto and to amend, modify, terminate or exercise rights under
such leases, contracts and agreements, but excluding rights under (but not
excluding Proceeds of) any lease, contract or agreement (including, without
limitation, any License) that by the terms thereof, or under applicable law,
cannot be assigned or a security interest granted therein in the manner
contemplated by this Agreement unless consent from the relevant party or parties
has been obtained and under the terms of which lease, contract or agreement any
such assignment or grant of a security interest therein in the absence of such
consent would, or could, result in the termination thereof, but only to the
extent that (y) such rights are subject to such contractual or legal restriction
and (z) such restriction is not, or could not be, rendered ineffective pursuant
to the Uniform Commercial Code of any relevant jurisdiction or any other
applicable law (including the Bankruptcy Code) or principles of equity.
"Copyrights" shall mean, collectively, all of each Pledgor's
copyrights, copyright registrations and applications for copyright registration,
whether under the laws of the United States or any other country or
jurisdiction, including all recordings, supplemental registrations and
derivative or collective work registrations, and all renewals and extensions
thereof, in each case whether now owned or existing or hereafter acquired or
arising.
3
<PAGE> 4
"Copyright Collateral" shall mean, collectively, all Copyrights and
Copyright Licenses to which any Pledgor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Copyright or Copyright License, in each case
whether now owned or existing or hereafter acquired or arising.
"Copyright License" shall mean any agreement now or hereafter in effect
granting any right to any third party under any Copyright now or hereafter owned
by any Pledgor or which any Pledgor otherwise has the right to license, or
granting any right to any Pledgor under any property of the type described in
the definition of Copyright herein now or hereafter owned by any third party,
and all rights of any Pledgor under any such agreement.
"Deposit Accounts" shall mean, collectively, all of each Pledgor's
deposit accounts maintained with the Agent or any other bank or depository
institution, whether now owned or existing or hereafter acquired or arising and
including, without limitation, and any Collateral Accounts, together with all
funds held from time to time therein and all certificates and instruments from
time to time representing, evidencing or deposited into such accounts.
"Equipment" shall mean, collectively, all of each Pledgor's equipment,
as defined in the Uniform Commercial Code, including, without limitation, all
machinery, equipment, computer equipment and software, parts, supplies,
appliances, fittings, furniture and fixtures of every kind and nature, wherever
located and whether or not affixed to any real property, all Mobile Goods, and
all accessions, accessories, additions, attachments, improvements, modifications
and upgrades to, replacements of and substitutions for the foregoing, in each
case whether now owned or existing or hereafter acquired.
"Equity Interests" shall mean, collectively, all of the issued and
outstanding shares, interests or other equivalents of capital stock of any
corporation at any time now or hereafter owned by any Pledgor (including,
without limitation, any corporation that is or hereafter becomes a Subsidiary of
such Pledgor), whether voting or non-voting and whether common or preferred; all
partnership, joint venture, limited liability company or other equity interests
in any Person not a corporation at any time now or hereafter owned by any
Pledgor (including, without limitation, any such Person that is or hereafter
becomes a Subsidiary of such Pledgor); all options, warrants and other rights to
acquire, and all securities convertible into, any of the foregoing; all rights
to receive interest, income, dividends, distributions, returns of capital and
other amounts (whether in cash, securities, property, or a combination thereof),
and all additional stock, warrants, options, securities, interests and other
property, from time to time paid or payable or distributed or distributable in
respect of any of the foregoing (but subject to the provisions of SECTION 5.3),
including, without limitation, all rights of such Pledgor to receive amounts due
and to become due under or in respect of any Investment Agreement or upon the
termination thereof; all rights of access to the books and records of any such
Person; and all other rights, powers, privileges, interests, claims and other
property in any manner arising out of or relating to any of the foregoing, of
whatever kind or character (including any tangible or intangible property or
interests therein), and whether provided by contract or granted or available
under applicable law in connection therewith, including, without limitation,
such Pledgor's right to vote and to manage and administer the business of any
such Person pursuant to any applicable
4
<PAGE> 5
Investment Agreement; together with all certificates, instruments and entries
upon the books of financial intermediaries at any time evidencing any of the
foregoing, in each case whether now owned or existing or hereafter acquired or
arising provided, however, that "Equity Interests" as applied to any issue of
such interests not incorporated in any state of the United States shall not
exceed at any time 65% of the shares of any class of the Equity Interests of
such issuer, and any Equity Interests of such issuer in excess of 65% of the
Equity Interests of such issuer held at any time by the Agent shall not be
"Equity Interests" hereunder and shall not be subject to the security interest
granted hereby and shall be held by the Agent solely for the benefit of the
Borrower.
"General Intangibles" shall mean, collectively, all of each Pledgor's
general intangibles, as defined in the Uniform Commercial Code, including,
without limitation, all Contracts, all Copyright Collateral, all Patent
Collateral, all Trademark Collateral, all inventions, designs, trade secrets,
trade processes, confidential or proprietary technical or business information,
know-how, registrations, licenses, permits and franchises, all rights under or
evidenced by choses in action, causes of action or Instruments, all
indebtedness, obligations and other amounts at any time owing to such Pledgor
from any Person and all interest, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness, obligations or other amounts
(including, without limitation, all Intercompany Obligations), all judgments,
tax refund claims, claims against carriers and shippers, claims under liens and
insurance policies, all rights under security agreements, guarantees,
indemnities and other instruments and contracts securing or otherwise relating
to any of the foregoing, all invoices, customer lists, books and records, ledger
and account cards, computer tapes, disks, software, printouts and other
corporate or business records relating to the foregoing, and all other
intangible personal property of every kind and nature, and all accessions,
additions, improvements, modifications and upgrades to, replacements of and
substitutions for the foregoing, in each case whether now owned or existing or
hereafter acquired or arising, but excluding Accounts and excluding leases,
contracts and agreements (including, without limitation, Licenses) to the extent
excluded from Contracts under the definition of such term herein.
"Instruments" shall mean, collectively, all instruments, chattel paper
or documents, each as defined in the Uniform Commercial Code, of each Pledgor,
whether now owned or existing or hereafter acquired, including those evidencing,
representing, securing, arising from or otherwise relating to any Accounts,
Intercompany Obligations or other Collateral, including, without limitation, any
promissory notes, drafts, bills of exchange, documents of title and receipts.
"Intercompany Obligations" shall mean, collectively, all indebtedness,
obligations and other amounts at any time owing to any Pledgor from any of its
Subsidiaries or Affiliates and all interest, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness, obligations or
other amounts.
"Inventory" shall mean, collectively, all of each Pledgor's inventory,
as defined in the Uniform Commercial Code, including, without limitation, all
goods manufactured, acquired or
5
<PAGE> 6
held for sale or lease, all raw materials, component materials, work-in-process
and finished goods, all supplies, goods and other items and materials used or
consumed in the manufacture, production, packaging, shipping, selling, leasing
or furnishing of such inventory or otherwise in the operation of the business of
such Pledgor, all goods in which such Pledgor now or at any time hereafter has
any interest or right of any kind, and all goods that have been returned to or
repossessed by or on behalf of such Pledgor, in each case whether or not the
same is in transit or in the constructive, actual or exclusive occupancy or
possession of such Pledgor or is held by such Pledgor or by others for the
account of such Pledgor, and in each case whether now owned or existing or
hereafter acquired or arising.
"Investment Agreement" shall mean any partnership agreement, joint
venture agreement, limited liability company operating agreement, stockholders
agreement or other agreement creating, governing or evidencing any Equity
Interests and to which any Pledgor is now or hereafter becomes a party, as any
such agreement may be amended, modified, supplemented, restated or replaced from
time to time.
"License" shall mean any Copyright License, Patent License or Trademark
License.
"Mobile Goods" shall mean, collectively, all of each Pledgor's motor
vehicles, tractors, trailers, aircraft, rolling stock and other like property,
whether or not the title thereto is governed by a certificate of title or
ownership, in each case whether now owned or existing or hereafter acquired.
"Patents" shall mean, collectively, all of each Pledgor's letters patent,
whether under the laws of the United States or any other country or
jurisdiction, all recordings and registrations thereof and applications
therefor, including, without limitation, the inventions described therein, all
reissues, continuations, divisions, renewals, extensions, continuations-in-part
thereof, in each case whether now owned or existing or hereafter acquired or
arising.
"Patent Collateral" shall mean, collectively, all Patents and all
Patent Licenses to which any Pledgor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Patent or Patent License, in each case whether now
owned or existing or hereafter acquired or arising.
"Patent License" shall mean any agreement now or hereafter in effect
granting to any third party any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any Pledgor or which any Pledgor
otherwise has the right to license, is in existence, or granting to any Pledgor
any right to make, use or sell any invention on which property of the type
described in the definition of Patent herein, now or hereafter owned by any
third party, is in existence, and all rights of any Pledgor under any such
agreement.
"Proceeds" shall have the meaning given to such term in SECTION 2.1.
"Secured Parties" shall mean, collectively, the Lenders (including the
Issuing Lender in its capacity as such, and including any Lender in its capacity
as a counterparty to any Hedge Agreement with the Borrower) and the Agent.
6
<PAGE> 7
"Securities Act" shall have the meaning given to such term in SECTION
6.5.
"Specified Contracts" shall have the meaning given to such term in
SECTION 3.8.
"Trademarks" shall mean, collectively, all of each Pledgor's
trademarks, service marks, trade names, corporate and company names, business
names, logos, trade dress, trade styles, other source or business identifiers,
designs and general intangibles of a similar nature, whether under the laws of
the United States or any other country or jurisdiction, all recordings and
registrations thereof and applications therefor, all renewals and extensions
thereof, all rights corresponding thereto, and all goodwill associated therewith
or symbolized thereby, in each case whether now owned or existing or hereafter
acquired or arising.
"Trademark Collateral" shall mean, collectively, all Trademarks and
Trademark Licenses to which any Pledgor is or hereafter becomes a party and all
other General Intangibles embodying, incorporating, evidencing or otherwise
relating or pertaining to any Trademark or Trademark License, in each case
whether now owned or existing or hereafter acquired or arising.
"Trademark License" shall mean any agreement now or hereafter in effect
granting any right to any third party under any Trademark now or hereafter owned
by any Pledgor or which any Pledgor otherwise has the right to license, or
granting any right to any Pledgor under any property of the type described in
the definition of Trademark herein now or hereafter owned by any third party,
and all rights of any Pledgor under any such agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as the
same may be in effect from time to time in the State of North Carolina; provided
that if, by reason of applicable law, the validity or perfection of any security
interest in any Collateral granted under this Agreement is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than North
Carolina, then as to the validity or perfection, as the case may be, of such
security interest, "Uniform Commercial Code shall mean the Uniform Commercial
Code as in effect in such other jurisdiction.
1.2 Other Terms. All terms in this Agreement that are not capitalized
shall have the meanings provided by the Uniform Commercial Code to the extent
the same are used or defined therein.
ARTICLE II
CREATION OF SECURITY INTEREST
2.1 Pledge and Grant of Security Interest. Each Pledgor hereby pledges,
assigns and delivers to the Agent, for the ratable benefit of the Secured
Parties, and grants to the Agent, for the ratable benefit of the Secured
Parties, a Lien upon and security interest in, all of such Pledgor's right,
title and interest in and to the following, in each case whether now owned or
existing or hereafter acquired or arising (collectively, the "Collateral"):
(i) all Accounts;
7
<PAGE> 8
(ii) all Contracts;
(iii) all Deposit Accounts;
(iv) all Equipment;
(v) all Equity Interests;
(vi) all General Intangibles;
(vii) all Inventory;
(viii) all Instruments;
(ix) to the extent not covered or not specifically excluded by
clauses (i) through (viii) above, all of such Pledgor's other personal
property, whether now owned or existing or hereafter arising or
acquired; and
(x) any and all proceeds, as defined in the Uniform Commercial
Code, products, rents and profits of or from any and all of the
foregoing and, to the extent not otherwise included in the foregoing,
(w) all payments under any insurance (whether or not the Agent is the
loss payee thereunder), indemnity, warranty or guaranty with respect to
any of the foregoing Collateral, (x) all payments in connection with
any requisition, condemnation, seizure or forfeiture with respect to
any of the foregoing Collateral, (y) all claims and rights to recover
for any past, present or future infringement or dilution of or injury
to any Copyright Collateral, Patent Collateral or Trademark Collateral,
and (z) all other amounts from time to time paid or payable under or
with respect to any of the foregoing Collateral (collectively,
"Proceeds"). For purposes of this Agreement, the term "Proceeds"
includes whatever is receivable or received when Collateral or Proceeds
are sold, exchanged, collected or otherwise disposed of, whether
voluntarily or involuntarily.
2.2 Security for Secured Obligations. This Agreement and the Collateral
secure the full and prompt payment, at any time and from time to time as and
when due (whether at the stated maturity, by acceleration or otherwise), of all
liabilities and obligations of each Pledgor, whether now existing or hereafter
incurred, created or arising and whether direct or indirect, absolute or
contingent, due or to become due, under, arising out of or in connection with
the Credit Agreement, the Subsidiary Guaranty, or any of the other Credit
Documents to which it is or hereafter becomes a party, including, without
limitation, (i) in the case of the Borrower, all Obligations, including, without
limitation, all principal of and interest on the Loans, all fees, expenses,
indemnities and other amounts payable by the Borrower under the Credit Agreement
or any other Credit Document (including interest accruing after the filing of a
petition or commencement of a case by or with respect to the Borrower seeking
relief under any applicable federal and state laws pertaining to bankruptcy,
reorganization, arrangement, moratorium, readjustment of debts, dissolution,
liquidation or other debtor relief, specifically including, without limitation,
the Bankruptcy Code and any fraudulent transfer and fraudulent conveyance
8
<PAGE> 9
laws, whether or not the claim for such interest is allowed in such proceeding),
and all obligations of the Borrower to any Lender under any Hedge Agreement, and
(ii) in the case of any Guarantor Pledgor, all of its liabilities and
obligations as a Guarantor (as defined in the Subsidiary Guaranty) in respect of
the Obligations; and in each case under (i) and (ii) above, (a) all such
liabilities and obligations that, but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, would become due, and (b) all fees,
costs and expenses payable by such Pledgor under SECTION 8.1 (the liabilities
and obligations of the Pledgors described in this SECTION 2.2, collectively, the
"Secured Obligations").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Pledgor represents and warrants as follows:
3.1 Ownership of Collateral. Each Pledgor owns, or has valid rights as
a lessee or licensee with respect to, all Collateral purported to be pledged by
it hereunder, free and clear of any Liens except for the Liens granted to the
Agent, for the benefit of the Secured Parties, pursuant to this Agreement, and
except for other Permitted Liens. No security agreement, financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any government or public office, and no Pledgor has filed or
consented to the filing of any such statement or notice, except (i) Uniform
Commercial Code financing statements naming the Agent as secured party, (ii)
security instruments filed in the U.S. Copyright Office or the U.S. Patent and
Trademark Office naming the Agent as secured party and (iii) as may be otherwise
permitted by the Credit Agreement.
3.2 Security Interests; Filings. This Agreement, together with (i) the
filing, with respect to each Pledgor, of duly completed and executed Uniform
Commercial Code financing statements naming such Pledgor as debtor, the Agent as
secured party, and describing the Collateral, in the jurisdictions set forth
with respect to such Pledgor on Annex B hereto, which have been duly executed
and delivered by the Pledgors and delivered to the Agent for filing, (ii) to the
extent required by applicable law, the filing, with respect to each relevant
Pledgor, of duly completed and executed assignments in the forms set forth as
Exhibits B and C with the U.S. Copyright Office or the U.S. Patent and Trademark
Office, as appropriate, with regard to registered Copyright Collateral, Patent
Collateral and Trademark Collateral of such Pledgor, as the case may be, (iii)
in the case of uncertificated Investments, registration of transfer thereof to
the Agent on the issuer's books or the execution by the issuer of a control
agreement satisfying the requirements of Section 8-106 (or its successor
provision) of the Uniform Commercial Code, (iv) as to Mobile Goods covered by a
certificate of title or ownership, the notation of the Agent's security interest
therein on the applicable certificates of title or ownership, and (v) the
delivery to the Agent of all stock certificates and Instruments included in the
Collateral (and assuming continued possession thereof by the Agent), creates,
and at all times shall constitute, a valid and perfected security interest in
and Lien upon the Collateral in favor of the Agent, for the benefit of the
Secured Parties, to the extent a security interest therein can be perfected by
such filings or
9
<PAGE> 10
possession, as applicable, superior and prior to the rights of
all other Persons therein (except for Permitted Liens), and no other or
additional filings, registrations, recordings or actions are or shall be
necessary or appropriate in order to maintain the perfection and priority of
such Lien and security interest, other than actions required with respect to
Collateral of the types excluded from Article 9 of the Uniform Commercial Code
or from the filing requirements under such Article 9 by reason of Section 9-104
or 9-302 of the Uniform Commercial Code and other than continuation statements
required under the Uniform Commercial Code (it being specifically noted that the
Agent may at its option, but shall not be required to, require that any bank or
other depository institution at which a Deposit Account is maintained enter into
a written agreement or take such other action as may be necessary to perfect the
security interest of the Agent in such Deposit Account and the funds therein).
3.3 Locations. Annex C lists, as to each Pledgor, (i) the addresses of
its chief executive office and each other place of business, (ii) the address of
each location of all original invoices, ledgers, chattel paper, Instruments and
other records or information evidencing or relating to the Collateral of such
Pledgor, and (iii) the address of each location at which any Equipment or
Inventory (other than Mobile Goods and goods in transit) owned by such Pledgor
is kept or maintained, in each instance except for any new locations established
in accordance with the provisions of SECTION 4.2. Except as may be otherwise
noted therein, all locations identified in Annex C are leased by the applicable
Pledgor. No Pledgor presently conducts business under any prior or other
corporate or company name or under any trade or fictitious names, except as
indicated beneath its name on Annex C, and no Pledgor has entered into any
contract or granted any Lien within the past five years under any name other
than its legal corporate name or a trade or fictitious name indicated on Annex
C.
3.4 Authorization; Consent. No authorization, consent or approval of,
or declaration or filing with, any Governmental Authority (including, without
limitation, any notice filing with state tax or revenue authorities required to
be made by account creditors in order to enforce any Accounts in such state) is
required for the valid execution, delivery and performance by any Pledgor of
this Agreement, the grant by it of the Lien and security interest in favor of
the Agent provided for herein, or the exercise by the Agent of its rights and
remedies hereunder, except for (i) the filings described in SECTION 3.2, (ii) in
the case of Accounts owing from any federal governmental agency or authority,
the filing by the Agent of a notice of assignment in accordance with the federal
Assignment of Claims Act of 1940, as amended, and (iii) in the case of Equity
Interests, such filings and approvals as may be required in connection with a
disposition of any such Collateral by laws affecting the offering and sale of
securities generally.
3.5 No Restrictions. There are no statutory or regulatory restrictions,
prohibitions or limitations on any Pledgor's ability to grant to the Agent a
Lien upon and security interest in the Collateral pursuant to this Agreement or
(except for the provisions of the federal Anti-Assignment Act and Anti-Claims
Act, as amended) on the exercise by the Agent of its rights and remedies
hereunder (including any foreclosure upon or collection of the Collateral), and
there are no contractual restrictions on any Pledgor's ability so to grant such
Lien and security interest.
10
<PAGE> 11
3.6 Accounts. Each Account is, or at the time it arises will be, (i) a
bona fide, valid and legally enforceable indebtedness of the account debtor
according to its terms, arising out of or in connection with the sale, lease or
performance of goods or services by the Pledgors or any of them, (ii) subject to
no offsets, discounts, counterclaims, contra accounts or any other defense of
any kind and character, other than warranties and discounts customarily given by
the Pledgors in the ordinary course of business and warranties provided by
applicable law, (iii) to the extent listed on any schedule of Accounts at any
time furnished to the Agent, a true and correct statement of the amount actually
and unconditionally owing thereunder, maturing as stated in such schedule and in
the invoice covering the transaction creating such Account, and (iv) not
evidenced by any chattel paper or other Instrument; or if so, such chattel paper
or other Instrument (other than invoices and related correspondence and
supporting documentation) shall promptly be duly endorsed to the order of the
Agent and delivered to the Agent to be held as Collateral hereunder. To the
knowledge of each Pledgor, there are no facts, events or occurrences that would
in any way impair the validity or enforcement of any Accounts except as set
forth above.
3.7 Equity Interests. As of the date hereof, the Equity Interests
required to be pledged hereunder by each Pledgor that owns any Equity Interests
consist of the number and type of shares of capital stock (in the case of
issuers that are corporations) or the percentage and type of other Equity
Interests (in the case of issuers other than corporations) as described beneath
such Pledgor's name in Annex A. All of the Equity Interests have been duly and
validly issued and are fully paid and nonassessable (or, in the case of
partnership, limited liability company or similar Equity Interests, not subject
to any capital call or other additional capital requirement) and not subject to
any preemptive rights, warrants, options or similar rights or restrictions in
favor of third parties or any contractual or other restrictions upon transfer.
3.8 Specified Contracts. As to each Investment Agreement and each other
Material Contract to which any Pledgor is or hereafter becomes a party (the
foregoing, collectively, "Specified Contracts"), (i) such Pledgor is not in
default in any material respect under such Specified Contract, and to the
knowledge of such Pledgor, none of the other parties to such Specified Contract
is in default in any material respect thereunder (except as shall have been
disclosed in writing to the Agent), (ii) such Specified Contract is, or at the
time of execution will be, the legal, valid and binding obligation of all
parties thereto, enforceable against such parties in accordance with the
respective terms thereof, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and no defense, offset, deduction or counterclaim will exist
thereunder in favor of any such party, (iii) the performance by such Pledgor of
its obligations under such Specified Contract in accordance with its terms will
not contravene any Requirement of Law or any contractual restriction binding on
or affecting such Pledgor or any of its properties, and will not result in or
require the creation of any Lien upon or with respect to any of its properties,
and (iv) such Pledgor has (or at the time of execution will have) furnished the
Agent with a correct and complete copy of each Specified Contract to which it is
a party as then in effect.
3.9 Intellectual Property. Annexes D, E and F correctly set forth all
registered Copyrights, Patents and Trademarks owned by any Pledgor as of the
date hereof and used or
11
<PAGE> 12
proposed to be used in its business. Each such Pledgor owns or possesses the
valid right to use all Copyrights, Patents and Trademarks; all registrations
therefor have been validly issued under applicable law and are in full force and
effect; no claim has been made in writing or, to the knowledge of such Pledgor,
orally, that any of the Copyrights, Patents or Trademarks is invalid or
unenforceable or violates or infringes the rights of any other Person, and there
is no such violation or infringement in existence; and to the knowledge of such
Pledgor, no other Person is presently infringing upon the rights of such Pledgor
with regard to any of the Copyrights, Patents or Trademarks.
3.10 Documents of Title. No bill of lading, warehouse receipt or other
document or instrument of title is outstanding with respect to any Collateral
other than Mobile Goods and other than Inventory in transit in the ordinary
course of business to a location set forth on Annex C or to a customer of a
Pledgor.
ARTICLE IV
COVENANTS
4.1 Use and Disposition of Collateral. So long as no Event of Default
shall have occurred and be continuing, each Pledgor may, in any lawful manner
not inconsistent with the provisions of this Agreement and the other Credit
Documents, use, control and manage the Collateral in the operation of its
businesses, and receive and use the income, revenue and profits arising
therefrom and the Proceeds thereof, in the same manner and with the same effect
as if this Agreement had not been made; provided, however, that no Pledgor will
sell or otherwise dispose of, grant any option with respect to, or mortgage,
pledge, grant any Lien with respect to or otherwise encumber any of the
Collateral or any interest therein, except for the security interest created in
favor of the Agent hereunder and except as may be otherwise expressly permitted
in accordance with the terms of this Agreement and the Credit Agreement
(including any applicable provisions therein regarding delivery of proceeds of
sale or disposition to the Agent).
4.2 Change of Name, Locations, etc. No Pledgor will (i) change its
name, identity or corporate structure, (ii) change its chief executive office
from the location thereof listed on Annex C, or (iii) remove any Collateral
(other than Mobile Goods and goods in transit), or any books, records or other
information relating to Collateral, from the applicable location thereof listed
on Annex C, or keep or maintain any Collateral at a location not listed on Annex
C, unless in each case such Pledgor has (1) given twenty (20) days' prior
written notice to the Agent of its intention to do so, together with information
regarding any such new location and such other information in connection with
such proposed action as the Agent may reasonably request, and (2) delivered to
the Agent ten (10) days prior to any such change or removal such documents,
instruments and financing statements as may be required by the Agent, all in
form and substance satisfactory to the Agent, paid all necessary filing and
recording fees and taxes, and taken all other actions reasonably requested by
the Agent (including, at the request of the Agent, delivery of opinions of
counsel reasonably satisfactory to the Agent to the effect that all such actions
have
12
<PAGE> 13
been taken), in order to perfect and maintain the Lien upon and security
interest in the Collateral provided for herein in accordance with the provisions
of SECTION 3.2.
4.3 Records; Inspection. (a) Each Pledgor will keep and maintain at its
own cost and expense satisfactory and complete records of the Accounts and all
other Collateral, including, without limitation, records of all payments
received, all credits granted thereon, all merchandise returned and all other
documentation relating thereto, and will furnish to the Agent from time to time
such statements, schedules and reports (including, without limitation, accounts
receivable aging schedules) with regard to the Collateral as the Agent may
reasonably request.
(b) Each Pledgor shall, from time to time at such times as may be
reasonably requested and upon reasonable notice, (i) make available to the Agent
for inspection and review at such Pledgor's offices copies of all invoices and
other documents and information relating to the Collateral (including, without
limitation, itemized schedules of all collections of Accounts, showing the name
of each account debtor, the amount of each payment and such other information as
the Agent shall reasonably request), and (ii) permit the Agent or its
representatives to visit its offices or the premises upon which any Collateral
may be located, inspect its books and records and make copies and memoranda
thereof, inspect the Collateral, discuss its finances and affairs with its
officers, employees and independent accountants and take any other actions
necessary for the protection of the interests of the Secured Parties in the
Collateral. At the request of the Agent, each Pledgor will legend, in form and
manner satisfactory to the Agent, the books, records and materials evidencing or
relating to the Collateral with an appropriate reference to the fact that the
Collateral has been assigned to the Agent and that the Agent has a security
interest therein. The Agent shall have the right to make test verifications of
Accounts in any reasonable manner and through any reasonable medium, and each
Pledgor agrees to furnish all such reasonable assistance and information as the
Agent may require in connection therewith.
4.4 Accounts. Unless notified otherwise by the Agent in accordance with
the terms hereof, each Pledgor shall endeavor to collect its Accounts and all
amounts owing to it thereunder in the ordinary course of its business consistent
with past practices and shall apply forthwith upon receipt thereof all such
amounts as are so collected to the outstanding balances thereof, and in
connection therewith shall, at the request of the Agent, take such action as the
Agent may deem necessary or advisable (within applicable laws) to enforce such
collection. No Pledgor shall, except to the extent done in the ordinary course
of its business consistent with past practices and in accordance with sound
business judgment and provided that no Event of Default shall have occurred and
be continuing, (i) grant any extension of the time for payment of any Account,
(ii) compromise or settle any Account for less than the full amount thereof,
(iii) release, in whole or in part, any Person or property liable for the
payment of any Account, or (iv) allow any credit or discount on any Account.
Each Pledgor shall promptly inform the Agent of any disputes with any account
debtor or obligor and of any claimed offset and counterclaim that may be
asserted with respect thereto involving, in each case, $500,000 or more, where
such Pledgor reasonably believes that the likelihood of payment by such account
debtor is materially impaired, indicating in detail the reason for the dispute,
all claims relating thereto and the amount in controversy.
13
<PAGE> 14
4.5 Instruments. Each Pledgor agrees that if any Intercompany
Obligations, Accounts or other Collateral shall at any time be evidenced by a
promissory note, chattel paper or other Instrument, the same shall promptly be
duly endorsed to the order of the Agent and delivered to the Agent to be held as
Collateral hereunder.
4.6 Equipment. Each Pledgor will, in accordance with sound business
practices, maintain all Equipment used by it in its business (other than
obsolete Equipment) in good repair, working order and condition (normal wear and
tear excepted) and make all necessary repairs and replacements thereof so that
the value and operating efficiency thereof shall at all times be maintained and
preserved. No Pledgor shall knowingly permit any Equipment to become a fixture
to any real property (other than real property the fee interest in which is
subject to a Mortgage in favor of the Agent).
4.7 Inventory. Each Pledgor will, in accordance with sound business
practices, maintain all Inventory held by it or on its behalf in good saleable
or useable condition. Unless notified otherwise by the Agent in accordance with
the terms hereof, each Pledgor may, in any lawful manner not inconsistent with
the provisions of this Agreement and the other Credit Documents, process, use
and, in the ordinary course of business but not otherwise, sell its Inventory.
Without limiting the generality of the foregoing, each Pledgor agrees that it
shall not permit any Inventory to be in the possession of any bailee,
warehouseman, agent or processor at any time unless such bailee, warehouseman,
agent or processor shall have been notified of the security interest created by
this Agreement and such Pledgor shall have exercised its reasonable best efforts
to obtain, at such Pledgor's sole cost and expense, a written agreement to hold
such Inventory subject to the security interest created by this Agreement and
the instructions of the Agent and to waive and release any Lien (whether arising
by operation of law or otherwise) it may have with respect to such Inventory,
such agreement to be in form and substance reasonably satisfactory to the Agent.
4.8 Contracts. Each Pledgor will, at its expense, at all times perform
and comply with, in all material respects, all terms and provisions of each
Specified Contract to which it is or hereafter becomes a party required to be
performed or complied with by it and enforce the terms and provisions thereof in
accordance with its terms, and will not waive, amend or modify any provision
thereof in any manner other than in the ordinary course of business of such
Pledgor in accordance with past practices and for a valid economic reason
benefiting such Pledgor (provided that in no event may any waiver, amendment or
modification be made that would adversely affect the interests of the Agent and
the other Secured Parties). With regard to all leases, contracts and agreements
that are excluded from the definition of the term "Contracts," each Pledgor
covenants and agrees to exercise all of its material rights and remedies under
such leases, agreements and contracts to which it is a party in a commercially
reasonable manner consistent with the interests of the Agent and the Secured
Parties. No Pledgor will enter into any Specified Contract that by its terms
prohibits the assignment of such Pledgor's rights and interest thereunder in the
manner contemplated by this Agreement, other than as may be entered into in the
ordinary course of business of such Pledgor in accordance with past practices
and for a valid economic reason benefiting such Pledgor. Each Pledgor further
covenants and agrees to use its reasonable best efforts to obtain any required
consent to the collateral assignment of any
14
<PAGE> 15
Specified Contract, in form and substance reasonably satisfactory to the Agent,
upon the request of the Agent, and will deliver copies thereof to the Agent
promptly upon execution and delivery thereof. Each Pledgor will notify the Agent
promptly in writing upon any termination of any Specified Contract, in whole or
in part, or any material breach, default or event of default by any party
thereunder.
4.9 Taxes. Each Pledgor will pay and discharge (i) all taxes,
assessments and governmental charges or levies imposed upon it, upon its income
or profits or upon any of its properties, prior to the date on which penalties
would attach thereto, and (ii) all lawful claims that, if unpaid, might become a
Lien upon any of its properties; provided, however, that no Pledgor shall be
required to pay any such tax, assessment, charge, levy or claim that is being
contested in good faith and by proper proceedings and as to which such Pledgor
has maintained adequate reserves with respect thereto in accordance with
Generally Accepted Accounting Principles, unless and until any tax lien notice
has become effective with respect thereto or until any Lien resulting therefrom
attaches to its properties and becomes enforceable against its other creditors.
4.10 Intellectual Property. (a) Each applicable Pledgor will, at its
own expense, execute, deliver and record, as promptly as possible (but in any
event within 10 days) after the date hereof, fully completed assignments in the
forms of Exhibits B and C, as applicable, in the U.S. Copyright Office or the
U.S. Patent and Trademark Office pursuant to 35 U.S.C. Section 261, 15 U.S.C.
Section 1060 or 17 U.S.C. Section 205, as applicable, with regard to any
Copyright Collateral, Patent Collateral or Trademark Collateral, as the case may
be, described in Annex D, E or F hereto. In the event that after the date hereof
any Pledgor shall acquire any registered Copyright, Patent or Trademark, or
effect any registration of any Copyright, Patent or Trademark or file any
application for registration thereof, whether within the United States or any
other country or jurisdiction, such Pledgor shall promptly furnish written
notice thereof to the Agent together with information sufficient to permit the
Agent, upon its receipt of such notice, to (and each Pledgor hereby authorizes
the Agent to) modify this Agreement, as appropriate, by amending Annexes D, E
and F hereto or to add additional exhibits hereto to include any Copyright,
Patent or Trademark that becomes part of the Collateral under this Agreement,
and such Pledgor shall additionally, at its own expense, execute, deliver and
record, as promptly as possible (but in any event within 10 days) after the date
of such acquisition, registration or application, as applicable, with regard to
United States Patents, Trademarks and Copyrights, fully completed assignments in
the forms of Exhibits B and C, as applicable, in the U.S. Copyright Office or
the U.S. Patent and Trademark Office as more fully described hereinabove,
together in all instances with any other agreements, instruments and documents
that the Agent may reasonably request from time to time to further effect and
confirm the assignment and security interest created by this Agreement in such
Copyrights, Patents and Trademarks, and each Pledgor hereby appoints the Agent
its attorney-in-fact to execute, deliver and record any and all such agreements,
instruments and documents for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed and such power, being coupled with an
interest, shall be irrevocable for so long as this Agreement shall be in effect
with respect to such Pledgor.
15
<PAGE> 16
(b) Each Pledgor (either itself or through its licensees or its
sublicensees) will, for each Trademark used in the conduct of its business, use
its best efforts to (i) maintain such Trademark in full force and effect, free
from any claim of abandonment or invalidity for non-use, (ii) maintain the
quality of products and services offered under such Trademark, (iii) display
such Trademark with notice of federal registration to the extent required by
applicable law and (iv) not knowingly use or knowingly permit the use of such
Trademark in violation of any third-party rights.
(c) Each Pledgor (either itself or through its licensees or
sublicensees) will refrain from committing any act, or omitting any act, whereby
any Patent used in the conduct of such Pledgor's business may become invalidated
or dedicated to the public, and shall continue to mark any products covered by a
Patent with the relevant patent number as required by applicable patent laws.
(d) Each Pledgor (either itself or through its licensees or
sublicensees) will, for each work covered by a Copyright, continue to publish,
reproduce, display, adopt and distribute the work with appropriate copyright
notice as required under applicable copyright laws.
(e) Each Pledgor shall notify the Agent immediately if it knows or has
reason to know that any Patent, Trademark or Copyright used in the conduct of
its business may become abandoned or dedicated to the public, or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the U.S. Patent and Trademark
Office, U.S. Copyright Office or any court) regarding such Pledgor's ownership
of any Patent, Trademark or Copyright, its right to register the same, or to
keep and maintain the same.
(f) Each Pledgor will take all necessary steps that are consistent with
the practice in any proceeding before the U.S. Patent and Trademark Office, U.S.
Copyright Office or any office or agency in any political subdivision of the
United States or in any other country or any political subdivision thereof, to
maintain and pursue each application relating to any Patents, Trademarks or
Copyrights (and to obtain the relevant grant or registration) and to maintain
each registration of any Patents, Trademarks and Copyrights used in the conduct
of such Pledgor's business, including the filing of applications for renewal,
affidavits of use, affidavits of incontestability and maintenance fees, and, if
consistent with sound business judgment, to initiate opposition, interference
and cancellation proceedings against third parties.
(g) In the event that any Collateral consisting of a Patent, Trademark
or Copyright used in the conduct of any Pledgor's business is believed
infringed, misappropriated or diluted by a third party, such Pledgor shall
notify the Agent promptly after it learns thereof and shall, if consistent with
sound business judgment, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are appropriate
under the circumstances to protect such Collateral.
(h) Upon the occurrence and during the continuance of any Event of
Default, each Pledgor shall use its reasonable best efforts to obtain all
requisite consents or approvals from the licensor of each License included
within the Copyright Collateral, Patent Collateral or
16
<PAGE> 17
Trademark Collateral to effect the assignment of all of such Pledgor's right,
title and interest thereunder to the Agent or its designee.
4.11 Mobile Goods. Upon the request of the Agent at any time, whether
or not an Event of Default shall have occurred and be continuing, each Pledgor
will deliver to the Agent originals of the certificates of title or ownership
for all Mobile Goods owned by it, together (in the case of motor vehicles) with
the manufacturer's statement of origin with the Agent listed as lienholder and
odometer statements and together in all other cases with appropriate instruments
or certificates of transfer and delivery, duly completed and executed, and will
take such other action as the Agent may deem necessary to perfect the security
interest created by this Agreement in all such Mobile Goods.
4.12 Delivery of Collateral. All certificates or instruments
representing or evidencing any Accounts, Intercompany Obligations, Equity
Interests or other Collateral shall be delivered to and held by or on behalf of
the Agent pursuant hereto, shall be in form suitable for transfer by delivery
and shall be delivered together with undated stock powers duly executed in
blank, appropriate endorsements or other necessary instruments of registration,
transfer or assignment, duly executed and in form and substance satisfactory to
the Agent, and in each case such other instruments or documents as the Agent may
reasonably request.
4.13 Protection of Security Interest. Each Pledgor agrees that it will,
at its own cost and expense, take any and all actions necessary to warrant and
defend the right, title and interest of the Secured Parties in and to the
Collateral against the claims and demands of all other Persons.
ARTICLE V
CERTAIN PROVISIONS RELATING TO EQUITY INTERESTS
5.1 Ownership; After-Acquired Equity Interests. (a) Except to the
extent otherwise expressly permitted by or pursuant to the Credit Agreement,
each Pledgor will cause the Equity Interests pledged by it hereunder to
constitute at all times 100% of the capital stock or other Equity Interests in
each issuer thereof, such that the issuer thereof shall be a Wholly Owned
Subsidiary of such Pledgor, and unless the Agent shall have given its prior
written consent, no Pledgor will cause or permit any such issuer to issue or
sell any new capital stock, any warrants, options or rights to acquire the same,
or other Equity Interests of any nature to any Person other than such Pledgor,
or cause, permit or consent to the admission of any other Person as a
stockholder, partner or member of any such issuer.
(b) If any Pledgor shall, at any time and from time to time after the
date hereof, acquire any additional capital stock or other Equity Interests in
any Person of the types described in the definition of the term "Equity
Interests," the same shall be automatically deemed to be Equity Interests, and
to be pledged to the Agent pursuant to SECTION 2.1, and such Pledgor will
forthwith pledge and deposit the same with the Agent and deliver to the Agent
any certificates or
17
<PAGE> 18
instruments therefor, together with the endorsement of such Pledgor (in the case
of any promissory notes or other Instruments), undated stock powers (in the case
of Equity Interests evidenced by certificates) or other necessary instruments of
transfer or assignment, duly executed in blank and in form and substance
satisfactory to the Agent, together with such other certificates and instruments
as the Agent may reasonably request (including Uniform Commercial Code financing
statements or appropriate amendments thereto), and will promptly thereafter
deliver to the Agent a fully completed and duly executed amendment to this
Agreement in the form of Exhibit A (each, a "Pledge Amendment") in respect
thereof. Each Pledgor hereby authorizes the Agent to attach each such Pledge
Amendment to this Agreement, and agrees that all such Collateral listed on any
Pledge Amendment shall for all purposes be deemed Collateral hereunder and shall
be subject to the provisions hereof; provided that the failure of any Pledgor to
execute and deliver any Pledge Amendment with respect to any such additional
Collateral as required hereinabove shall not impair the security interest of the
Agent in such Collateral or otherwise adversely affect the rights and remedies
of the Agent hereunder with respect thereto.
(c) If any Equity Interests (whether now owned or hereafter acquired)
included in the Collateral are "uncertificated securities" within the meaning of
the Uniform Commercial Code or are otherwise not evidenced by any certificate or
instrument, each applicable Pledgor will promptly notify the Agent thereof and
will promptly take and cause to be taken, and will (if the issuer of such
uncertificated securities is a Person other than a Subsidiary of the Borrower)
use its best efforts to cause the issuer to take, all actions required under
Articles 8 and 9 of the Uniform Commercial Code and any other applicable law, to
enable the Agent to acquire "control" of such uncertificated securities (within
the meaning of such term under Section 8-106 (or its successor provision) of the
Uniform Commercial Code) and as may be otherwise necessary or deemed appropriate
by the Agent to perfect the security interest of the Agent therein.
5.2 Voting Rights. So long as no Event of Default shall have occurred
and be continuing, each Pledgor shall be entitled to exercise all voting and
other consensual rights pertaining to its Equity Interests (subject to its
obligations under SECTION 5.1), and for that purpose the Agent will execute and
deliver or cause to be executed and delivered to each applicable Pledgor all
such proxies and other instruments as such Pledgor may reasonably request in
writing to enable such Pledgor to exercise such voting and other consensual
rights; provided, however, that no Pledgor will cast any vote, give any consent,
waiver or ratification, or take or fail to take any action, in any manner that
would, or could reasonably be expected to, violate or be inconsistent with any
of the terms of this Agreement, the Credit Agreement or any other Credit
Document, or have the effect of impairing the position or interests of the Agent
or any other Secured Party.
5.3 Dividends and Other Distributions. So long as no Event of Default
shall have occurred and be continuing (or would occur as a result thereof), and
except as provided otherwise herein, all interest, income, dividends,
distributions and other amounts payable in cash in respect of the Equity
Interests may be paid to and retained by the Pledgors; provided, however, that
all such interest, income, dividends, distributions and other amounts shall, at
all times after the occurrence and during the continuance of an Event of
Default, be paid to the Agent and retained
18
<PAGE> 19
by it as part of the Collateral (except to the extent applied upon receipt to
the repayment of the Secured Obligations). The Agent shall also be entitled at
all times (whether or not during the continuance of an Event of Default) to
receive directly, and to retain as part of the Collateral, (i) all interest,
income, dividends, distributions or other amounts paid or payable in cash or
other property in respect of any Equity Interests in connection with the
dissolution, liquidation, recapitalization or reclassification of the capital of
the applicable issuer to the extent representing (in the reasonable judgment of
the Agent) an extraordinary, liquidating or other distribution in return of
capital, (ii) all additional Equity Interests or other securities or property
(other than cash) paid or payable or distributed or distributable in respect of
any Equity Interests in connection with any noncash dividend, distribution,
return of capital, spin-off, stock split, split-up, reclassification,
combination of shares or interests or similar rearrangement, and (iii) without
affecting any restrictions against such actions contained in the Credit
Agreement, all additional Equity Interests or other securities or property
(including cash) paid or payable or distributed or distributable in respect of
any Equity Interests in connection with any consolidation, merger, exchange of
securities, liquidation or other reorganization. All interest, income,
dividends, distributions or other amounts that are received by any Pledgor in
violation of the provisions of this Section shall be received in trust for the
benefit of the Agent, shall be segregated from other property or funds of such
Pledgor and shall be forthwith delivered to the Agent as Collateral in the same
form as so received (with any necessary endorsements).
ARTICLE VI
REMEDIES
6.1 Remedies. If an Event of Default shall have occurred and be
continuing, the Agent shall be entitled to exercise in respect of the Collateral
all of its rights, powers and remedies provided for herein or otherwise
available to it under any other Credit Document, by law, in equity or otherwise,
including all rights and remedies of a secured party under the Uniform
Commercial Code, and shall be entitled in particular, but without limitation of
the foregoing, to exercise the following rights, which each Pledgor agrees to be
commercially reasonable:
(a) To notify any or all account debtors or obligors under any
Accounts, Contracts or other Collateral of the security interest in favor of the
Agent created hereby and to direct all such Persons to make payments of all
amounts due thereon or thereunder directly to the Agent or to an account
designated by the Agent; and in such instance and from and after such notice,
all amounts and Proceeds (including wire transfers, checks and other
instruments) received by any Pledgor in respect of any Accounts, Contracts or
other Collateral shall be received in trust for the benefit of the Agent
hereunder, shall be segregated from the other funds of such Pledgor and shall be
forthwith deposited into such account or paid over or delivered to the Agent in
the same form as so received (with any necessary endorsements or assignments),
to be held as Collateral and applied to the Secured Obligations as provided
herein; and by this provision, each Pledgor irrevocably authorizes and directs
each Person who is or shall be a party to or liable for the performance of any
Contract, upon receipt of notice from the Agent to the effect that an Event of
19
<PAGE> 20
Default has occurred and is continuing, to attorn to or otherwise recognize the
Agent as owner under such Contract and to pay, observe and otherwise perform the
obligations under such Contract to or for the Agent or the Agent's designee as
though the Agent or such designee were such Pledgor named therein, and to do so
until otherwise notified by the Agent;
(b) To take possession of, receive, endorse, assign and deliver, in its
own name or in the name of any Pledgor, all checks, notes, drafts and other
instruments relating to any Collateral, including receiving, opening and
properly disposing of all mail addressed to any Pledgor concerning Accounts and
other Collateral; to verify with account debtors or other contract parties the
validity, amount or any other matter relating to any Accounts or other
Collateral, in its own name or in the name of any Pledgor; to accelerate any
indebtedness or other obligation constituting Collateral that may be accelerated
in accordance with its terms; to take or bring all actions and suits deemed
necessary or appropriate to effect collections and to enforce payment of any
Accounts or other Collateral; to settle, compromise or release in whole or in
part any amounts owing on Accounts or other Collateral; and to extend the time
of payment of any and all Accounts or other amounts owing under any Collateral
and to make allowances and adjustments with respect thereto, all in the same
manner and to the same extent as any Pledgor might have done;
(c) To notify any or all depository institutions with which any Deposit
Accounts are maintained to remit and transfer all monies, securities and other
property on deposit in such Deposit Accounts or deposited or received for
deposit thereafter to the Agent, for deposit in a Collateral Account or such
other accounts as may be designated by the Agent, for application to the Secured
Obligations as provided herein;
(d) To transfer to or register in its name or the name of any of its
agents or nominees all or any part of the Collateral, without notice to any
Pledgor and with or without disclosing that such Collateral is subject to the
security interest created hereunder;
(e) To require any Pledgor to, and each Pledgor hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble all or any
part of the Collateral as directed by the Agent and make it available to the
Agent at a place designated by the Agent;
(f) To enter and remain upon the premises of any Pledgor and take
possession of all or any part of the Collateral, with or without judicial
process; to use the materials, services, books and records of any Pledgor for
the purpose of liquidating or collecting the Collateral, whether by foreclosure,
auction or otherwise; and to remove the same to the premises of the Agent or any
designated agent for such time as the Agent may desire, in order to effectively
collect or liquidate the Collateral;
(g) To exercise (i) all voting, consensual and other rights and powers
pertaining to the Equity Interests (whether or not transferred into the name of
the Agent), at any meeting of shareholders, partners, members or otherwise, and
(ii) any and all rights of conversion, exchange, subscription and any other
rights, privileges or options pertaining to the Equity Interests as if it were
the absolute owner thereof (including, without limitation, the right to exchange
at its discretion any and all of the Equity Interests upon the merger,
consolidation, reorganization,
20
<PAGE> 21
reclassification, combination of shares or interests, similar rearrangement or
other similar fundamental change in the structure of the applicable issuer, or
upon the exercise by any Pledgor or the Agent of any right, privilege or option
pertaining to such Equity Interests), and in connection therewith, the right to
deposit and deliver any and all of the Equity Interests with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Agent may determine, and give all consents, waivers and
ratifications in respect of the Equity Interests, all without liability except
to account for any property actually received by it, but the Agent shall have no
duty to exercise any such right, privilege or option or give any such consent,
waiver or ratification and shall not be responsible for any failure to do so or
delay in so doing; and for the foregoing purposes each Pledgor will promptly
execute and deliver or cause to be executed and delivered to the Agent, upon
request, all such proxies and other instruments as the Agent may reasonably
request to enable the Agent to exercise such rights and powers; AND IN
FURTHERANCE OF THE FOREGOING AND WITHOUT LIMITATION THEREOF, EACH PLEDGOR HEREBY
IRREVOCABLY CONSTITUTES AND APPOINTS THE AGENT AS THE TRUE AND LAWFUL PROXY AND
ATTORNEY-IN-FACT OF SUCH PLEDGOR, WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES, TO EXERCISE ALL SUCH VOTING, CONSENSUAL AND OTHER RIGHTS AND POWERS TO
WHICH ANY HOLDER OF ANY INVESTMENTS WOULD BE ENTITLED BY VIRTUE OF HOLDING THE
SAME, WHICH PROXY AND POWER OF ATTORNEY, BEING COUPLED WITH AN INTEREST, IS
IRREVOCABLE AND SHALL BE EFFECTIVE FOR SO LONG AS THIS AGREEMENT SHALL BE IN
EFFECT; and
(h) To sell, resell, assign and deliver, in its sole discretion, all or
any of the Collateral, in one or more parcels, on any securities exchange on
which any Equity Interests may be listed, at public or private sale, at any of
the Agent's offices or elsewhere, for cash, upon credit or for future delivery,
at such time or times and at such price or prices and upon such other terms as
the Agent may deem satisfactory. If any of the Collateral is sold by the Agent
upon credit or for future delivery, the Agent shall not be liable for the
failure of the purchaser to purchase or pay for the same and, in the event of
any such failure, the Agent may resell such Collateral. In no event shall any
Pledgor be credited with any part of the Proceeds of sale of any Collateral
until and to the extent cash payment in respect thereof has actually been
received by the Agent. Each purchaser at any such sale shall hold the property
sold absolutely, free from any claim or right of whatsoever kind, including any
equity or right of redemption of any Pledgor, and each Pledgor hereby expressly
waives all rights of redemption, stay or appraisal, and all rights to require
the Agent to marshal any assets in favor of such Pledgor or any other party or
against or in payment of any or all of the Secured Obligations, that it has or
may have under any rule of law or statute now existing or hereafter adopted. No
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law, as referred to below), all of which are hereby expressly
waived by each Pledgor, shall be required in connection with any sale or other
disposition of any part of the Collateral. If any notice of a proposed sale or
other disposition of any part of the Collateral shall be required under
applicable law, the Agent shall give the applicable Pledgor at least ten (10)
days' prior notice of the time and place of any public sale and of the time
after which any private sale or other disposition is to be made, which notice
each Pledgor agrees is commercially reasonable. The Agent shall not be obligated
to make any sale of Collateral if it shall determine not to do so, regardless of
the fact that notice of sale may have
21
<PAGE> 22
been given. The Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. Upon each
public sale and, to the extent permitted by applicable law, upon each private
sale, the Agent may purchase all or any of the Collateral being sold, free from
any equity, right of redemption or other claim or demand, and may make payment
therefor by endorsement and application (without recourse) of the Secured
Obligations in lieu of cash as a credit on account of the purchase price for
such Collateral.
6.2 Application of Proceeds. (a) All Proceeds collected by the Agent
upon any sale, other disposition of or realization upon any of the Collateral,
together with all other moneys received by the Agent hereunder, shall be applied
as follows:
(i) first, to the payment of all costs and expenses of
such sale, disposition or other realization, including the reasonable
costs and expenses of the Agent and the reasonable fees and expenses of
its agents and counsel, all amounts advanced by the Agent for the
account of any Pledgor, and all other amounts payable to the Agent
under SECTION 8.1;
(ii) second, after payment in full of the amounts
specified in clause (i) above, to the ratable payment of all other
Secured Obligations owing to the Secured Parties; and
(iii) third, after payment in full of the amounts specified
in clauses (i) and (ii) above, and following the termination of this
Agreement, to the Pledgors or any other Person lawfully entitled to
receive such surplus.
(b) For purposes of applying amounts in accordance with this Section,
the Agent shall be entitled to rely upon any Secured Party that has entered into
a Hedge Agreement with the Borrower for a determination (which such Secured
Party agrees to provide or cause to be provided upon request of the Agent) of
the outstanding Secured Obligations owed to such Secured Party under any such
Hedge Agreement. Unless it has actual knowledge (including by way of written
notice from any such Secured Party) to the contrary, the Agent, in acting
hereunder, shall be entitled to assume that no Hedge Agreements or Secured
Obligations in respect thereof are in existence between any Secured Party and
the Borrower.
(c) Each Pledgor shall remain liable to the extent of any deficiency
between the amount of all Proceeds realized upon sale or other disposition of
the Collateral pursuant to this Agreement and the aggregate amount of the sums
referred to in clauses (i) and (ii) of subsection (a) above. Upon any sale of
any Collateral hereunder by the Agent (whether by virtue of the power of sale
herein granted, pursuant to judicial proceeding, or otherwise), the receipt of
the Agent or the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Agent or such officer or be answerable in any
way for the misapplication thereof.
22
<PAGE> 23
6.3 Collateral Accounts. Upon the occurrence and during the continuance
of an Event of Default, the Agent shall have the right to cause to be
established and maintained, at its principal office or such other location or
locations as it may establish from time to time in its discretion, one or more
accounts (collectively, "Collateral Accounts") for the collection of cash
Proceeds of the Collateral. Such Proceeds, when deposited, shall continue to
constitute Collateral for the Secured Obligations and shall not constitute
payment thereof until applied as herein provided. The Agent shall have sole
dominion and control over all funds deposited in any Collateral Account, and
such funds may be withdrawn therefrom only by the Agent. Upon the occurrence and
during the continuance of an Event of Default, the Agent shall have the right to
(and, if directed by the Required Lenders pursuant to the Credit Agreement,
shall) apply amounts held in the Collateral Accounts in payment of the Secured
Obligations in the manner provided for in SECTION 6.2.
6.4 Grant of License. Each Pledgor hereby grants to the Agent an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to any Pledgor) to use, license or sublicense any Patent
Collateral, Trademark Collateral or Copyright Collateral now owned or licensed
or hereafter acquired or licensed by such Pledgor, wherever the same may be
located throughout the world, for such term or terms, on such conditions and in
such manner as the Agent shall determine, whether general, special or otherwise,
and whether on an exclusive or nonexclusive basis, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license or sublicense by the
Agent shall be exercised, at the option of the Agent, only upon the occurrence
and during the continuation of an Event of Default; provided that any license,
sublicense or other transaction entered into by the Agent in accordance herewith
shall be binding upon each applicable Pledgor notwithstanding any subsequent
cure of an Event of Default.
6.5 Registration; Private Sales. (a) If, at any time after the
occurrence and during the continuance of an Event of Default, any Pledgor shall
have received from the Agent a written request or requests that such Pledgor
cause any registration, qualification or compliance under any federal or state
securities law or laws to be effected with respect to all or any part of the
Equity Interests, such Pledgor will, as soon as practicable and at its expense,
use its best efforts to cause such registration to be effected and be kept
effective and will use its best efforts to cause such qualification and
compliance to be effected and be kept effective as may be so requested and as
would permit or facilitate the sale and distribution of such Equity Interests,
including, without limitation, registration under the Securities Act of 1933, as
amended (the "Securities Act"), appropriate qualifications under applicable blue
sky or other state securities laws and appropriate compliance with any other
applicable requirements of Governmental Authorities; provided, that the Agent
shall furnish to such Pledgor such information regarding the Agent as such
Pledgor may reasonably request in writing and as shall be required in connection
with any such registration, qualification or compliance. Such Pledgor will cause
the Agent to be kept reasonably advised in writing as to the progress of each
such registration, qualification or compliance and as to the completion thereof,
will furnish to the Agent such number of prospectuses, offering circulars or
other documents incident thereto as the Agent from time to time may reasonably
request, and will indemnify the Agent and all others participating in the
23
<PAGE> 24
distribution of such Equity Interests against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to such
Pledgor by the Agent or any other Secured Party expressly for use therein.
(b) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws as in
effect from time to time, the Agent may be compelled, with respect to any sale
of all or any part of the Equity Interests conducted without registration or
qualification under the Securities Act and such state securities laws, to limit
purchasers to any one or more Persons who will represent and agree, among other
things, to acquire such Equity Interests for their own account, for investment
and not with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sales may be made in such manner and under
such circumstances as the Agent may deem necessary or advisable in its sole and
absolute discretion, including at prices and on terms less favorable than those
obtainable through a public sale without such restrictions (including, without
limitation, a public offering made pursuant to a registration statement under
the Securities Act), and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner and agrees that the Agent shall have no obligation to conduct any public
sales and no obligation to delay the sale of any Equity Interests for the period
of time necessary to permit its registration for public sale under the
Securities Act and applicable state securities laws, and shall not have any
responsibility or liability as a result of its election so not to conduct any
such public sales or delay the sale of any Equity Interests, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after such registration. Each Pledgor hereby waives any claims
against the Agent or any other Secured Party arising by reason of the fact that
the price at which any Equity Interests may have been sold at any private sale
was less than the price that might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations, even if the Agent
accepts the first offer received and does not offer such Equity Interests to
more than one offeree.
(c) Each Pledgor agrees that a breach of any of the covenants contained
in this Section will cause irreparable injury to the Agent and the other Secured
Parties, that the Agent and the other Secured Parties have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against the
Pledgors.
6.6 The Pledgors Remain Liable. Notwithstanding anything herein to the
contrary, (i) each Pledgor shall remain liable under all Contracts to which it
is a party included within the Collateral (including, without limitation, all
Investment Agreements) to perform all of its obligations thereunder to the same
extent as if this Agreement had not been executed, (ii) the exercise by the
Agent of any of its rights or remedies hereunder shall not release any Pledgor
24
<PAGE> 25
from any of its obligations under any of such Contracts, and (iii) except as
specifically provided for hereinbelow, the Agent shall not have any obligation
or liability by reason of this Agreement under any of such Contracts, nor shall
the Agent be obligated to perform any of the obligations or duties of any
Pledgor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder. This Agreement shall not in any way be deemed to
obligate the Agent, any other Secured Party or any purchaser at a foreclosure
sale under this Agreement to assume any of a Pledgor's obligations, duties or
liabilities under any Investment Agreement, including, without limitation, any
Pledgor's obligations, if any, to manage the business and affairs of the
applicable partnership, joint venture, limited liability company or other issuer
(collectively, the "Partner Obligations"), unless the Agent or such other
Secured Party or purchaser otherwise agrees in writing to assume any or all of
such Partner Obligations. In the event of foreclosure by the Agent hereunder,
then except as provided in the preceding sentence, each applicable Pledgor shall
remain bound and obligated to perform its Partner Obligations and neither the
Agent nor any other Secured Party shall be deemed to have assumed any Partner
Obligations. In the event the Agent, any other Secured Party or any purchaser at
a foreclosure sale elects to become a substitute partner or member in place of a
Pledgor, the party making such election shall adopt in writing such Investment
Agreement and agree to be bound by the terms and provisions thereof; and subject
to the execution of such written agreement, each Pledgor hereby irrevocably
consents in advance to the admission of the Agent, any other Secured Party or
any such purchaser as a substitute partner or member to the extent of the Equity
Interests acquired pursuant to such sale, and agrees to execute any documents or
instruments and take any other action as may be necessary or as may be
reasonably requested in connection therewith. The powers, rights and remedies
conferred on the Agent hereunder are solely to protect its interest and
privilege in such Contracts, as Collateral, and shall not impose any duty upon
it to exercise any such powers, rights or remedies.
6.7 Waivers. Each Pledgor, to the greatest extent not prohibited by
applicable law, hereby (i) agrees that it will not invoke, claim or assert the
benefit of any rule of law or statute now or hereafter in effect (including,
without limitation, any right to prior notice or judicial hearing in connection
with the Agent's possession, custody or disposition of any Collateral or any
appraisal, valuation, stay, extension, moratorium or redemption law), or take or
omit to take any other action, that would or could reasonably be expected to
have the effect of delaying, impeding or preventing the exercise of any rights
and remedies in respect of the Collateral, the absolute sale of any of the
Collateral or the possession thereof by any purchaser at any sale thereof, and
waives the benefit of all such laws and further agrees that it will not hinder,
delay or impede the execution of any power granted hereunder to the Agent, but
that it will permit the execution of every such power as though no such laws
were in effect, (ii) waives all rights that it has or may have under any rule of
law or statute now existing or hereafter adopted to require the Agent to marshal
any Collateral or other assets in favor of such Pledgor or any other party or
against or in payment of any or all of the Secured Obligations, and (iii) waives
all rights that it has or may have under any rule of law or statute now existing
or hereafter adopted to demand, presentment, protest, advertisement or notice of
any kind (except notices expressly provided for herein).
25
<PAGE> 26
ARTICLE VII
THE AGENT
7.1 The Agent; Standard of Care. The Agent will hold all items of the
Collateral at any time received under this Agreement in accordance with the
provisions hereof. The obligations of the Agent as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement and the other Credit Documents, are only those expressly
set forth in this Agreement and the other Credit Documents. The Agent shall act
hereunder at the direction, or with the consent, of the Required Lenders on the
terms and conditions set forth in the Credit Agreement. The powers conferred on
the Agent hereunder are solely to protect its interest, on behalf of the Secured
Parties, in the Collateral, and shall not impose any duty upon it to exercise
any such powers. Except for treatment of the Collateral in its possession in a
manner substantially equivalent to that which the Agent, in its individual
capacity, accords its own property of a similar nature, and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to the Collateral. Neither the
Agent nor any other Secured Party shall be liable to any Pledgor (i) for any
loss or damage sustained by such Pledgor, or (ii) for any loss, damage,
depreciation or other diminution in the value of any of the Collateral that may
occur as a result of or in connection with or that is in any way related to any
exercise by the Agent or any other Secured Party of any right or remedy under
this Agreement, any failure to demand, collect or realize upon any of the
Collateral or any delay in doing so, or any other act or failure to act on the
part of the Agent or any other Secured Party, except to the extent that the same
is caused by its own gross negligence or willful misconduct.
7.2 Further Assurances; Attorney-in-Fact. (a) Each Pledgor agrees that
it will join with the Agent to execute and, at its own expense, file and refile
under the Uniform Commercial Code such financing statements, continuation
statements and other documents and instruments in such offices as the Agent may
reasonably deem necessary or appropriate, and wherever required or permitted by
law, in order to perfect and preserve the Agent's security interest in the
Collateral, and hereby authorizes the Agent to file financing statements and
amendments thereto relating to all or any part of the Collateral without the
signature of such Pledgor where permitted by law, and agrees to do such further
acts and things (including, without limitation, making any notice filings with
state tax or revenue authorities required to be made by account creditors in
order to enforce any Accounts in such state) and to execute and deliver to the
Agent such additional conveyances, assignments, agreements and instruments as
the Agent may reasonably require or deem advisable to perfect, establish,
confirm and maintain the security interest and Lien provided for herein, to
carry out the purposes of this Agreement or to further assure and confirm unto
the Agent its rights, powers and remedies hereunder.
(b) Each Pledgor hereby irrevocably appoints the Agent its lawful
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor, the Agent or otherwise, and with full power of
substitution in the premises (which power of attorney, being coupled with an
interest, is irrevocable for so long as this Agreement shall be in effect),
26
<PAGE> 27
from time to time in the Agent's discretion after the occurrence and during the
continuance of an Event of Default to take any action and to execute any
instruments that the Agent may deem necessary or advisable to accomplish the
purpose of this Agreement, including, without limitation:
(i) to sign the name of such Pledgor on any financing
statement, continuation statement, notice or other similar document
that, in the Agent's opinion, should be made or filed in order to
perfect or continue perfected the security interest granted under this
Agreement (including, without limitation, any title or ownership
applications for filing with applicable state agencies to enable any
motor vehicles now or hereafter owned by the Company to be retitled and
the Agent listed as lienholder thereon);
(ii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(iii) to receive, endorse and collect any checks, drafts,
instruments, chattel paper and other orders for the payment of money
made payable to such Pledgor representing any interest, income,
dividend, distribution or other amount payable in respect of any of the
Collateral and to give full discharge for the same;
(iv) to obtain, maintain and adjust any property or casualty
insurance required to be maintained by such Pledgor hereunder and
direct the payment of proceeds thereof to the Agent;
(v) to pay or discharge taxes, Liens or other encumbrances
levied or placed on or threatened against the Collateral, the legality
or validity thereof and the amounts necessary to discharge the same to
be determined by the Agent in its sole discretion, any such payments
made by the Agent to become Secured Obligations of the Pledgors to the
Agent, due and payable immediately and without demand;
(vi) to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or advisable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral; and
(vii) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with any and all of the
Collateral as fully and completely as though the Agent were the
absolute owner of the Collateral for all purposes, and to do from time
to time, at the Agent's option and the Pledgors' expense, all other
acts and things deemed necessary by the Agent to protect, preserve or
realize upon the Collateral and to more completely carry out the
purposes of this Agreement.
(c) If any Pledgor fails to perform any covenant or agreement contained
in this Agreement after written request to do so by the Agent (provided that no
such request shall be necessary at any time after the occurrence and during the
continuance of an Event of Default), the Agent may itself perform, or cause the
performance of, such covenant or agreement and may
27
<PAGE> 28
take any other action that it deems necessary and appropriate for the
maintenance and preservation of the Collateral or its security interest therein,
and the reasonable expenses so incurred in connection therewith shall be payable
by the Pledgors under SECTION 8.1.
ARTICLE VIII
MISCELLANEOUS
8.1 Indemnity and Expenses. The Pledgors agree jointly and severally:
(a) To indemnify and hold harmless the Agent, each other Secured Party
and each of their respective directors, officers, employees, agents and
affiliates from and against any and all claims, damages, demands, losses,
obligations, judgments and liabilities (including, without limitation,
reasonable attorneys' fees and expenses) in any way arising out of or in
connection with this Agreement and the transactions contemplated hereby, except
to the extent the same shall arise as a result of the gross negligence or
willful misconduct of the party seeking to be indemnified; and
(b) To pay and reimburse the Agent upon demand for all reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) that the Agent may incur in connection with (i) the custody, use or
preservation of, or the sale of, collection from or other realization upon, any
of the Collateral, including the reasonable expenses of re-taking, holding,
preparing for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, (ii) the exercise or enforcement of any rights or remedies
granted hereunder (including, without limitation, under ARTICLE VI), under any
of the other Credit Documents or otherwise available to it (whether at law, in
equity or otherwise), or (iii) the failure by any Pledgor to perform or observe
any of the provisions hereof. The provisions of this Section shall survive the
execution and delivery of this Agreement, the repayment of any of the Secured
Obligations, the termination or expiration of all Letters of Credit under the
Credit Agreement, the termination of the Commitments under the Credit Agreement
and the termination of this Agreement or any other Credit Document.
8.2 No Waiver. The rights and remedies of the Secured Parties expressly
set forth in this Agreement and the other Credit Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No failure or delay on the part of any Secured
Party in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege or be construed to be a waiver of any Default or
Event of Default. No course of dealing between the Pledgors and the Secured
Parties or their agents or employees shall be effective to amend, modify or
discharge any provision of this Agreement or any other Credit Document or to
constitute a waiver of any Default or Event of Default. No notice to or demand
upon any Pledgor in any case shall entitle such Pledgor or any other Pledgor to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of any Secured
28
<PAGE> 29
Party to exercise any right or remedy or take any other or further action in any
circumstances without notice or demand.
8.3 Pledgors' Obligations Absolute. Each Pledgor agrees that its
obligations hereunder, and the security interest granted to and all rights,
remedies and powers of the Agent hereunder, are irrevocable, absolute and
unconditional and shall not be discharged, limited or otherwise affected by
reason of any of the following, whether or not such Pledgor has knowledge
thereof:
(i) any change in the time, manner or place of payment of, or
in any other term of, any Secured Obligations, or any amendment,
modification or supplement to, restatement of, or consent to any
rescission or waiver of or departure from, any provisions of the Credit
Agreement, the Subsidiary Guaranty, any other Credit Document or any
agreement or instrument delivered pursuant to any of the foregoing;
(ii) the invalidity or unenforceability of any Secured
Obligations or any provisions of the Credit Agreement, the Subsidiary
Guaranty, any other Credit Document or any agreement or instrument
delivered pursuant to any of the foregoing;
(iii) the addition or release of Pledgors hereunder or the
taking, acceptance or release of any Secured Obligations or additional
Collateral or other security therefor;
(iv) any sale, exchange, release, substitution, compromise,
nonperfection or other action or inaction in respect of any Collateral
or other direct or indirect security for any Secured Obligations, or
any discharge, modification, settlement, compromise or other action or
inaction in respect of any Secured Obligations;
(v) any agreement not to pursue or enforce or any failure to
pursue or enforce (whether voluntarily or involuntarily as a result of
operation of law, court order or otherwise) any right or remedy in
respect of any Secured Obligations or any Collateral or other security
therefor, or any failure to create, protect, perfect, secure, insure,
continue or maintain any Liens in any such Collateral or other
security;
(vi) the exercise of any right or remedy available under the
Credit Documents, at law, in equity or otherwise in respect of any
Collateral or other security for any Secured Obligations, in any order
and by any manner thereby permitted, including, without limitation,
foreclosure on any such Collateral or other security by any manner of
sale thereby permitted, whether or not every aspect of such sale is
commercially reasonable;
(vii) any bankruptcy, reorganization, arrangement,
liquidation, insolvency, dissolution, termination, reorganization or
like change in the corporate structure or existence of the Borrower,
any other Pledgor or any other Person directly or indirectly liable for
any Secured Obligations;
29
<PAGE> 30
(viii) any manner of application of any payments by or
amounts received or collected from any Person, by whomsoever paid and
howsoever realized, whether in reduction of any Secured Obligations or
any other obligations of the Borrower or any other Person directly or
indirectly liable for any Secured Obligations, regardless of what
Secured Obligations may remain unpaid after any such application; or
(ix) any other circumstance that might otherwise constitute a
legal or equitable discharge of, or a defense, set-off or counterclaim
available to, the Borrower, any Pledgor or a surety or guarantor
generally, other than the occurrence of all of the following: (x) the
payment in full of the Secured Obligations, (y) the termination of the
Commitments and the termination or expiration of all Letters of Credit
under the Credit Agreement, and (z) the termination of, and settlement
of all obligations of the Borrower under, each Hedge Agreement to which
the Borrower and any Lender are parties (the events in clauses (x), (y)
and (z) above, collectively, the "Termination Requirements").
8.4 Enforcement. By its acceptance of the benefits of this Agreement,
each Lender agrees that this Agreement may be enforced only by the Agent, acting
upon the instructions or with the consent of the Required Lenders as provided
for in the Credit Agreement, and that no Lender shall have any right
individually to enforce or seek to enforce this Agreement or to realize upon any
Collateral or other security given to secure the payment and performance of the
Secured Obligations.
8.5 Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by any Pledgor from,
any provision of this Agreement, shall be effective unless in a writing executed
and delivered in accordance with SECTION 11.6 of the Credit Agreement, and then
the same shall be effective only in the specific instance and for the specific
purpose for which given.
8.6 Continuing Security Interest; Term; Successors and Assigns;
Assignment; Termination and Release; Survival. This Agreement shall create a
continuing security interest in the Collateral and shall secure the payment and
performance of all of the Secured Obligations as the same may arise and be
outstanding at any time and from time to time from and after the date hereof,
and shall (i) remain in full force and effect until the occurrence of the
Termination Requirements, (ii) be binding upon and enforceable against each
Pledgor and its successors and assigns (provided, however, that no Pledgor may
sell, assign or transfer any of its rights, interests, duties or obligations
hereunder without the prior written consent of the Lenders) and (iii) inure to
the benefit of and be enforceable by each Secured Party and its successors and
assigns. Upon any sale or other disposition by any Pledgor of any Collateral in
a transaction expressly permitted hereunder or under or pursuant to the Credit
Agreement or any other applicable Credit Document, the Lien and security
interest created by this Agreement in and upon such Collateral shall be
automatically released, and upon the satisfaction of all of the Termination
Requirements, this Agreement and the Lien and security interest created hereby
shall terminate; and in connection with any such release or termination, the
Agent, at the request and expense of the applicable Pledgor, will execute and
deliver to such Pledgor such documents and instruments evidencing such release
or termination as such Pledgor may reasonably request
30
<PAGE> 31
and will assign, transfer and deliver to such Pledgor, without recourse and
without representation or warranty, such of the Collateral as may then be in the
possession of the Agent (or, in the case of any partial release of Collateral,
such of the Collateral so being released as may be in its possession). All
representations, warranties, covenants and agreements herein shall survive the
execution and delivery of this Agreement and any Pledge Amendment or Pledge
Accession.
8.7 Additional Pledgors. Each Pledgor recognizes that the provisions of
the Credit Agreement require Persons that become Subsidiaries of the Borrower,
and that are not already parties hereto, to execute and deliver a Pledge
Accession, whereupon each such Person shall become a Pledgor hereunder with the
same force and effect as if originally a Pledgor hereunder on the date hereof,
and agrees that its obligations hereunder shall not be discharged, limited or
otherwise affected by reason of the same, or by reason of the Agent's actions in
effecting the same or in releasing any Pledgor hereunder, in each case without
the necessity of giving notice to or obtaining the consent of such Pledgor or
any other Pledgor.
8.8 Notices. All notices and other communications provided for
hereunder shall be given to the parties in the manner and subject to the other
notice provisions set forth in the Credit Agreement.
8.9 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
8.10 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
8.11 Construction. The headings of the various sections and subsections
of this Agreement have been inserted for convenience only and shall not in any
way affect the meaning or construction of any of the provisions hereof. Unless
the context otherwise requires, words in the singular include the plural and
words in the plural include the singular.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
31
<PAGE> 32
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first above
written.
LASON SERVICES, INC.
By: Gary L. Monroe
----------------------------------
Title:
--------------------------------
Gary L. Monroe
President and CEO
Accepted and agreed to:
FIRST UNION NATIONAL BANK, as
Agent
By:
-----------------------------------
Title:
----------------------------------
(signatures continued)
31
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first above
written.
LASON SERVICES, INC.
By:
----------------------------------
Title:
---------------------------------
Accepted and agreed to:
FIRST UNION NATIONAL BANK, as
Agent
By: Henry R. Biedrycki
-----------------------------------
Title: HENRY R. BIEDRYCKI
---------------------------------
Vice President
(signatures continued)
31
<PAGE> 34
LASON SYSTEMS, INC.
By: /s/ Gary L. Monroe
----------------------------------
Gary L. Monroe
Title: President and CEO
---------------------------------
MICRO-PRO, INC.
By: /s/ William J. Rauwerdink
----------------------------------
William J. Rauwerdink
Title: Treasurer
---------------------------------
LASON INTERNATIONAL, INC.
By: /s/ Gary L. Monroe
----------------------------------
Gary L. Monroe
Title: President and CEO
---------------------------------
32
<PAGE> 35
Annex A to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
PLEDGED EQUITY INTERESTS
<TABLE>
<CAPTION>
Percentage of
Certificate No. of Shares/ outstanding
Number (if Units (if interests in
Pledgor Name of Issuer Type of Interests (applicable) applicable) Issuer
- ------- -------------- ----------------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
</TABLE>
2
<PAGE> 36
Annex B to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
FILING LOCATIONS
LASON SERVICES, INC.
Secretary of State, Delaware
Department of State, Lansing, Michigan
LASON SYSTEMS, INC.
Secretary of State, Phoenix, Arizona
Secretary of State, California
San Francisco Assessor Recorder, San Francisco County, California
Secretary of State, Denver, Colorado
Secretary of State, Connecticut
Secretary of State, Dover, Delaware
Department of State, Tallahassee, Florida
Clerk of Superior Court, Fulton County, Georgia
Clerk of Superior Court, Gwinnet County, Georgia
Secretary of State, Springfield, Illinois
Secretary of State, Indianapolis, Indiana
Secretary of State, Frankfort, Kentucky
Clerk of Court, Jefferson Parish, Louisiana
Secretary of the Commonwealth, Massachusetts
Town Clerk, Town of Avon, Massachusetts
Register of Deeds, Middlesex County (Southern) Massachusetts
Department of State, Lansing, Michigan
Secretary of State, Minnesota
Secretary of State, Missouri
City Recorder, St. Louis City, Missouri
Secretary of State, Carson City, Nevada
Secretary of State, Trenton, New Jersey
Secretary of State, Santa Fe, New Mexico
Department of State, Albany, New York
County Clerk, Albany County, New York
County Clerk, Erie County, New York
County Clerk, Monroe County, New York
County Clerk, Nassau County, New York
County Clerk, Schenectady County, New York
<PAGE> 37
Annex B to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
Department of Finance, New York County, New York
Secretary of State, North Carolina
Register of Deeds, Mecklenburg County, North Carolina
Secretary of State, Ohio
County Recorder, Hamilton County, Ohio
Secretary of State, South Carolina
Secretary of State, Austin, Texas
Division of Corporations and Commercial Code, Salt Lake City, Utah
State Corporation Commission, Richmond, Virginia
Clerk of Circuit Court, Hanover County, Virginia
Clerk of Circuit Court, Richmond City, Virginia
MICRO-PRO, INC.
Department of State, Albany, New York
County Clerk, Albany County, New York
County Clerk, Erie County, New York
County Clerk, Monroe County, New York
<PAGE> 38
Annex D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
LOCATIONS OF CHIEF EXECUTIVE OFFICES,
RECORDS RELATING TO COLLATERAL, AND EQUIPMENT AND INVENTORY
LASON SERVICES, INC.
1. Chief executive office:
----------------------------
----------------------------
----------------------------
2. Records relating to Collateral:
----------------------------
----------------------------
----------------------------
3. Equipment or Inventory:
----------------------------
----------------------------
----------------------------
4. Other places of business:
----------------------------
----------------------------
----------------------------
5. Trade/fictitious or prior corporate names
(last five years):
----------------------------
<PAGE> 39
Annex D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
LASON SYSTEMS, INC.
1. Chief executive office:
----------------------------
----------------------------
----------------------------
2. Records relating to Collateral:
----------------------------
----------------------------
----------------------------
3. Equipment or Inventory:
----------------------------
----------------------------
----------------------------
4. Other places of business:
----------------------------
----------------------------
----------------------------
5. Trade/fictitious or prior corporate names
(last five years):
----------------------------
<PAGE> 40
Annex D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
MICRO-PRO, INC.
1. Chief executive office:
----------------------------
----------------------------
----------------------------
2. Records relating to Collateral:
----------------------------
----------------------------
----------------------------
3. Equipment or Inventory:
----------------------------
----------------------------
----------------------------
4. Other places of business:
----------------------------
----------------------------
----------------------------
5. Trade/fictitious or prior corporate names
(last five years):
----------------------------
<PAGE> 41
Annex D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
LASON INTERNATIONAL, INC.
1. Chief executive office:
----------------------------
----------------------------
----------------------------
2. Records relating to Collateral:
----------------------------
----------------------------
----------------------------
3. Equipment or Inventory:
----------------------------
----------------------------
----------------------------
4. Other places of business:
----------------------------
----------------------------
----------------------------
5. Trade/fictitious or prior corporate names
(last five years):
----------------------------
<PAGE> 42
Annex D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
COPYRIGHTS AND COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Registration No. Country Filing Date
- ------- ---------------- ------- -----------
<S> <C> <C> <C>
</TABLE>
2
<PAGE> 43
Annex E to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Registration No. Country Inventor Filing Date
- ------- ---------------- ------- -------- -----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 44
Annex F to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
TRADEMARKS AND TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Mark Registration No. Country Filing Date
- ------- ---- ---------------- ------- -----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 45
Exhibit A to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------------
PLEDGE AMENDMENT
THIS PLEDGE AMENDMENT, dated as of _______________, _____, is delivered
by [NAME OF PLEDGOR] (the "Pledgor") pursuant to SECTION 5.1 of the Security
Agreement referred to hereinbelow. The Pledgor hereby agrees that this Pledge
Amendment may be attached to the Second Amended and Restated Pledge and Security
Agreement, dated as of __________, 1998, made by the Pledgor and certain other
pledgors named therein in favor of First Union National Bank, as Agent (as
amended, modified or supplemented from time to time, the "Security Agreement,"
capitalized terms defined therein being used herein as therein defined), and
that the Equity Interests listed on Annex A to this Pledge Amendment shall be
deemed to be part of the Equity Interests within the meaning of the Security
Agreement and shall become part of the Collateral and shall secure all of the
Secured Obligations as provided in the Security Agreement. This Pledge Amendment
and its attachments are hereby incorporated into the Security Agreement and made
a part thereof.
[NAME OF PLEDGOR]
By:
----------------------------------
Title:
---------------------------------
<PAGE> 46
Annex A
Equity Interests
<TABLE>
<CAPTION>
Percentage of
Outstanding
Type of Certificate No. of shares Interests
Name of Issuer Interests Number (if applicable) in Issuer
- ------------- --------- ------ -------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 47
Exhibit B to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------------
ASSIGNMENT AND GRANT OF SECURITY INTEREST
IN COPYRIGHTS
WHEREAS, [NAME OF PLEDGOR] (the "Pledgor") is the owner of the
copyrights listed on Schedule A attached hereto, which copyrights are registered
or have pending registrations in the United States Copyright Office as set forth
on Schedule A attached hereto (all such copyrights, registrations and
applications, collectively, the "Copyrights"); and
WHEREAS, the Pledgor has entered into a Second Amended and Restated
Pledge and Security Agreement (as amended, modified, restated or supplemented
from time to time, the "Security Agreement"), dated as of _____________, 1998,
in which the Pledgor has agreed with First Union National Bank, as Agent (the
"Agent"), with offices at One First Union Center, 301 South College Street,
Charlotte, North Carolina 28288-0735, to execute this Assignment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, as security for the payment and
performance of the Secured Obligations (as defined in the Security Agreement),
the Pledgor does hereby assign and grant to the Agent a security interest in all
of its right, title and interest in and to the Copyrights, and the use thereof,
together with all proceeds and products thereof and the goodwill of the
businesses symbolized by the Copyrights. This Assignment has been given in
conjunction with the assignment and security interest granted to the Agent under
the Security Agreement, and the provisions of this Assignment are without
prejudice to and in addition to the provisions of the Security Agreement, which
are incorporated herein by this reference.
[NAME OF PLEDGOR]
By:
----------------------------------
Title:
---------------------------------
<PAGE> 48
Schedule A
COPYRIGHTS AND COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Registration No. Country Filing Date
- ------- ---------------- ------- -----------
<S> <C> <C> <C>
</TABLE>
2
<PAGE> 49
Exhibit C to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------------
ASSIGNMENT AND GRANT OF SECURITY INTEREST
IN PATENTS AND TRADEMARKS
WHEREAS, [NAME OF PLEDGOR] (the "Pledgor") is the owner of the
trademarks and service marks listed on Schedule A attached hereto, which marks
are registered or have pending registrations in the United States Patent and
Trademark Office as set forth on Schedule A attached hereto (all such
trademarks, service marks, registrations and applications, collectively, the
"Trademarks") and is the owner of the patents listed on Schedule A attached
hereto, which patents are registered or have pending applications in the United
States Patent and Trademark Office as set forth on Schedule A attached hereto
(all such patents, registrations and applications, collectively, the "Patents");
and
WHEREAS, the Pledgor has entered into a Second Amended and Restated
Pledge and Security Agreement (as amended, modified, restated or supplemented
from time to time, the "Security Agreement"), dated as of _____________, 1998,
in which the Pledgor has agreed with First Union National Bank, as Agent (the
"Agent"), with offices at One First Union Center, 301 South College Street,
Charlotte, North Carolina 28288-0735, to execute this Assignment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, as security for the payment and
performance of the Secured Obligations (as defined in the Security Agreement),
the Pledgor does hereby assign and grant to the Agent a security interest in all
of its right, title and interest in and to the Trademarks and the Patents, and
the use thereof, together with all proceeds and products thereof and the
goodwill of the businesses symbolized by the Trademarks and the Patents. This
Assignment has been given in conjunction with the assignment and security
interest granted to the Agent under the Security Agreement, and the provisions
of this Assignment are without prejudice to and in addition to the provisions of
the Security Agreement, which are incorporated herein by this reference.
[NAME OF PLEDGOR]
By:
----------------------------------
Title:
---------------------------------
<PAGE> 50
TRADEMARKS AND TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Mark Registration No. Country Filing Date
- ------- ---- ---------------- ------- -----------
<S> <C> <C> <C> <C>
</TABLE>
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Application or Issue or
Pledgor Registration No. Country Inventor Filing Date
- ------- ---------------- ------- -------- -----------
<S> <C> <C> <C> <C>
</TABLE>
2
<PAGE> 51
Exhibit D to Pledge and Security Agreement
First Union National Bank, as Agent
Lason Services, Inc.
_____________, 1998
------------------------------------
FORM OF
PLEDGE AND SECURITY ACCESSION
THIS PLEDGE AND SECURITY ACCESSION (this "Accession"), dated as of
_____________, ____, is executed and delivered by ________________________, a
______________ corporation (the "Company"), in favor of First Union National
Bank, in its capacity as agent under the Credit Agreement referred to
hereinbelow (in such capacity, the "Agent"), pursuant to the Pledge and Security
Agreement referred to hereinbelow.
Reference is made to the Second Amended and Restated Credit Agreement,
dated as of ________________, 1998, among Lason, Inc. (the "Borrower"), the
Lenders party thereto, and the Agent (as amended, modified or supplemented from
time to time, the "Credit Agreement"). In connection with and as a condition to
the initial and continued extensions of credit under the Credit Agreement, the
Borrower and certain of its subsidiaries have executed and delivered (i) a
Second Amended and Restated Subsidiary Guaranty, dated as of ________________,
1998 (as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty"), pursuant to which such subsidiaries have guaranteed the payment in
full of the obligations of the Borrower under the Credit Agreement and the other
Credit Documents (as defined in the Credit Agreement), and (ii) a Second Amended
and Restated Pledge and Security Agreement, dated as of ________________, 1998
(as amended, modified or supplemented from time to time, the "Security
Agreement"), pursuant to which they have granted in favor of the Agent a
security interest in and Lien upon the Collateral described therein as security
for their obligations under the Credit Agreement, the Subsidiary Guaranty and
the other Credit Documents. Capitalized terms used herein without definition
shall have the meanings given to them in the Security Agreement.
The Borrower has agreed under the Credit Agreement to cause each of its
future direct and indirect subsidiaries to become a party to the Subsidiary
Guaranty as a guarantor thereunder and to the Security Agreement as a Pledgor
thereunder. The Company is a direct or indirect subsidiary of the Borrower and,
as required by the Credit Agreement, has become a guarantor under the Subsidiary
Guaranty as of the date hereof. The Company will obtain benefits as a result of
the continued extension of credit to the Borrower under the Credit Agreement,
which benefits are hereby acknowledged, and, accordingly, desire to execute and
deliver this Accession. Therefore, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce the Lenders to continue to extend credit to the
Borrower under the Credit Agreement, the Company hereby agrees as follows:
1. The Company hereby joins in and agrees to be bound by each and all
of the provisions of the Security Agreement as a Pledgor thereunder. In
furtherance (and without
<PAGE> 52
limitation) of the foregoing, pursuant to Section 2.1 of the Security
Agreement, and as security for all of the Secured Obligations, the Company
hereby pledges, assigns and delivers to the Agent, for the ratable benefit of
the Secured Parties, and grants to the Agent, for the ratable benefit of the
Secured Parties, a Lien upon and security interest in, all of its right, title
and interest in and to the Collateral as set forth in Section 2.1 of the
Security Agreement, all on the terms and subject to the conditions set forth in
the Security Agreement.
2. The Company hereby represents and warrants that (i) Schedule 1
hereto sets forth all information required to be listed on Annexes A, B, C, D, E
and F to the Security Agreement in order to make each representation and
warranty contained in Sections 3.1 and 3.2 of the Security Agreement true and
correct with respect to the Company as of the date hereof and after giving
effect to this Accession and (ii) after giving effect to this Accession and to
the incorporation into such Annexes, as applicable, of the information set forth
in Schedule 1, each representation and warranty contained in Article III of the
Security Agreement is true and correct with respect to the Company as of the
date hereof, as if such representations and warranties were set forth at length
herein.
3. This Accession shall be a Credit Document (within the meaning of
such term under the Credit Agreement), shall be binding upon and enforceable
against the Company and its successors and assigns, and shall inure to the
benefit of and be enforceable by each Secured Party and its successors and
assigns. This Accession and its attachments are hereby incorporated into the
Security Agreement and made a part thereof.
2
<PAGE> 53
IN WITNESS WHEREOF, the Company has caused this Accession to be
executed under seal by its duly authorized officer as of the date first above
written.
[NAME OF COMPANY]
By:
----------------------------------
Title:
---------------------------------
3
<PAGE> 1
EXHIBIT 4.5
SECOND AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT
THIS SECOND AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT, dated
as of the 29th day of June, 1998 (this "Guaranty"), is made by each of the
undersigned Subsidiaries of LASON, INC., a Delaware corporation (the
"Borrower"), and each other direct or indirect Subsidiary of the Borrower that,
after the date hereof, executes an instrument of accession hereto substantially
in the form of Exhibit A (a "Guarantor Accession"; the undersigned and such
other direct or indirect Subsidiaries of the Borrower, collectively, the
"Guarantors"), in favor of the Guaranteed Parties (as hereinafter defined).
Capitalized terms used herein without definition shall have the meanings given
to them in the Credit Agreement referred to below.
RECITALS
A. The Borrower, certain banks and other financial institutions
(collectively, the "Lenders"), and First Union National Bank, as agent for the
Lenders (in such capacity, the "Agent"), are parties to a Second Amended and
Restated Credit Agreement dated as of the date hereof (as amended, modified or
supplemented from time to time, the "Credit Agreement"), providing for the
availability of certain credit facilities to the Borrower upon the terms and
conditions set forth therein.
B. Certain of the undersigned Subsidiaries, the Lenders and the
Agent have heretofore entered into an Amended and Restated Subsidiary Guaranty
Agreement dated February 21, 1997 (the "Amended and Restated Guaranty
Agreement"). This Guaranty is an amendment to, and is in substitution and
replacement of the Amended and Restated Guaranty Agreement.
C. It is a condition to the extension of credit to the Borrower
under the Credit Agreement that each Guarantor shall have agreed, by executing
and delivering this Guaranty, to guarantee to the Guaranteed Parties the payment
in full of the Guaranteed Obligations (as hereinafter defined). The Guaranteed
Parties are relying on this Guaranty in their decision to extend credit to the
Borrower under the Credit Agreement, and would not enter into the Credit
Agreement without this Guaranty.
D. Each Guarantor will obtain benefits as a result of the
extension of credit to the Borrower under the Credit Agreement, which benefits
are hereby acknowledged, and, accordingly, desires to execute and deliver this
Guaranty.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Guaranteed Parties to enter into the Credit
Agreement and to induce the Lenders to extend credit to the Borrower thereunder,
each Guarantor hereby agrees as follows:
<PAGE> 2
1. Guaranty. (a) Each Guarantor hereby irrevocably, absolutely
and unconditionally, and jointly and severally:
(i) guarantees to the Lenders (including the Issuing Lender
and the Swingline Lender in their capacities as such, and including any
Lender in its capacity as a counterparty to any Hedge Agreement with
the Borrower) and the Agent (collectively, the "Guaranteed Parties")
the full and prompt payment, at any time and from time to time as and
when due (whether at the stated maturity, by acceleration or
otherwise), of all Obligations of the Borrower under the Credit
Agreement and the other Credit Documents, including, without
limitation, all principal of and interest on the Loans, all
Reimbursement Obligations in respect of Letters of Credit, all fees,
expenses, indemnities and other amounts payable by the Borrower under
the Credit Agreement or any other Credit Document (including interest
accruing after the filing of a petition or commencement of a case by or
with respect to the Borrower seeking relief under any Insolvency Laws
(as hereinafter defined), whether or not the claim for such interest is
allowed in such proceeding), all obligations of the Borrower to any
Lender under any Hedge Agreement, and all Obligations that, but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, would become due, in each case whether now existing or hereafter
created or arising and whether direct or indirect, absolute or
contingent, due or to become due (all liabilities and obligations
described in this clause (i), collectively, the "Guaranteed
Obligations"); and
(ii) agrees to pay or reimburse upon demand all reasonable
costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred or paid by (y) any Guaranteed
Party in connection with any suit, action or proceeding to enforce or
protect any rights of the Guaranteed Parties hereunder and (z) the
Agent in connection with any amendment, modification or waiver hereof
or consent pursuant hereto (all liabilities and obligations described
in this clause (ii), collectively, the "Other Obligations"; and the
Other Obligations, together with the Guaranteed Obligations, the "Total
Obligations").
(b) Notwithstanding the provisions of subsection (a) above and
notwithstanding any other provisions contained herein or in any other Credit
Document:
(i) no provision of this Guaranty shall require or
permit the collection from any Guarantor of interest in excess of the
maximum rate or amount that such Guarantor may be required or
permitted to pay pursuant to applicable law; and
(ii) the liability of each Guarantor under this Guaranty
as of any date shall be limited to a maximum aggregate amount (the
"Maximum Guaranteed Amount") equal to the greatest amount that would
not render such Guarantor's obligations under this Guaranty subject to
avoidance, discharge or reduction as of such date as a fraudulent
transfer or conveyance under applicable federal and state laws
pertaining to bankruptcy, reorganization, arrangement, moratorium,
readjustment of debts, dissolution, liquidation or other debtor
relief, specifically including, without limitation, the Bankruptcy
Code and any fraudulent transfer and fraudulent conveyance laws
(collectively, "Insolvency Laws"),
2
<PAGE> 3
in each instance after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under applicable
Insolvency Laws (specifically excluding, however, any liabilities of
such Guarantor in respect of intercompany indebtedness to the Borrower
or any of its Affiliates to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by such Guarantor
hereunder, and after giving effect as assets to the value (as
determined under applicable Insolvency Laws) of any rights to
subrogation, contribution, reimbursement, indemnity or similar rights
of such Guarantor pursuant to (y) applicable law or (z) any agreement
(including this Guaranty) providing for an equitable allocation among
such Guarantor and other Affiliates of the Borrower of obligations
arising under guaranties by such parties).
(c) The Guarantors desire to allocate among themselves, in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made hereunder on any date by a
Guarantor (a "Funding Guarantor") that exceeds its Fair Share (as hereinafter
defined) as of such date, that Funding Guarantor shall be entitled to a
contribution from each of the other Guarantors in the amount of such other
Guarantor's Fair Share Shortfall (as hereinafter defined) as of such date, with
the result that all such contributions will cause each Guarantor's Aggregate
Payments (as hereinafter defined) to equal its Fair Share as of such date. "Fair
Share" means, with respect to a Guarantor as of any date of determination, an
amount equal to (i) the ratio of (x) the Adjusted Maximum Guaranteed Amount (as
hereinafter defined) with respect to such Guarantor to (y) the aggregate of the
Adjusted Maximum Guaranteed Amounts with respect to all Guarantors, multiplied
by (ii) the aggregate amount paid or distributed on or before such date by all
Funding Guarantors hereunder in respect of the obligations guarantied. "Fair
Share Shortfall" means, with respect to a Guarantor as of any date of
determination, the excess, if any, of the Fair Share of such Guarantor over the
Aggregate Payments of such Guarantor. "Adjusted Maximum Guaranteed Amount"
means, with respect to a Guarantor as of any date of determination, the Maximum
Guaranteed Amount of such Guarantor, determined in accordance with the
provisions of subsection (b) above; provided that, solely for purposes of
calculating the "Adjusted Maximum Guaranteed Amount" with respect to any
Guarantor for purposes of this subsection (c), any assets or liabilities arising
by virtue of any rights to subrogation, reimbursement or indemnity or any rights
to or obligations of contribution hereunder shall not be considered as assets or
liabilities of such Guarantor. "Aggregate Payments" means, with respect to a
Guarantor as of any date of determination, the aggregate amount of all payments
and distributions made on or before such date by such Guarantor in respect of
this Guaranty (including, without limitation, in respect of this subsection
(c)). The amounts payable as contributions hereunder shall be determined as of
the date on which the related payment or distribution is made by the applicable
Funding Guarantor. Each Funding Guarantor's right of contribution under this
subsection (c) shall be subject to the provisions of SECTION 4. The allocation
among Guarantors of their obligations as set forth in this subsection (c) shall
not be construed in any way to limit the liability of any Guarantor hereunder to
the Guaranteed Parties.
(d) The guaranty of each Guarantor set forth in this Section is a
guaranty of payment as a primary obligor, and not a guaranty of collection. Each
Guarantor hereby acknowledges and agrees that the Guaranteed Obligations, at any
time and from time to time, may exceed the Maximum Guaranteed Amount of such
Guarantor and may exceed the aggregate of the Maximum Guaranteed Amounts of all
Guarantors, in each case without discharging, limiting or otherwise
3
<PAGE> 4
affecting the obligations of any Guarantor hereunder or the rights, powers and
remedies of any Guaranteed Party hereunder or under any other Credit Document.
2. Guaranty Absolute. Each Guarantor agrees that its obligations
hereunder are irrevocable, absolute and unconditional, are independent of the
Guaranteed Obligations and any Collateral or other security therefor or other
guaranty or liability in respect thereof, whether given by such Guarantor or
any other Person, and (to the fullest extent permitted by applicable law) shall
not be discharged, limited or otherwise affected by reason of any of the
following, whether or not such Guarantor has notice or knowledge thereof:
(i) any change in the time, manner or place of payment
of, or in any other term of, any Guaranteed Obligations or any guaranty
or other liability in respect thereof, or any amendment, modification
or supplement to, restatement of, or consent to any rescission or
waiver of or departure from, any provisions of the Credit Agreement,
any other Credit Document or any agreement or instrument delivered
pursuant to any of the foregoing;
(ii) the invalidity or unenforceability of any Guaranteed
Obligations, any guaranty or other liability in respect thereof or any
provisions of the Credit Agreement, any other Credit Document or any
agreement or instrument delivered pursuant to any of the foregoing;
(iii) the addition or release of Guarantors hereunder or
the taking, acceptance or release of other guarantees of any Guaranteed
Obligations or additional Collateral or other security for any
Guaranteed Obligations or for any guaranty or other liability in
respect thereof;
(iv) any renewal, extension, increase, decrease, release,
discharge, modification, settlement, compromise or other action in
respect of any Guaranteed Obligations or any guaranty or other
liability in respect thereof, including any acceptance or refusal of
any offer or performance with respect to the same or the subordination
of the same to the payment of any other obligations;
(v) any agreement not to pursue or enforce or any
failure to pursue or enforce (whether voluntarily or involuntarily as a
result of operation of law, court order or otherwise) any right or
remedy in respect of any Guaranteed Obligations, any guaranty or
other liability in respect thereof or any Collateral or other security
for any of the foregoing; any sale, exchange, release, substitution,
compromise or other action in respect of any such Collateral or other
security; or any failure to create, protect, perfect, secure, insure,
continue or maintain any Liens in any such Collateral or other
security;
(vi) the exercise of any right or remedy available under
the Credit Documents, at law, in equity or otherwise in respect of any
Collateral or other security for any Guaranteed Obligations or for any
guaranty or other liability in respect thereof, in any order and by any
manner thereby permitted, including, without limitation, foreclosure on
any such Collateral or other security by any manner of sale thereby
permitted, whether or not every aspect of such sale is commercially
reasonable;
4
<PAGE> 5
(vii) any bankruptcy, reorganization, arrangement,
liquidation, insolvency, dissolution, termination, reorganization or
like change in the corporate structure or existence of the Borrower or
any other Person directly or indirectly liable for any Guaranteed
Obligations;
(viii) any manner of application of any payments by or
amounts received or collected from any Person, by whomsoever paid and
howsoever realized, whether in reduction of any Guaranteed Obligations
or any other obligations of the Borrower or any other Person directly
or indirectly liable for any Guaranteed Obligations, regardless of what
Guaranteed Obligations may remain unpaid after any such application; or
(ix) any other circumstance that might otherwise
constitute a legal or equitable discharge of, or a defense, set-off or
counterclaim available to, the Borrower, any Guarantor or a surety or
guarantor generally, other than the occurrence of all of the following:
(x) the payment in full of the Total Obligations, (y) the termination
of the Commitments and the termination or expiration of all Letters of
Credit under the Credit Agreement, and (z) the termination of, and
settlement of all obligations of the Borrower under, each Hedge
Agreement to which the Borrower and any Lender are parties (the events
in clauses (x), (y) and (z) above, collectively, the "Termination
Requirements").
3. Certain Waivers. Each Guarantor hereby knowingly, voluntarily
and expressly waives to the fullest extent permitted by applicable law:
(i) presentment, demand for payment, demand for
performance, protest and notice of any other kind, including, without
limitation, notice of nonpayment or other nonperformance (including
notice of default under any Credit Document with respect to any
Guaranteed Obligations), protest, dishonor, acceptance hereof,
extension of additional credit to the Borrower and of any of the
matters referred to in SECTION 2 and of any rights to consent thereto;
(ii) any right to require the Guaranteed Parties or any
of them, as a condition of payment or performance by such Guarantor
hereunder, to proceed against, or to exhaust or have resort to any
Collateral or other security from or any deposit balance or other
credit in favor of, the Borrower, any other Guarantor or any other
Person directly or indirectly liable for any Guaranteed Obligations, or
to pursue any other remedy or enforce any other right; and any other
defense based on an election of remedies with respect to any Collateral
or other security for any Guaranteed Obligations of for any guaranty or
other liability in respect thereof, notwithstanding that any such
election (including any failure to pursue or enforce any rights or
remedies) may impair or extinguish any right of indemnification,
contribution, reimbursement or subrogation or other right or remedy of
any Guarantor against the Borrower, any other Guarantor or any other
Person directly or indirectly liable for any Guaranteed Obligations or
any such Collateral or other security; and, without limiting the
generality of the foregoing, each Guarantor hereby specifically waives
the benefits of Sections 26-7 through 26-9, inclusive, of the General
Statutes of North Carolina, as amended from time to time, and any
similar statute or law of any other jurisdiction, as the same may be
amended from time to time;
5
<PAGE> 6
(iii) any right or defense based on or arising by reason of
any right or defense of the Borrower or any other Person, including,
without limitation, any defense based on or arising from a lack of
authority or other disability of the Borrower or any other Person, the
invalidity or unenforceability of any Guaranteed Obligations, any
Collateral or other security therefor or any Credit Document or other
agreement or instrument delivered pursuant thereto, or the cessation of
the liability of the Borrower for any reason other than the
satisfaction of the Termination Requirements;
(iv) any defense based on any Guaranteed Party's acts or
omissions in the administration of the Guaranteed Obligations, any
guaranty or other liability in respect thereof or any Collateral or
other security for any of the foregoing, and promptness, diligence or
any requirement that any Guaranteed Party create, protect, perfect,
secure, insure, continue or maintain any Liens in any such Collateral
or other security;
(v) any right to assert against any Guaranteed Party, as
a defense, counterclaim, crossclaim or set-off, any defense,
counterclaim, claim, right of recoupment or set-off that it may at any
time have against any Guaranteed Party (including, without limitation,
failure of consideration, statute of limitations, payment, accord and
satisfaction and usury), other than compulsory counterclaims; and
(vi) any defense based on or afforded by any applicable
law that limits the liability of or exonerates guarantors or sureties
or that may in any other way conflict with the terms of this Guaranty.
4. Waiver of Subrogation; Subordination. Each Guarantor hereby
knowingly, voluntarily and expressly waives (to the fullest extent permitted by
applicable law), until satisfaction of the Termination Requirements all claims
and rights that it may have against the Borrower at any time as a result of any
payment made under or in connection with this Guaranty or the performance or
enforcement hereof, including all rights of subrogation to the rights of any of
the Guaranteed Parties against the Borrower, all rights of indemnity,
contribution or reimbursement against the Borrower (including rights of
contribution as set forth in SECTION 1(C)), all rights to enforce any remedies
of any Guaranteed Party against the Borrower, and any benefit of, and any right
to participate in, any Collateral or other security held by any Guaranteed Party
to secure payment of the Guaranteed Obligations, in each case whether such
claims or rights arise by contract, statute (including without limitation the
Bankruptcy Code), common law or otherwise. Each Guarantor agrees that all
indebtedness and other obligations, whether now or hereafter existing, of the
Borrower or any other Subsidiary of the Borrower to such Guarantor, including,
without limitation, any such indebtedness in any proceeding under the Bankruptcy
Code and any intercompany receivables, together with any interest thereon, shall
be, and hereby are, subordinated and made junior in right of payment to the
Total Obligations. Each Guarantor further agrees that if any amount shall be
paid to or any distribution received by any Guarantor (i) on account of any such
indebtedness at any time after the occurrence and during the continuance of an
Event of Default, or (ii) on account of any such rights of subrogation,
indemnity, contribution or reimbursement at any time prior to the satisfaction
of the Termination Requirements, such amount or distribution shall be deemed to
have been received and to be held in trust for the benefit of the Guaranteed
Parties, and shall forthwith be delivered to the Agent in the form received
(with any necessary endorsements in the case of written instruments), to be
6
<PAGE> 7
applied against the Guaranteed Obligations, whether or not matured, in
accordance with the terms of the applicable Credit Documents and without in any
way discharging, limiting or otherwise affecting the liability of such Guarantor
under any other provision of this Guaranty. Additionally, in the event the
Borrower or any Subsidiary of the Borrower becomes a "debtor" within the meaning
of the Bankruptcy Code, the Agent shall be entitled, at its option, on behalf of
the Guaranteed Parties and as attorney-in-fact for each Guarantor, and is hereby
authorized and appointed by each Guarantor, to file proofs of claim on behalf of
each relevant Guarantor and vote the rights of each such Guarantor in any plan
of reorganization, and to demand, sue for, collect and receive every payment and
distribution on any indebtedness of the Borrower or such Subsidiary to any
Guarantor in any such proceeding, each Guarantor hereby assigning to the Agent
all of its rights in respect of any such claim, including the right to receive
payments and distributions in respect thereof.
5. Representations and Warranties. Each Guarantor hereby
represents and warrants to the Guaranteed Parties as follows:
(a) Such Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the full corporate power and authority to execute, deliver
and perform this Guaranty and the other Credit Documents to which it is or will
be a party, to own and hold its property and to engage in its business as
presently conducted.
(b) Such Guarantor has taken all necessary corporate action to
execute, deliver and perform this Guaranty and each of the other Credit
Documents to which it is or will be a party, and has, or on any later date of
execution and delivery will have, validly executed and delivered each of the
Credit Documents to which it is or will be a party. This Guaranty constitutes,
and each of such other Credit Documents upon execution and delivery will
constitute, the legal, valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general equitable principles.
(c) The execution, delivery and performance by such Guarantor of
this Guaranty and the other Credit Documents to which it is a party, and
compliance by it with the terms hereof and thereof, do not and will not (i)
violate any provision of its articles or certificate of incorporation or bylaws,
(ii) contravene any Requirement of Law applicable to it, (iii) require any
approval of its stockholders or members or any approval or consent of any Person
under any agreement to which it is a party, (iv) conflict with, result in a
breach of or constitute (with notice, lapse of time or both) a default under any
indenture, loan agreement, mortgage, deed of trust, lease or other agreement or
instrument to which it is a party, by which it or any of its properties is bound
or to which it is subject, or (v) result in or require the creation or
imposition of any Lien upon any of its properties, other than Liens created
pursuant to the Credit Documents.
(d) No consent, approval, authorization or other action by, notice
to, or registration or filing with, any Governmental Authority or other Person
is or will be required as a condition to or otherwise in connection with the due
execution, delivery and performance by such Guarantor of
7
<PAGE> 8
this Guaranty and the other Credit Documents to which it is a party or the
legality, validity or enforceability hereof or thereof.
(e) There are no actions, investigations, suits or proceedings
pending or, to the knowledge of such Guarantor (after due investigation),
threatened, at law, in equity or in arbitration, before any court, other
Governmental Authority or other Person, (i) against or affecting such Guarantor
or any of its properties that would, if adversely determined, reasonably be
expected to have a Material Adverse Effect or (ii) with respect to this Guaranty
or any of the other Credit Documents to which such Guarantor is a party.
(f) Such Guarantor has been provided with a true and complete copy
of the executed Credit Agreement, as in effect as of the date it became a party
hereto, and its principal officers are familiar with the contents thereof,
particularly insofar as the contents thereof relate or apply to such Guarantor.
6. Financial Condition of Borrower. Each Guarantor represents
that it has knowledge of the Borrower's financial condition and affairs and that
it has adequate means to obtain from the Borrower on an ongoing basis
information relating thereto and to the Borrower's ability to pay and perform
the Guaranteed Obligations, and agrees to assume the responsibility for keeping,
and to keep, so informed for so long as this Guaranty is in effect with respect
to such Guarantor. Each Guarantor agrees that the Guaranteed Parties shall have
no obligation to investigate the financial condition or affairs of the Borrower
for the benefit of any Guarantor nor to advise any Guarantor of any fact
respecting, or any change in, the financial condition or affairs of the Borrower
that might become known to any Guaranteed Party at any time, whether or not such
Guaranteed Party knows or believes or has reason to know or believe that any
such fact or change is unknown to any Guarantor, or might (or does) materially
increase the risk of any Guarantor as guarantor, or might (or would) affect the
willingness of any Guarantor to continue as a guarantor of the Guaranteed
Obligations.
7. Payments; Application; Set-Off. (a) Each Guarantor agrees
that, upon the failure of the Borrower to pay any Guaranteed Obligations when
and as the same shall become due (whether at the stated maturity, by
acceleration or otherwise), and without limitation of any other right or remedy
that any Guaranteed Party may have at law, in equity or otherwise against such
Guarantor, such Guarantor will, subject to the provisions of SECTION 1(B),
forthwith pay or cause to be paid to the Agent, for the benefit of the
Guaranteed Parties, an amount equal to the amount of the Guaranteed Obligations
then due and owing as aforesaid.
(b) All payments made by each Guarantor hereunder will be made in
Dollars to the Agent, without set-off, counterclaim or other defense and, in
accordance with Section 2.17 of the Credit Agreement, free and clear of and
without deduction for any Taxes, each Guarantor hereby agreeing to comply with
and be bound by the provisions of Section 2.17 of the Credit Agreement in
respect of all payments made by it hereunder and the provisions of which Section
are hereby incorporated into and made a part of this Guaranty by this reference
as if set forth herein at length.
8
<PAGE> 9
(c) All payments made hereunder shall be applied upon receipt as
follows:
(i) first, to the payment of all Other Obligations owing
to the Agent;
(ii) second, after payment in full of the amounts
specified in clause (i) above, to the ratable payment of all other
Total Obligations owing to the Guaranteed Parties; and
(iii) third, after payment in full of the amounts specified
in clauses (i) and (ii) above, and following the termination of this
Guaranty, to the Guarantors or any other Person lawfully entitled to
receive such surplus.
(d) For purposes of applying amounts in accordance with this
Section, the Agent shall be entitled to rely upon any Guaranteed Party that has
entered into a Hedge Agreement with the Borrower for a determination (which such
Guaranteed Party agrees to provide or cause to be provided upon request of the
Agent) of the outstanding Guaranteed Obligations owed to such Guaranteed Party
under any such Hedge Agreement. Unless it has actual knowledge (including by way
of written notice from any such Guaranteed Party) to the contrary, the Agent, in
acting hereunder, shall be entitled to assume that no Hedge Agreements or
Obligations in respect thereof are in existence between any Guaranteed Party and
the Borrower.
(e) The Guarantors shall remain jointly and severally liable to the
extent of any deficiency between the amount of all payments made hereunder and
the aggregate amount of the sums referred to in clauses (i) and (ii) of
subsection (c) above.
(f) In addition to all other rights and remedies available under
the Credit Documents or applicable law or otherwise, upon and at any time after
the occurrence and during the continuance of any Event of Default, each
Guaranteed Party may, and is hereby authorized by each Guarantor, at any such
time and from time to time, to the fullest extent permitted by applicable law,
without presentment, demand, protest or other notice of any kind, all of which
are hereby knowingly and expressly waived by each Guarantor, to set off and to
apply any and all deposits (general or special, time or demand, provisional or
final) and any other property at any time held (including at any branches or
agencies, wherever located), and any other indebtedness at any time owing, by
such Guaranteed Party to or for the credit or the account of such Guarantor
against any or all of the obligations of such Guarantor to such Guaranteed Party
hereunder now or hereafter existing, whether or not such obligations may be
contingent or unmatured, each Guarantor hereby granting to each Guaranteed Party
a continuing security interest in and Lien upon all such deposits and other
property as security for such obligations. Each Guaranteed Party agrees to
notify any affected Guarantor promptly after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application.
8. No Waiver. The rights and remedies of the Guaranteed Parties
expressly set forth in this Guaranty and the other Credit Documents are
cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise. No failure or delay on the
part of any Guaranteed Party in exercising any right, power or privilege shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, power or
9
<PAGE> 10
privilege or be construed to be a waiver of any Default or Event of Default. No
course of dealing between any of the Guarantors and the Guaranteed Parties or
their agents or employees shall be effective to amend, modify or discharge any
provision of this Guaranty or any other Credit Document or to constitute a
waiver of any Default or Event of Default. No notice to or demand upon any
Guarantor in any case shall entitle such Guarantor or any other Guarantor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of any Guaranteed Party to exercise any right
or remedy or take any other or further action in any circumstances without
notice or demand.
9. Enforcement. The Guaranteed Parties agree that, except as
provided in SECTION 7(F), this Guaranty may be enforced only by the Agent,
acting upon the instructions or with the consent of the Required Lenders as
provided for in the Credit Agreement, and that no Guaranteed Party shall have
any right individually to enforce or seek to enforce this Guaranty or to realize
upon any Collateral or other security given to secure the payment and
performance of the Guarantors' obligations hereunder. The obligations of each
Guarantor hereunder are independent of the Guaranteed Obligations, and a
separate action or actions may be brought against each Guarantor whether or not
action is brought against the Borrower or any other Guarantor and whether or not
the Borrower or any other Guarantor is joined in any such action. Each Guarantor
agrees that to the extent all or part of any payment of the Guaranteed
Obligations made by any Person is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by or on behalf
of any Guaranteed Party to a trustee, receiver or any other party under any
Insolvency Laws (the amount of any such payment, a "Reclaimed Amount"), then, to
the extent of such Reclaimed Amount, this Guaranty shall continue in full force
and effect or be revived and reinstated, as the case may be, as to the
Guaranteed Obligations intended to be satisfied as if such payment had not been
received; and each Guarantor acknowledges that the term "Guaranteed Obligations"
includes all Reclaimed Amounts that may arise from time to time.
10. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by any Guarantor from,
any provision of this Guaranty, shall be effective unless in a writing signed by
the Agent and such of the Lenders as may be required under the provisions of the
Credit Agreement to concur in the action then being taken, and then the same
shall be effective only in the specific instance and for the specific purpose
for which given.
11. Addition, Release of Guarantors. Each Guarantor recognizes
that the provisions of the Credit Agreement require Persons that become
Subsidiaries of the Borrower and that are not already parties hereto to become
Guarantors hereunder by executing a Guarantor Accession, and agrees that its
obligations hereunder shall not be discharged, limited or otherwise
affected by reason of the same, or by reason of the Agent's actions in
effecting the same or in releasing any Guarantor hereunder, in each case
without the necessity of giving notice to or obtaining the consent of any other
Guarantor.
12. Continuing Guaranty; Term; Successors and Assigns; Assignment;
Survival. This Guaranty is a continuing guaranty and covers all of the
Guaranteed Obligations as the same may arise and be outstanding at any time and
from time to time from and after the date hereof, and shall (i) remain in full
force and effect until satisfaction of all of the Termination Requirements,
10
<PAGE> 11
(ii) be binding upon and enforceable against each Guarantor and its successors
and assigns (provided, however, that no Guarantor may sell, assign or transfer
any of its rights, interests, duties or obligations hereunder without the prior
written consent of the Lenders) and (iii) inure to the benefit of and be
enforceable by each Guaranteed Party and its successors and assigns. Without
limiting the generality of clause (iii) above, any Guaranteed Party may, in
accordance with the provisions of the Credit Agreement, assign all or a portion
of the Guaranteed Obligations held by it (including by the sale of
participations), whereupon each Person that becomes the holder of any such
Guaranteed Obligations shall (except as may be otherwise agreed between such
Guaranteed Party and such Person) have and may exercise all of the rights and
benefits in respect thereof granted to such Guaranteed Party under this Guaranty
or otherwise. Each Guarantor hereby irrevocably waives notice of and consents in
advance to the assignment as provided above from time to time by any Guaranteed
Party of all or any portion of the Guaranteed Obligations held by it and of the
corresponding rights and interests of such Guaranteed Party hereunder in
connection therewith. All representations, warranties, covenants and agreements
herein shall survive the execution and delivery of this Guaranty and any
Guarantor Accession.
13. Governing Law; Consent to Jurisdiction; Appointment of
Borrower as Representative, Process Agent, Attorney-in-Fact. (a) THIS GUARANTY
HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT, AND SHALL BE DEEMED TO HAVE BEEN
MADE IN, NORTH CAROLINA AND SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF THE GUARANTEED PARTIES AND THE GUARANTORS DETERMINED, IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS)
OF THE STATE OF NORTH CAROLINA. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS
DAY RECEIVED, EACH GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE
COURT WITHIN MECKLENBURG COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED
WITHIN THE WESTERN DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING
INSTITUTED HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS, OR ARISING OUT
OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER CREDIT DOCUMENTS, OR
ANY PROCEEDING TO WHICH ANY GUARANTEED PARTY OR SUCH GUARANTOR IS A PARTY,
INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY GUARANTEED PARTY OR SUCH GUARANTOR. EACH GUARANTOR IRREVOCABLY
AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT
RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY
HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY SUCH PROCEEDING.
(b) EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES AND APPOINTS THE
BORROWER AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE ON ITS BEHALF ALL
SERVICE OF PROCESS IN ANY ACTION OR PROCEEDING AND ANY OTHER NOTICE OR
COMMUNICATION HEREUNDER, CONSENTS THAT ALL SERVICE OF PROCESS UPON IT MAY BE
MADE BY
11
<PAGE> 12
REGISTERED OR CERTIFIED MAIL DIRECTED TO THE BORROWER AT ITS ADDRESS FOR
NOTICES SET FORTH IN THE CREDIT AGREEMENT (AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) BUSINESS
DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID AND
PROPERLY ADDRESSED), AND AGREES THAT SERVICE SO MADE SHALL BE EFFECTIVE AND
BINDING UPON SUCH GUARANTOR IN EVERY RESPECT AND THAT ANY OTHER NOTICE OR
COMMUNICATION GIVEN TO THE BORROWER AT THE ADDRESS AND IN THE MANNER SPECIFIED
HEREIN SHALL BE EFFECTIVE NOTICE TO SUCH GUARANTOR. FURTHER, EACH GUARANTOR DOES
HEREBY IRREVOCABLY MAKE, CONSTITUTE AND APPOINT THE BORROWER AS ITS TRUE AND
LAWFUL ATTORNEY-IN-FACT, WITH FULL AUTHORITY IN ITS PLACE AND STEAD AND IN ITS
NAME, THE BORROWER'S NAME OR OTHERWISE, AND WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES, FROM TIME TO TIME IN THE BORROWER'S DISCRETION TO AGREE ON BEHALF
OF, AND SIGN THE NAME OF, SUCH GUARANTOR TO ANY AMENDMENT, MODIFICATION OR
SUPPLEMENT TO, RESTATEMENT OF, OR WAIVER OR CONSENT IN CONNECTION WITH, THIS
GUARANTY, ANY OTHER CREDIT DOCUMENT OR ANY DOCUMENT OR INSTRUMENT PURSUANT
HERETO OR THERETO, AND TO TAKE ANY OTHER ACTION AND DO ALL OTHER THINGS ON
BEHALF OF SUCH GUARANTOR THAT THE BORROWER MAY DEEM NECESSARY OR ADVISABLE TO
CARRY OUT AND ACCOMPLISH THE PURPOSES OF THIS GUARANTY AND THE OTHER CREDIT
DOCUMENTS. THE BORROWER WILL NOT BE LIABLE FOR ANY ACT OR OMISSION NOR FOR ANY
ERROR OF JUDGMENT OR MISTAKE OF FACT UNLESS THE SAME SHALL OCCUR AS A RESULT OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BORROWER. THIS POWER, BEING
COUPLED WITH AN INTEREST, IS IRREVOCABLE BY ANY GUARANTOR FOR SO LONG AS THIS
GUARANTY SHALL BE IN EFFECT WITH RESPECT TO SUCH GUARANTOR. BY ITS SIGNATURE
HERETO, THE BORROWER CONSENTS TO ITS APPOINTMENT AS PROVIDED FOR HEREIN AND
AGREES PROMPTLY TO DISTRIBUTE ALL PROCESS, NOTICES AND OTHER COMMUNICATIONS TO
EACH GUARANTOR.
(c) NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY
GUARANTEED PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST ANY GUARANTOR IN THE
COURTS OF ANY OTHER JURISDICTION.
14. Arbitration; Preservation and Limitation of Remedies. (a) Upon
demand of any party hereto, whether made before or after institution of any
judicial proceeding, any claim or controversy arising out of, or relating to
this Guaranty or any other Credit Document ("Disputes") between or among the
Guarantors and the Guaranteed Parties, or any of them, shall be resolved by
binding arbitration conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and the Federal Arbitration Act, as in effect from time
to time. Institution of a judicial
12
<PAGE> 13
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from documents executed in the future,
or claims arising out of or connected with the transactions contemplated by this
Guaranty, the Credit Agreement and the other Credit Documents. Notwithstanding
the foregoing, this arbitration provision does not apply to Disputes under or
related to Hedge Agreements. All arbitration hearings shall be conducted in the
city in which the principal office of the Agent is located. A hearing shall
begin within 90 days of demand for arbitration and all hearings shall be
concluded within 120 days of demand for arbitration. These time limitations may
not be extended unless a party shows cause for extension and then for no more
than a total of 60 days. The expedited procedures set forth in Rule 51 et seq.
of the Arbitration Rules shall be applicable to claims of less than $1,000,000.
All applicable statutes of limitation shall apply to any Dispute. A judgment
upon the award may be entered in any court having jurisdiction. The panel from
which all arbitrators are selected shall be comprised of licensed attorneys
selected from the Commercial Financial Dispute Arbitration panel of the AAA.
(b) Notwithstanding the preceding binding arbitration provisions,
the parties hereto agree to preserve, without diminution, certain remedies that
any party hereto may employ or exercise freely, either alone, in conjunction
with or during a Dispute. Any party hereto shall have the right to proceed in
any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any
Collateral by exercising a power of sale granted pursuant to any of the Credit
Documents or under applicable law or by judicial foreclosure and sale, including
a proceeding to confirm the sale; (ii) all rights of self-help, including
peaceful occupation of real property and collection of rents, set-off, and
peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies, including injunctive relief, sequestration, garnishment,
attachment, appointment of a receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment. Any
claim or controversy with regard to any party's entitlement to such remedies is
a Dispute. Preservation of these remedies does not limit the power of an
arbitrator to grant similar remedies that may be requested by a party in a
Dispute. The parties hereto agree that no party shall have a remedy of punitive
or exemplary damages against any other party in any Dispute, and each party
hereby waives any right or claim to punitive or exemplary damages that it has
now or that may arise in the future in connection with any Dispute, whether such
Dispute is resolved by arbitration or judicially.
15. Waiver of Jury Trial. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF
THE BENEFITS HEREOF, EACH GUARANTEED PARTY, HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM
OR CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF
THE OTHER CREDIT DOCUMENTS, OR ANY PROCEEDING TO WHICH ANY GUARANTEED PARTY OR
SUCH GUARANTOR IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR
IN CONNECTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF ANY GUARANTEED PARTY OR SUCH GUARANTOR. The scope
of this waiver is intended to be all-encompassing of any and all disputes that
may be filed in any court and that relate to the subject matter of this
transaction, including, without limitation, contract
13
<PAGE> 14
claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each Guarantor and, by its acceptance of the benefits hereof,
each Guaranteed Party, (i) acknowledges that this waiver is a material
inducement to enter into a business relationship, that it has relied on this
waiver in entering into this Guaranty or accepting the benefits hereof, as the
case may be, and that it will continue to rely on this waiver in its related
future dealings with the other parties hereto, and (ii) further warrants and
represents that it has reviewed this waiver with its legal counsel and that,
based upon such review, it knowingly and voluntarily waives its jury trial
rights to the extent permitted by applicable law. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, MODIFICATIONS OR SUPPLEMENTS TO OR
RESTATEMENTS OF THIS GUARANTY OR ANY OF THE OTHER CREDIT DOCUMENTS. IN THE EVENT
OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT. IN THE EVENT THAT THE WAIVER OF JURY TRIAL HEREIN SHALL BE DETERMINED TO
BE INVALID OR UNENFORCEABLE AS A MATTER OF LAW WITH RESPECT TO ANY PARTY, THE
PROVISIONS OF SECTION 14 SHALL GOVERN AS TO THE MATTERS SET FORTH THEREIN WITH
RESPECT TO SUCH PARTY.
16. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered (a) if to any Guarantor, in care of the Borrower
and at the Borrower's address for notices set forth in the Credit Agreement and
(b) if to any Guaranteed Party, at its address for notices set forth in the
Credit Agreement; or to such other address as any of the Persons listed above
may designate for itself by like notice to the other Persons listed above; and
in each case, with copies to such other Persons as may be specified under the
provisions of the Credit Agreement. All such notices and communications shall be
deemed to have been given (i) if mailed as provided above by any method other
than overnight delivery service, on the third Business Day after deposit in the
mails, (ii) if mailed by overnight delivery service, telegraphed, telexed,
telecopied or cabled, when delivered for overnight delivery, delivered to the
telegraph company, confirmed by telex answerback, transmitted by telecopier or
delivered to the cable company, respectively, or (iii) if delivered by hand,
upon delivery; provided that notices and communications to the Agent shall not
be effective until received by the Agent.
17. Severability. To the extent any provision of this Guaranty is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Guaranty in any jurisdiction.
18. Construction. The headings of the various sections and
subsections of this Guaranty have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof. Unless the context otherwise requires, words in the singular include the
plural and words in the plural include the singular.
19. Counterparts; Effectiveness. This Guaranty may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which when so
14
<PAGE> 15
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Guaranty shall become effective, as
to any Guarantor, upon the execution and delivery by such Guarantor of a
counterpart hereof or a Guarantor Accession.
15
<PAGE> 16
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed by its duly authorized officers as of the date first above written.
LASON SERVICES, INC.
By: Gary L. Monroe
---------------------------------
Title: Gary L Monroe
President and CEO
-------------------------------
LASON SYSTEMS, INC.
By: Gary L. Monroe
--------------------------------
Title: Gary L Monroe
President and CEO
--------------------------------
MICRO-PRO, INC.
By: William J. Rauwerdink
--------------------------------
Title: William J. Rauwerdink
Treasurer
--------------------------------
LASON INTERNATIONAL, INC.
By: Gary L. Monroe
--------------------------------
Title: Gary L Monroe
President and CEO
--------------------------------
Accepted and agreed to:
FIRST UNION NATIONAL BANK,
As Agent
By:
-------------------------------------
Title:
----------------------------------
(signatures continued)
16
<PAGE> 17
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed by its duly authorized officers as of the date first above written.
LASON SERVICES, INC.
By:
---------------------------------
Title:
--------------------------------
LASON SYSTEMS, INC.
By:
--------------------------------
Title:
--------------------------------
MICRO-PRO, INC.
By:
--------------------------------
Title:
--------------------------------
LASON INTERNATIONAL, INC.
By:
--------------------------------
Title:
--------------------------------
Accepted and agreed to:
FIRST UNION NATIONAL BANK,
As Agent
By: Henry R. Biedrzycki
-------------------------------------
Title: Henry R. Biedrzycki
----------------------------------
Vice President
(signatures continued)
16
<PAGE> 18
The Borrower hereby joins in this Guaranty for purposes of evidencing
its consent to, and agreement to perform, the provisions of Section 13(b).
LASON, INC.
By: Gary L. Monroe
------------------------------------
Title: Gary L. Monore
President and CEO
---------------------------------
17
<PAGE> 1
EXHIBIT 5.1
[SEYBURN, KAHN, GINN, BESS, DEITCH AND SERLIN LETTERHEAD]
_________, 1998
Lason, Inc.
1305 Stephenson Highway
Troy, Michigan 48083
Re: Lason, Inc.
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Lason, Inc., a Delaware corporation (the
"Company"), in connection with the proposed registration of up to 3,500,000
shares of the Company's Common Stock, par value $.01 per share (the "Shares")
which includes 800,000 shares subject to the Underwriters' over-allotment
options, pursuant to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act") (such Registration Statement, as amended or
supplemented and together with any other registration statement referred to in
this sentence, is hereinafter referred to as the "Registration Statement"). This
opinion also relates to any registration statement in connection with this
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Act and the term "Shares" as used herein also includes any additional shares of
the Company's Common Stock registered pursuant to such subsequently filed
registration statement.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Amended and Restated Certificate of Incorporation and
Bylaws of the Company, (ii) minutes and records of the corporate proceedings of
the Company with respect to the Shares, (iii) the Registration Statement and the
exhibits thereto, (iv) the form of underwriting agreement (the "Underwriting
Agreement") to be entered into among the Company, Prudential Securities
Incorporated, BancAmerica Roberston Stephens, William Blair & Company, Jefferies
& Company, Inc., PaineWebber Incorporated and the Robinson-Humphrey Company, and
(v) such other documents and instruments as we have deemed necessary for
purposes of the opinions contained herein.
<PAGE> 2
Lason, Inc.
Page 2
For purposes of this opinion, we have assumed the authenticity of the
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of the persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Company. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of any
laws except the General Corporation Law of the State of Delaware (the "DGCL")
and the federal laws of the United States of America.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that the Shares have been duly authorized for issuance and, upon (i)
effectiveness under the Act of the Registration Statement and (ii) payment for
the Shares in accordance with the terms of the Underwriting Agreement and
issuance in accordance therewith, the Shares will be validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the current
DGCL or the current federal law of the United States be changed by legislative
action, judicial decision or otherwise.
This opinion is furnished to you solely for your benefit to be used by
you in connection with the filing of the Registration Statement and is not to be
used, circulated, quoted or otherwise relied upon by any other person or by you
for any other purpose.
Very truly yours,
SEYBURN, KAHN, GINN, BESS, DEITCH
AND SERLIN, P.C.
<PAGE> 1
EXHIBIT 10.39
SECURED PROMISSORY NOTE
$--------------- ---------------
Troy, Michigan
FOR VALUE RECEIVED, _______________ ("Borrower") promises to pay to the
order of Lason, Inc., a Delaware corporation (the "Company"), at 1350 Stephenson
Highway, Troy, Michigan 48083, or at such other place as the Company may
designate in writing, the principal sum of up to ________________ U.S. Dollars
($_________) (the "Available Credit Facility") or such lesser amount as shall
have been advanced to the Borrower by the Company under Section 1 of this Note
(the "Principal Sum"), together with interest on the unpaid balance of the
Principal Sum, as follows:
1. ANNUAL ADVANCES. The Company shall advance 25% of the Available
Credit Facility to the Borrower on the date hereof (the "Execution Date").
Thereafter for each of the next three (3) successive anniversary dates of the
Execution Date, the annual amount for which the Borrower may request an
additional advance will be determined as follows:
Number of option shares under the Borrower's May 29, 1998 option grant X
(Company's share price at anniversary date -$27.50);
provided, however, that the amount funded in a particular year, when taken
together with previous advances under the Note, may not exceed the following
cumulative percentages of the Available Credit Facility for the following
anniversary dates:
Anniversary Maximum Cumulative Percentage of Available Credit Facility
1st 50%
2nd 75%
3rd 100%
If the Company's share price on any anniversary date is below $27.50, the
Borrower will not be entitled to an advance for that particular year, but no
reduction in the outstanding principal amount of the Note will be required.
Notwithstanding anything to the contrary, (i) the Company shall advance
one hundred percent (100%) of the unadvanced portion of the Available Credit
Facility in the event of a change in control of the Company, as defined in the
Company's 1998 Equity Participation Plan (a "Change in Control"), which occurs
prior to the fourth anniversary of the Execution Date if the Company's stock
price is at least $40.50 at the time the Change in Control occurs; (ii) if a
Change in Control occurs prior to the fourth anniversary of the Execution Date
and the Company's share price is greater than $27.50 and less than $40.50 at the
time the Change in Control occurs, then the Company shall
1
<PAGE> 2
advance an amount equal to (A) the number of option shares under the Borrower's
May 29, 1998 option grant multiplied by (the Company's share price at the time
the Change in Control occurs minus $27.50) minus (B) all amounts previously
advanced under this Note; and (iii) no amounts are to be advanced under this
Note following the fourth anniversary of the Execution Date, regardless of
whether the entire Available Credit Facility has been advanced. In the event
that the amount calculated under (ii) of the preceding sentence is a negative
number, no reduction in the outstanding principal amount of the Note will be
required.
2. INTEREST. Interest shall accrue on the unpaid balance of the
Principal Sum at the Applicable Federal Rate as in effect on the date hereof and
on each successive anniversary date of this Note. In no event shall the interest
rate payable under this Note exceed the maximum rate permitted by law. To the
extent that Borrower is employed by the Company at the end of any calendar year
prior to the Maturity Date, as defined below, all accrued and unpaid interest on
the unpaid balance of the Principal Sum shall be deemed to have been paid by
Borrower to the Company, and shall be considered and treated as increased W-2
earnings to Borrower.
3. MATURITY; PREPAYMENT. The Principal Sum, together with accrued and
unpaid interest thereon, shall be due and payable upon the first to occur of the
following: (i) the tenth anniversary of the date of this Note; (ii) termination
of the Borrower's employment with the Company for any reason, other than death
or permanent disability (as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended), within the forty-eight (48) month period beginning on
the date of this Note; or (iii) acceleration of the Note upon an Event of
Default as described in Section 4 (the "Maturity Date"). If the Principal Sum is
not paid within five (5) days of the Maturity Date, interest shall thereafter
accrue on the unpaid balance of the Principal Sum at the per annum rate of three
percent (3%) plus the Applicable Federal Rate in effect on the Maturity Date.
Borrower may prepay any and all principal and accrued interest due under this
Note at any time without additional interest or penalty. All amounts outstanding
under this Note will be canceled and forgiven in the event of a Change in
Control of the Company; provided that the Note is not in default and has not
matured prior to the Change in Control.
4. SECURITY. To secure full and timely performance under this Note,
Borrower agrees to pledge or cause to be pledged, and to grant or cause to be
granted, a security interest in the Borrower's unexercised stock options under
that certain Stock Option Agreement between the Borrower and the Company dated
as of May 29, 1998, together with any Common Stock of the Company acquired upon
the exercise of such stock options or any proceeds thereof (collectively, the
"Collateral"), pursuant to that certain Pledge and Security Agreement between
the Borrower and the Company dated as of ___________, 1998. This Note is
entitled to all benefits arising under, and is subject to the terms of, the
Pledge and Security Agreement, which among other things provides for the
acceleration of the Maturity Date hereof upon the occurrence of certain events.
All the representations, warranties, agreements, terms and conditions contained
in the Pledge and Security Agreement are incorporated herein. Borrower shall
execute and deliver or cause to be executed and delivered, all agreements,
instruments, documents and other written matter (collectively, the "Supplemental
Documentation") that the Company may request, in form and substance acceptable
2
<PAGE> 3
to the Company, to perfect and maintain perfected liens and a security
interest in the Collateral and which may be required by virtue of the Company's
status as a public company.
5. EVENT OF DEFAULT; ACCELERATION; OFFSET. During the continuance of an
Event of Default (as defined in the Pledge and Security Agreement), the
obligations evidenced by this Note, including, without limitation, the entire
unpaid Principal Sum together with any accrued interest, shall become
immediately due and payable without any notice or demand. During the continuance
of an Event of Default (as defined in the Pledge and Security Agreement), the
Company shall have the right to offset any amounts owing by the Company to
Borrower for whatever reason, including, but not limited to, salary, bonus or
expense reimbursement, against any unpaid portion of the Principal Sum advanced
by the Company and accrued interest thereon.
6. COSTS AND EXPENSES. In addition to all other sums payable under this
Note, Borrower also agrees to pay to the Company upon demand all costs and
expenses incurred by the Company in the enforcement of Borrower's obligations
under this Note, including, without limitation, reasonable attorneys' fees. If
Borrower fails to pay such costs and expenses within five (5) days of the
receipt by Borrower of the Company's written demand therefor, then interest
shall accrue on such costs and expenses at the rate specified in the second
sentence of Section 3 from the date of demand until the date of payment.
7. SEVERABILITY. If any provision of this Note is held to be invalid or
unenforceable by a court of competent jurisdiction, the other provisions of this
Note shall remain in full force and effect and shall be construed liberally in
favor of the Company in order to effectuate the provisions of this Note.
8. GOVERNING LAW. This instrument shall be governed by and construed
according to the laws of the State of Michigan.
9. WAIVER. Borrower waives presentment, demand, notice of protest and
notice of dishonor and any and all other notices and demands in connection with
any delivery, acceptance, performance or default of this Note and agrees that
this Note may be modified only by an agreement in writing signed by the Company
and Borrower.
10. NO RIGHT TO CONTINUED EMPLOYMENT. The Company's acceptance of this
Note is a strictly voluntary undertaking on the part of the Company and shall
not constitute consideration for, or any inducement or condition of, the
employment of the Borrower by the Company. Nothing contained in this Note shall
give the Borrower the right to be retained in the service of the Company or to
interfere with or restrict the right of the Company, which is hereby expressly
reserved, to discharge or retire the Borrower at any time or for any reason not
prohibited by law, with or without cause.
11. MARGIN STOCK. Borrower represents and warrants that none of the
advances under this Note will be used for the purpose of buying or carrying
"margin stock," as that term is defined
3
<PAGE> 4
by Regulation U of the Federal Reserve Board. "Margin stock" includes any
equity security registered or having unlisted trading privileges on a national
securities exchange, any OTC security designated as qualified for trading in the
Nasdaq National Market System, any debt security convertible into a margin stock
or carrying a warrant or right to subscribe to or purchase a margin stock, any
warrant or right to subscribe to or purchase a margin stock, and, with certain
exceptions, securities issued by an investment company registered under Section
8 of the Investment Company Act of 1940.
By:___________________________________
4
<PAGE> 1
EXHIBIT 10.40
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("Agreement"), dated as of ______,
1998 by and between ___________ ("Borrower") and Lason, Inc. (the "Company").
Whereas, the Company has loaned Borrower the principal sum of $______
pursuant to a Secured Promissory Note dated as of the date hereof (the "Note").
NOW, THEREFORE, in order to induce the Company to make the loan, and
secure Borrower's obligations under the Note, the parties named herein agree as
follows:
1. PLEDGE. The Borrower hereby grants a first security interest to
the Company in the following collateral (the "Collateral"):
(a) All unexercised stock options pursuant to that certain Stock Option
Agreement between the Borrower and the Company dated as of May 29, 1998 (the
"Stock Options"); and
(b) Subject to Section 7 hereof, all of Borrower's right to, title and
interest in the shares of Common Stock that Borrower may acquire upon exercise
of the Stock Options (the "Exercise Shares"), all dividends and distributions
arising therefrom, payable therein or distributed in respect thereto, whether in
cash, property, stock or otherwise and whether now or hereafter declared, paid
or made, together with the right to receive and receipt therefor, together with
all proceeds thereof; provided, however, that if and so long as no default in
the observance and performance by the Borrower of any of the terms of this
Agreement or the Note, the Borrower shall have the right to receive all
dividends in respect to the Collateral paid in cash or in the stock of a
corporation or in other property; and provided further, that the Borrower shall
pledge to the Company any such stock or other property so distributed to
Borrower to secure Borrower's obligations to the Company and shall enter into
any such further agreements and execute such further documents as the Company
may require to effectuate such pledge or that may be required by virtue of the
Company's status as a public company.
2. PERFECTION OF SECURITY INTEREST. In order to perfect the Company's
security interest in the Collateral described in Section 1(a), the Borrower
agrees to deliver a UCC-1 financing statement to the Company for filing in the
Borrower's state of residence. In order to perfect the Company's security
interest in the Collateral described in Section 1(b), the Borrower agrees to
deliver to the Company share certificates duly endorsed for transfer in blank
(or accompanied by one or more signed stock powers in blank), to be held by the
Company pursuant to the terms of this Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower hereby
represents, warrants and agrees with the Company as follows:
1
<PAGE> 2
(a) The Borrower has the legal capacity to execute this Agreement and
to carry out all of the terms, conditions, covenants and provisions contained
herein.
(b) If, whenever, and as often as, during the term of this Agreement,
any stock dividend, reclassification, readjustment or other change is declared
or made in the capital structure of the Company, all new, substituted and
additional shares or other securities issued upon exercise of the Stock Options
or in consideration of the Exercise Shares shall be held by the Company under
the terms of this Agreement in the same manner as the Stock Options.
(c) The Borrower has good right and lawful authority to pledge,
hypothecate, mortgage, assign, transfer, deliver, set over and confirm unto the
Company the Collateral as provided in this Agreement, and the Borrower shall
warrant and defend the title thereto and the Company's security interest therein
against the claims of all persons.
(d) So long as this Agreement is in effect, the Borrower shall not
sell, assign or transfer, and shall not pledge, hypothecate, mortgage or
otherwise encumber any right or rights with respect to the Collateral or any
rights or interest therein.
(e) Borrower agrees to execute Form F.R. G-3 and any other form
required to be executed pursuant to Regulation G and any other rules and
regulations of the Federal Reserve System with respect to the Collateral.
(f) Borrower agrees that if at any time prior to the fourth anniversary
of this Agreement the sum of: (i) the Fair Market Value of the Exercise Shares
(as defined below) and (ii) the product of the number of unexercised Stock
Options multiplied by the difference between the option exercise price and the
current market price for the Company's Common Stock, is less than one hundred
(100%) of the principal amount outstanding under the Note and all other monies
due thereunder ("Note Indebtedness"), then Borrower shall grant to the Company
such additional collateral as the Company may deem appropriate and shall execute
any and all documents reasonably necessary in order to perfect a security
interest in such collateral in favor of the Company. The Fair Market Value of
the Exercise Shares shall be determined by multiplying the number of Exercise
Shares times the closing price per Exercise Share as reported on The Nasdaq
Stock Market.
4. DEFAULT. Each of the following events or conditions constitutes an
"Event of Default":
(a) Failure by the Borrower to make any payment of principal or
interest under the Note on or before 30 days after the date such payment is due.
(b) [Reserved.]
(c) Any representation, warranty or other statement by or on behalf of
the Borrower contained in the Note or in this Agreement is false or misleading
in any material respect when made.
2
<PAGE> 3
(d) The Borrower becomes insolvent or bankrupt or makes any assignment
for the benefit of creditors, or consents to the appointment of a trustee,
receiver or liquidator.
(e) Bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings are instituted by or against the Borrower, which proceedings are not
dismissed or stayed within 60 days after they are instituted.
If, whenever and as often as, there shall have occurred an Event of
Default, the Company shall have at any time thereafter the rights and remedies
provided by law, including those contained in the Uniform Commercial Code in
force in Michigan, and without limiting the generality of the foregoing, (i) the
right to declare all amounts then remaining unpaid under the Note to be
immediately due and payable, and (ii) the right to take any available action or
proceeding, at law or in equity, which it deems necessary or advisable for its
protection and security.
5. GOVERNING LAW. This transaction shall be governed by the laws of the
State of Michigan, and the Company shall have all of the rights and remedies
granted to a secured party under the Michigan Uniform Commercial Code.
6. AUTHORITY OF THE COMPANY. The Borrower hereby irrevocably authorizes
and empowers the Company, in its absolute discretion, at any time and after any
Event of Default as defined herein, to cancel Borrower's unexercised stock
options and complete stock powers and to transfer or cause to be transferred on
its books all of the Exercise Shares and the share certificates relating
thereto.
7. TERMINATION. Upon the earlier to occur of (a) the fourth anniversary
hereof and no Event of Default by Borrower under the Note or this Agreement and
(b) payment in full of Borrower's obligations under the Note, all rights and
interests of the Company in and to the Collateral shall thereupon revest in the
Borrower, and the Company thereupon shall release the security interest granted
in this Agreement, reassign the Stock Options and Exercise Shares to the
Borrower and deliver the related share certificates (together with any related
stock powers) to the Borrower. In addition, when and if the Fair Market Value of
the Exercise Shares, if any, exceeds 125% ("Excess Value") of the Note
Indebtedness and such Excess Value continues for a period of 30 trading days
then the security interest granted in this Agreement shall be released with
respect to those Exercise Shares comprising such Excess Value only, and such
shares shall be reassigned to the Borrower and the related share certificates
(together with any related stock powers) shall be returned to the Borrower;
provided however, that after such release the Fair Market Value of the Exercise
Shares is at least 100% of the Note Indebtedness and such release is approved by
the Chief Executive Officer of the Company.
8. TAXES. The Borrower shall pay for any and all documentary stamps or
other taxes which may be imposed on the transfer and delivery to the Company, or
the retransfer and redelivery to the Borrower, of the Exercise Shares and the
other Collateral.
3
<PAGE> 4
9. COMPANY'S RIGHTS; EXCULPATION. The Collateral shall be held in the
possession of the Company, and in connection therewith, the Company shall have
the authority and power to take such actions and to exercise such powers
hereunder as are specifically delegated to the Company by the terms hereof,
together with such other powers as are reasonably incidental thereto. The
Company shall not be liable hereunder in its capacity as agent or bailee for any
action taken or omitted by it hereunder except for its gross negligence or
willful breach. The Company shall have no compensation hereunder and shall be
under no duty with respect to the Collateral except to account therefor in due
course, pursuant to the terms and conditions hereof.
10. ENTIRE AGREEMENT. This Agreement, the Note and the Stock Option
Agreement collectively constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and are not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
11. MODIFICATION OF AGREEMENT. This Agreement may not be modified
except in writing and executed with the same formality as this Agreement.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
13. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and addressed:
If to Lason, Inc., as follows:
Lason, Inc.
1350 Stephenson Highway
Troy, Michigan 48083
Attention: Corporate Counsel
If to the Borrower to:
14. FURTHER ASSURANCE. Each party shall execute and deliver to the
other such further documents and instruments, and shall perform such other acts,
as reasonably may be necessary or proper to carry out the purposes of this
Agreement.
BORROWER
4
<PAGE> 5
By:______________________________
LASON, INC.
By:________________________________
Name:
Title:
5
<PAGE> 1
EXHIBIT 10.41
LASON SYSTEMS, INC.
1305 Stephenson Highway
Troy, Michigan 48083
July 29, 1998
Mr. Gary L. Monroe
Chairman of the Board
President and CEO
Lason, Inc.
1305 Stephenson Highway
Troy, Michigan 48083
Re: Employment Agreement
Dear Gary:
Your employment agreement dated August 7, 1996 with Lason Systems, Inc. (the
"Company") is scheduled to terminate August 7, 1998.
You and the Company have agreed to extend the term of the Employment Agreement
for an additional year through August 7, 1999, with the base salary figure in
Section 2A of the Agreement increased to $220,000.00 per calendar year, with
such increases as may be approved by the Company's Board of Directors or Lason,
Inc.'s Compensation Committee during the term as extended.
Please acknowledge your agreement to amend the terms of your Employment
Agreement by signing below.
Very truly yours,
LASON SYSTEMS, INC.
/s/ Donald M. Gleklen
Donald M. Gleklen,
Director
Member, Compensation Committee
Lason, Inc.
I AGREE TO AMEND THE TERMS
OF MY EMPLOYMENT AGREEMENT
WITH THE COMPANY AS SET FORTH
IN THIS LETTER:
/s/ Gary L. Monroe
- -------------------------------
Gary L. Monroe
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 16, 1998 on our audits of the consolidated financial
statements and financial statement schedule of Lason, Inc. We also consent to
the reference to our firm under the caption "Experts" and "Selected Consolidated
Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
July 29, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
of our report dated July 17, 1998 on our audit of the financial statements of
Consolidated Reprographics. We also consent to the reference to our firm under
the caption "Experts" and "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
July 29, 1998
