<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to_______________
Commission File Number: 000-21407
LASON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3214743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
1305 Stephenson Highway
Troy, Michigan 48083
(Address of principal executive offices including zip code)
Telephone: (248) 597-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
As of August 13, 1998, 12,256,749 shares of Common Stock, $.01 par value were
outstanding.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
June 30, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Income (Unaudited),
Three Months and Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited),
Six Months Ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
1
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Lason, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for shares)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 690 $ 2,925
Accounts receivable (net) 65,026 43,815
Supplies 6,467 3,964
Prepaid expenses and other 13,711 8,946
----------- ----------
Total current assets 85,894 59,650
Property and equipment (net) 37,189 22,575
Deferred income taxes - 1,034
Intangible assets (net) 156,221 94,640
----------- ----------
TOTAL ASSETS $ 279,304 $ 177,899
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 8,611 $ 6,984
Accounts payable 8,632 6,590
Notes payable 218 6,462
Customer deposits 4,829 2,810
Deferred income taxes 1,812 1,753
Other 6,614 3,714
----------- ----------
Total current liabilities 30,716 28,313
Revolving credit line borrowings 96,400 13,550
Deferred income taxes 902 -
Other liabilities 9,683 3,431
----------- ----------
TOTAL LIABILITIES 137,701 45,294
----------- ----------
Common stock with a put option - 1,060
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 20,000,000 shares authorized,
12,118,514 and 11,637,640 shares issued and outstanding 117 115
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding - -
Additional paid-in capital 120,102 117,352
Retained earnings 21,384 14,078
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 141,603 131,545
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 279,304 $ 177,899
=========== ==========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
2
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Lason, Inc.
Condensed Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues, net of postage $ 62,636 $ 27,422 $ 109,202 $ 53,658
Cost of revenues 40,514 19,000 70,325 37,147
------------- ---------- ----------- ----------
Gross profit 22,122 8,422 38,877 16,511
Selling, general and administrative expenses 12,758 4,144 22,536 8,493
Compensatory stock option expense 69 55 138 109
Amortization of intangibles 1,317 561 2,283 1,041
------------- ---------- ----------- ----------
Income from operations 7,978 3,662 13,920 6,868
Net interest expense 1,530 474 2,176 740
------------- ---------- ----------- ----------
Income before income taxes 6,448 3,188 11,744 6,128
Provision for income taxes 2,608 1,203 4,438 2,250
------------- ---------- ----------- ----------
Net Income $ 3,840 $ 1,985 $ 7,306 $ 3,878
============= ========== =========== ==========
Basic earnings per share $ 0.33 $ 0.22 $ 0.63 $ 0.44
============= ========== =========== ==========
Diluted earnings per share $ 0.31 $ 0.22 $ 0.59 $ 0.42
============= ========== =========== ==========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
3
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Lason, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1998 1997
---------- ------------
<S> <C> <C>
---------- ------------
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (4,478) $ 1,182
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of businesses,
net of cash acquired (65,747) (19,226)
Additions to fixed assets and software development costs (9,002) (3,837)
Proceeds from sales of fixed assets 55 164
---------- ------------
Net cash used in investing activities (74,694) (22,899)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 331,700 63,343
Repayments on revolving line of credit (248,850) (40,044)
Repayments of notes payable (6,218) -
Proceeds from exercise of employee stock options 305 66
---------- ------------
Net cash provided by financing activities 76,937 23,365
---------- ------------
Net (decrease) increase in cash and cash equivalents (2,235) 1,648
Cash and cash equivalents at beginning of period 2,925 79
---------- ------------
Cash and cash equivalents at end of period $ 690 $ 1,727
========== ============
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Lason, Inc. (together with its subsidiaries, the "Company") have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, such interim financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements.
In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The operating results for the six month period ended June 30,
1998 are not necessarily indicative of the results to be expected for the year
ending December 31, 1998.
For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 filed with the Securities and Exchange Commission
on March 31, 1998.
Certain reclassifications have been made to the consolidated financial
statements for 1997 to conform to the 1998 presentation.
NOTE 2. ACQUISITIONS
During the six months ended June 30, 1998, the Company acquired several
information management companies. The most significant of which were: Racom
Corporation and its affiliates, API Systems, Inc., Quality Mailing Services,
Inc., Strategy Manufacturing, Inc., Litigation Reprographics and Support
Services, Inc., and Document Production Services, Inc. (the "1998
Acquisitions").
Under terms of a majority of the purchase agreements for the 1998
Acquisitions, shares of the Company's common stock and / or cash are being held
in escrow to indemnify the Company if contingencies set forth in such purchase
agreements occur within specified time periods ranging from 12 to 24 months from
the respective date of acquisition. In addition, certain of the purchase
agreements provide for an increase to the purchase price if operating income of
the acquired business exceeds targeted levels. The maximum amount of
additional purchase price which may be recorded should such targets be achieved
for the 1998 Acquisitions is approximately $30.7 million. All of the
purchase price contingencies, if any, will be recorded as an adjustment to the
purchase price when the related contingency is resolved.
The aggregate purchase price for all acquisitions completed during the
first six months of 1998, excluding liabilities assumed, was approximately $75.0
million, consisting of approximately $63.6 million in cash and 368,783 shares of
the Company's common stock valued at approximately $11.4 million. The purchase
price was allocated to the assets acquired and liabilities assumed based on the
related fair values at the date of acquisition. The excess of the aggregate
purchase price over the fair values of assets acquired and liabilities assumed
has been allocated to goodwill and is being amortized on a straight-line method
over 30 years. The allocation of the excess purchase price is based on
preliminary estimates and assumptions, and is subject to revision upon final
determination of the fair market value of the net assets acquired. Management
does not expect the final allocations to differ materially from the preliminary
estimates.
Each acquisition completed in the first half of 1998 was accounted for
as a purchase. The results of operations for the three and six month periods
ended June 30, 1998 include the results of operations for each of the acquired
companies since the date of their respective acquisition.
5
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In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 25,436
Goodwill 56,259
Cash and common stock held in escrow 11,096
Net cash paid in consideration for companies
acquired (63,617)
Common stock issued in consideration for companies acquired (11,382)
-------
Liabilities assumed $ 17,792
========
</TABLE>
The following table summarizes pro forma unaudited results of
operations as if each of the acquisitions completed during the first half of
1998 had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $128,532 $98,020
Income before income taxes 13,293 7,731
Net income 8,181 4,692
Basic earnings per share $ 0.70 $ 0.53
Diluted earnings per share $ 0.66 $ 0.49
</TABLE>
In July 1998, the Company purchased all of the outstanding common stock
of Consolidated Reprographics, Input Services International, Inc., and Boyle
Associates, Inc., for aggregate consideration of $50.8 million consisting of
$43.4 million in cash and 133,962 shares of the Company's common stock valued at
approximately $7.4 million.
NOTE 3. LONG-TERM DEBT
The Company has a credit agreement with a bank group providing for
revolving credit loans up to $200 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 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 rates ranging from LIBOR plus a maximum
of 1.75% to a base percentage rate plus a maximum of 0.50%, at the Company's
election at the time of borrowing. The credit agreement contains restrictions on
the acquisition of stock or assets, disposal of assets, incurrence of other
liabilities, minimum requirements for cash flow and certain financial ratios.
NOTE 4. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" 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. EPS amounts for the three months and six months ended
June 30, 1997 have been restated using the provisions of SFAS No. 128.
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 three and six month periods ended June 30, 1998 and 1997 (in thousands,
except per share amounts):
6
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<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
----------------------------- --------------------------------
Weighted Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
------ -------- ----- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 3,840 11,654 $0.33 $1,985 8,869 $0.22
EFFECT OF DILUTIVE SECURITIES
Contingently issuable
shares of common stock -- 409 -- -- -- --
Potential shares of common
stock from stock options
outstanding -- 355 -- -- 305 --
------- ------- ------ -----
DILUTED EPS $ 3,840 12,418 $0.31 $1,985 9,174 $0.22
======= ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
----------------------------- ------------------------------------
Weighted Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
------ -------- ----- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 7,306 11,630 $0.63 $3,878 8,782 $0.44
EFFECT OF DILUTIVE SECURITIES
Contingently issuable
shares of common stock -- 317 -- -- -- --
Potential shares of common
stock from stock options
outstanding -- 340 -- -- 357 --
------- ------ ------ -----
DILUTED EPS $ 7,306 12,287 $0.59 $3,878 9,139 $0.42
======= ====== ====== =====
</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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company and the
related notes and the other related financial information included elsewhere in
this Form 10-Q. The discussion in this section contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-Q and identified from time to time in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
7
<PAGE> 9
OVERVIEW
During the six months ended June 30, 1998, the Company acquired several
information management companies. The most significant of which were: Racom
Corporation and its affiliates, API Systems, Inc., Quality Mailing Services,
Inc., Strategy Manufacturing, Inc., Litigation Reprographics and Support
Services, Inc., and Document Production Services, Inc. (the "1998
Acquisitions"). In July 1998, the Company completed the acquisition of
Consolidated Reprographics, Inc., Input Services International, Inc., and Boyle
Associates, Inc.
Although management anticipates that the Company will continue to
acquire complementary businesses in the future, there can be no assurance that
the Company will be able to identify and acquire attractive acquisition
candidates, profitably manage such acquired companies or successfully integrate
such acquired companies into the Company without substantial costs, delays or
other problems. In addition, there can be no assurance that any companies
acquired in the future will be profitable at the time of acquisition or will
achieve sales and profitability justifying the Company's investment therein or
that the Company will recognize the synergies expected from such acquisitions.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH
THREE MONTHS ENDED JUNE 30, 1997.
Consolidated net revenues increased 128% to $62.6 million for the three
months ended June 30, 1998 from $27.4 million in the second quarter of 1997.
Approximately $30.0 million of the increase was due to acquisitions and
approximately $5.3 million was due to growth in the Company's existing business.
The internal growth was primarily the result of higher image and data capture
and data management revenue partially offset by the effects of certain
discontinued services.
Gross profit increased to $22.1 million for the second quarter of 1998
from $8.4 million for the comparable 1997 quarter primarily due to an increase
in net revenues and the Company's product mix. Gross profit as a percentage of
net revenues was 35% for the three months ended June 30, 1998 versus 31% for the
comparable period of 1997.
Selling, general and administrative expenses increased $8.7 million to
$12.8 million, or 20% of net revenues for the three months ended June 30, 1998
from $4.1 million, or 15% of net revenues for the comparable 1997 quarter.
Approximately $5.1 million of the increase was due to selling, general and
administrative expenses of acquired companies. The remaining increase was
primarily due to higher compensation and other corporate overhead expenses
associated with managing a larger consolidated organization.
Amortization of intangibles increased to $1.3 million for the three
months ended June 30, 1998 from $561,000 for the second quarter of 1997
primarily due to an increase in goodwill related to business acquisitions
completed during 1998.
Net interest expense was $1.5 million for the 1998 second quarter
compared to $474,000 in 1997. The increase is primarily due to higher average
borrowing balances resulting from borrowings used to fund business acquisitions.
Provision for income taxes as a percentage of pre tax income increased
to 40% for the second quarter of 1998 from 38% in the comparable 1997 quarter
predominately due to a substantial portion of goodwill amortization expense that
is not deductible for federal income tax purposes.
8
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RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1997.
Consolidated net revenues increased 104% to $109.2 million for the six
months ended June 30, 1998 from $53.7 million for the comparable period of 1997.
Approximately $47.7 million of the increase was due to acquisitions and
approximately $7.8 million was due to growth in the Company's existing business.
The internal growth was primarily the result higher image and data capture and
data management revenue, partially offset by the effects of certain discontinued
services.
Gross profit increased to $38.9 million for the six months ended June
30, 1998 from $16.5 million for the comparable 1997 period primarily due to an
increase in net revenues and the Company's product mix. Gross profit as a
percentage of net revenues was 36% for the six months ended June 30, 1998 versus
31% for the comparable period of 1997.
Selling, general and administrative expenses increased $14.0 million to
$22.5 million, or 21% of net revenues for the first six months of 1998 from $8.5
million, or 15% of net revenues in 1997. Approximately $9.1 million of the
increase was due to selling, general and administrative expenses of acquired
companies. The remaining increase was primarily due to increased compensation
and other corporate overhead expenses associated with managing a larger
consolidated organization.
Amortization of intangibles increased to $2.3 million for the six
months ended June 30, 1998 from $1.0 million for the comparable 1997 period
primarily due to an increase in goodwill related to business acquisitions
completed during 1998.
Net interest expense was $2.2 million for the first six months of 1998
compared to $740,000 in 1997. The increase is primarily due to higher average
borrowing balances resulting from borrowings used to fund business acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through a
combination of cash flow from operations, bank borrowings and the issuance of
shares of common stock.
Cash flows used by operating activities totaled $4.5 million for the
six months ended June 30, 1998 compared to cash flows provided by operating
activities of $3.1 million for the comparable period of 1997. The decrease in
operating cash flows in 1998 is primarily due to the effects of higher accounts
receivable balances, increased prepaid expenses, and lower customer deposits and
other current liabilities.
Cash flows used in investing activities totaled $74.7 million and $22.9
million for the six months ended June 30, 1998 and 1997, respectively, and was
primarily used to fund the acquisition of businesses and invest in capital
equipment and software development activities. Cash used for acquisitions was
approximately $65.7 million and $ 19.2 million for the six months ended June 30,
1998 and 1997, respectively. Cash used to invest in capital equipment and
software development activities totaled $9.0 million for the 1998 first half,
compared to $3.8 million for the comparable period of 1997. The 1998 amount
includes approximately $1.3 million for the development and implementation of
computer software primarily to support the Company's national information
processing needs. These projects and related costs will continue as the Company
pursues its acquisition strategy. The 1997 investment in capital equipment
includes approximately $1.5 million of previously leased equipment that was
purchased during the first quarter of 1997.
Cash flows provided by financing activities totaled $76.9 million in
1998 compared to $23.4 million for the comparable period of 1997 and largely
consisted of borrowings on the Company's revolving line of credit primarily used
to fund the payments for acquired businesses and for working capital
requirements.
9
<PAGE> 11
During the first quarter of 1998, the Company repaid $6.2 million of short-term
promissory notes relating to certain business acquisitions the Company completed
in the fourth quarter of 1997.
Credit Agreement Borrowings
The Company has a credit agreement with a bank group providing for
revolving credit loans up to $200 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 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 rates ranging from LIBOR plus a maximum
of 1.75% (6.94% as of August 12, 1998) to a base percentage rate plus a maximum
of 0.50% (8.50% as of August 12, 1998), at the Company's election at the time of
borrowing. The credit agreement contains restrictions on the acquisition of
stock or assets, disposal of assets, incurrence of other liabilities, minimum
requirements for cash flow and certain financial ratios. As of August 11, 1998,
$147.9 million was borrowed under the credit agreement.
The Company has filed a registration statement with the Securities and
Exchange Commission in connection with a public offering of 3,500,000 shares of
common stock. Of the shares being offered, 2,700,000 shares are being offered by
the Company and 800,000 shares are being offered by certain stockholders of the
Company (the "Selling Stockholders"). The Company intends to use the net
proceeds from the offering to repay indebtedness incurred under the Company's
credit agreement, which has principally been incurred to finance business
acquisitions. The Company will not receive any proceeds from the sale of common
stock by the Selling Stockholders.
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, with shares of its common stock and with cash from operations.
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of 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
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.
10
<PAGE> 12
INFLATION
Certain of the Company's expenses, such as wages and benefits,
occupancy costs, and equipment repair and replacement, are subject to normal
inflation. Supplies, such as paper and related products, can be subject to
significant price fluctuations. Although the Company to date has been able to
substantially offset any such cost increases through increased operating
efficiencies, there can be no assurance that the Company will be able to offset
any future cost increases through similar efficiencies or increased charges for
its products and services.
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.
11
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following securities were issued by the Company
without registration during the quarter ended June 30, 1998:
In May 1998, as additional consideration for the shares
of certain of the shareholders of Image Conversion Systems,
Inc., the Company issued to such shareholders an aggregate
14,954 shares of the Company's common stock valued at
$400,000, upon achievement of certain target levels of
operation.
In May 1998, as additional consideration for his shares
of Delaware Legal Copy, Inc., the Company issued to an
individual 2,497 shares of the Company's common stock, valued
at $66,670, upon achievement of certain target levels of
operation.
On May 27, 1998, the Company issued 2,797 shares of
common stock to the sole stockholder of Quality Mailing
Services, Inc. in payment of a portion of the purchase price
in stock equal to $110,980 in connection with the acquisition
of that corporation.
On June 3, 1998, the Company issued 17,431 shares of common
stock to the sole stockholder of Strategy Manufacturing, Inc.
in payment of a portion of the purchase price in stock
equal to $699,964 in connection with the acquisition of that
corporation.
On June 10, 1998, the Company issued 16,124 shares of common
stock to the stockholders of Litigation Reprographics and
Support Services, Inc. in payment of a portion of the
purchase price in stock equal to $657,760 in connection with
the acquisition of that corporation.
On June 15, 1998, the Company issued 11,710 shares of
common stock to the stockholders of Document Production
Services, Inc. in payment of a portion of the purchase price
in stock equal to $522,992 in connection with the acquisition
of that corporation.
The issuance of Securities described in the 6 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 1998, the Company held its Annual Meeting of Shareholders.
There were two matters voted on, the election of directors and the
adoption of the Company's 1998 Equity Participation Plan. All directors
nominees were elected, and the 1998 Equity Participation Plan was approved. The
following table sets forth the results of the voting on the matters voted upon.
<TABLE>
VOTES VOTES
ELECTION OF DIRECTORS: FOR WITHHELD VOTES AGAINST ABSTAINED NON-VOTES
- ---------------------- ----- -------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Nominees:
Allen J. Nesbitt 9,677,208 27,887
Joseph P. Nolan 9,677,158 27,987
Fariborz Ghadar 9,670,488 41,327
APPROVAL OF 1998
EQUITY PARTICIPATION
PLAN: 8,047,177 748,261 13,290 896,267
</TABLE>
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
2.1 Agreement for Purchase and Sale of Stock dated July 24,
1998 by and among Lason, Inc., Consolidated
Reprographics and the Shareholders, as defined therein,
incorporated by reference to Exhibit 2.13 to the
Registrant's Form S-1 Registration Statement (No.
333-60143) filed on July 30, 1998.
10.1 Form of Secured Promissory Note dated June 5, 1998
issued by each of Gary L. Monroe, William J. Rauwerdink,
John Messinger, Cary W. Newman and Brian Jablonski in
favor of the Company, incorporated by reference to
Exhibit 10.39 to the Company's Form S-1 Registration
Statement (No. 333-60143) filed on July 30, 1998.
10.2 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 10.1
above, incorporated by reference to Exhibit 10.40 to the
Company's Form S-1 Registration Statement (No.
333-60143) filed on July 30, 1998.
10.3 Letter Agreement between Gary L. Monroe and the Company
dated June 29, 1998 amending and extending the
Employment Agreement, incorporated by reference to
Exhibit 10.41 to the Company's Form S-1 Registration
Statement (No. 333-60143) filed on July 30, 1998.
*10.4 Letter Agreement between John R. Messinger and the
Company dated March 25, 1998 amending the Employment
Agreement.
*27 Financial Data Schedule
b. Reports on Form 8-K
On June 4, 1998, the Company filed a Form 8-K/A to include
audited and pro forma financial information relating to the acquisition by its
subsidiary, Lason Systems, Inc., of substantially all of the assets of VIP
Imaging, Inc.
*Filed Herewith.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASON, INC.
-----------
(Registrant)
August 14, 1998 /s/ William J. Rauwerdink
(Date) -------------------------
Executive Vice President and
Chief Financial Officer
14
<PAGE> 16
EXHIBIT INDEX
2.1 Agreement for Purchase and Sale of Stock dated July 24, 1998 by and
among Lason, Inc., Consolidated Reprographics and the Shareholders, as
defined therein, incorporated by reference to Exhibit 2.13 to the
Registrant's Form S-1 Registration Statement (No. 333-60143) filed on
July 30, 1998.
10.1 Form of Secured Promissory Note dated June 5, 1998 issued by each of
Gary L. Monroe, William J. Rauwerdink, John Messinger, Cary W. Newman and
Brian Jablonski in favor of the Company, incorporated by reference to
Exhibit 10.39 to the Company's Form S-1 Registration Statement (No.
333-60143) filed on July 30, 1998.
10.2 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 10.1
above, incorporated by reference to Exhibit 10.40 to the Company's Form
S-1 Registration Statement (No. 333-60143) filed on July 30, 1998.
10.3 Letter Agreement between Gary L. Monroe and the Company dated June 29,
1998 amending and extending the Employment Agreement, incorporated by
reference to Exhibit 10.41 to the Company's Form S-1 Registration
Statement (No. 333-60143) filed on July 30, 1998.
10.4 Letter Agreement between John R. Messinger and the Company dated March
25, 1998 amending the Employment Agreement.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.4
March 25, 1998
John R. Messinger
President of Imaging Services Division
Lason, Inc.
1305 Stephenson Highway
Troy, Michigan 48083
RE: Amendment to Employment Agreement
Dear Mr. Messinger:
The purpose of this letter is to memorialize our modification of that
certain Employment Agreement (the "Employment Agreement") between Image
Conversion Systems, Inc. ("Corporation") and you ("Employee") dated July 29,
1997 with respect to the additional consideration to be paid to you for your
shares of Common Stock in the Corporation pursuant to that certain Agreement of
Purchase and Sale of Stock dated July 17, 1997 (the "Stock Purchase Agreement")
referenced in Paragraph 2B(ii) of the Employment Agreement. As you know,
subsequent to the date of the Employment Agreement, the Corporation was merged
into Lason Services, Inc. ("LSI") effective on December 31, 1997. Accordingly,
LSI is the successor to the Corporation under the Employment Agreement.
For valuable consideration in connection with the sale of your shares of the
Corporation pursuant to the Stock Purchase Agreement, the receipt of which is
hereby acknowledged, we each hereby agree that the last three paragraphs of
Paragraph 4 of the Employment Agreement are hereby modified by deleting
therefrom any and all references to Paragraph 2B(ii) and by adding the following
new final paragraph to Paragraph 4:
In the event that Employee is terminated for Cause by the
Corporation as set forth above, then, and in that event, (i)
as pertains to Employee's base pay, Employee shall be entitled
to receive his base pay only through the end of the week of
termination, and (ii) as pertains to Employee's Bonus
described in Paragraph 2B(ii), Corporation shall be entitled
to set-off against the Bonus described in Paragraph 2B(ii) the
amount of any and all losses, expenses, costs, obligations,
liabilities and damages, including interest, penalties and
reasonable attorneys' fees and expenses to the Corporation and
its affiliates arising from or relating to the actions of
Employee which resulted in Employee's termination by the
Corporation for Cause.
<PAGE> 2
John R. Messinger
March 25, 1998
Page 2
Notwithstanding the foregoing, in the event that Employee's
termination for Cause is occasioned by his death or Disability
as defined in E above or in the event that Employee is
terminated by Corporation without Cause or Employee quits his
employment with or without Good Reason, Employee (or his heirs
or devisees, as applicable), shall be paid the Bonus described
in Paragraph 2B(ii) if earned pursuant to the terms and
conditions of Paragraph 2B(ii).
To clarify, as a result of this change and as additional consideration for
the purchase of Employee's shares in the Corporation pursuant to the Stock
Purchase Agreement, Employee is entitled to the Bonus described in Paragraph
2B(ii) (if earned pursuant to the terms and conditions of Paragraph 2B(ii)),
whether or not his employment is terminated, but if Employee is terminated by
the Corporation for Cause (other than death or disability), Corporation may
offset against such Bonus, the damages to the Corporation caused by Employee's
actions which resulted in the termination by the Corporation for Cause.
Except for this change, the Employment Agreement remains in full force and
effect. If the terms of this modification are acceptable, please so indicate in
the space provided below and this change shall be binding on LSI and Employee.
Very truly yours,
LASON SERVICES, INC.
By: /s/ Gary L. Monroe
---------------------------------------
Gary L. Monroe
Its: President and Chief Executive Officer
Accepted and Agreed to this
25th day of March, 1998
/s/ John R. Messinger
- --------------------------------
John R. Messinger
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<FISCAL-YEAR-END> DEC-31-1998
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