<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1995
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ANACOMP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
INDIANA 35-1144230
(State or other jurisdiction of incorporation or (I.R.S. employer identification number)
organization)
</TABLE>
11550 NORTH MERIDIAN STREET
P.O. BOX 40888
INDIANAPOLIS, INDIANA 46240
(317) 844-9666
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GEORGE C. GASKIN, ESQ.
CORPORATE COUNSEL
ANACOMP, INC.
ONE BUCKHEAD PLAZA
SUITE 1700
ATLANTA, GEORGIA 30305
(404) 262-2667
(Name, Address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C>
MICHAEL C. RYAN, ESQ. JOHN W. WHITE, ESQ.
CADWALADER, WICKERSHAM & TAFT CRAVATH, SWAINE & MOORE
100 MAIDEN LANE 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10038 NEW YORK, NEW YORK 10019
(212) 504-6000 (212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Senior Secured Notes due 2002.... $225,000,000 100% $225,000,000 $77,587
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
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 , 1995
PROSPECTUS
$225,000,000
ANACOMP, INC.
% SENIOR SECURED NOTES DUE 2002
The % Senior Secured Notes due 2002 (the "Notes") are being offered (the
"Offering") by Anacomp, Inc. ("Anacomp" or the "Company"). The Notes will mature
on , 2002. Interest on the Notes is payable semi-annually on each
and , commencing , 1995. The Offering is
part of a refinancing by the Company consisting of the Offering, the concurrent
establishment of a revolving credit facility in an aggregate principal amount of
up to $70 million (the "Revolving Credit Facility") and the application of
certain of the net proceeds of the Offering to retire $201.7 million of the
Company's indebtedness and trade payables. The closings of the Offering and the
Revolving Credit Facility are conditioned upon one another and upon the receipt
of certain consents from holders of the Company's 15% Senior Subordinated Notes
due 2000. See "The Refinancing" and "Use of Proceeds".
The Notes will be senior obligations of the Company secured by substantially all
the assets of the Company, other than accounts receivable, inventory and the
proceeds thereof, which will secure the Revolving Credit Facility (collectively,
the "Collateral"), and will rank pari passu in right of payment with all
existing and future senior obligations of the Company, including the Revolving
Credit Facility. The assets comprising the Collateral will consist of (i)
tangible assets with a book value substantially less than the aggregate
principal amount of the Notes and (ii) intangible assets (principally goodwill).
The Notes will be redeemable at the option of the Company, in whole or in part,
on or after , 2000, at % of the principal amount thereof, plus
accrued interest. After , 2001, the Notes are redeemable at par.
Upon a Change of Control (as defined herein), each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes at 101% of
the principal amount thereof, plus accrued interest. In addition, the Company
will be required in certain circumstances to make an offer to purchase Notes at
a purchase price equal to par, plus accrued interest, from the proceeds of
certain sales of assets.
The Company does not intend to list the Notes on any securities exchange. No
assurance can be given that any market for the Notes will develop, or, if such a
market develops, as to the liquidity of such market.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS".
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>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note........................... % % %
Total.............................. $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1995, to the date of
delivery.
(2) Before deducting expenses payable by the Company, estimated to be $ .
The Notes are offered subject to receipt and acceptance by the Underwriter, to
prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of Notes will be made at the office of Salomon Brothers Inc, Seven
World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1995.
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SALOMON BROTHERS INC
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The date of this Prospectus is , 1995.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (collectively with any
amendments thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Notes offered
hereby. In accordance with the rules and regulations of the Commission, this
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement, and reference is
hereby made to the Registration Statement and related exhibits filed as a part
thereof and otherwise incorporated therein for further information with respect
to the Company and the Notes offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of each document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. Copies of
the Registration Statement and the exhibits thereto may be inspected without
charge at the offices of the Commission or obtained at prescribed rates from the
Public Reference Section of the Commission at the addresses set forth below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company 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 at the Regional Offices of the Commission at 7 World Trade
Center, Room 1300, New York, New York 10048, and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Company's common stock is listed on the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and the Midwest Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60605, where reports,
proxy statements and other information concerning the Company can also be
inspected.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, filed by Anacomp with the Commission pursuant to the
Exchange Act (File No. 1-8328), is hereby incorporated in this Prospectus by
reference and made a part hereof. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offering of the Notes made hereby
shall be deemed to be incorporated herein by reference and shall be a part
hereof from the date of the filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document, which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon written or
oral request of such person, a copy of the documents incorporated by reference
herein, other than exhibits to such documents not specifically incorporated by
reference. Such requests should be directed to Corporate Communications,
Anacomp, Inc., 11550 North Meridian Street, P.O. Box 40888, Indianapolis,
Indiana 46240, telephone number (317) 844-9666.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including notes thereto) appearing elsewhere or incorporated by
reference in this Prospectus. Unless the context otherwise requires, "Anacomp"
or the "Company" means Anacomp, Inc. and its subsidiaries. The Company's fiscal
year ends September 30.
THE COMPANY
Anacomp is the world's leading full-service provider of micrographics
systems, services and supplies with over 15,000 customers in more than 65
countries. Micrographics is the conversion of information stored in digital form
or on paper to microfilm or microfiche. The Company has the world's largest
installed base of micrographics recorders (58% of those in use), which enables
Anacomp to generate a significant portion of its revenue by providing related
maintenance services and consumable supplies. In addition, the Company provides
micrographics outsourcing services through its 50 data service centers.
Together, Anacomp's service-related businesses have generated more than 65% of
its annual revenues in each of the last three fiscal years. The Company also is
a leading manufacturer and distributor of a wide range of magnetics storage
products. Anacomp's customers include a majority of the Fortune 500, leading
financial institutions and government agencies, such as AT&T Corp., The Boeing
Company, Citicorp, Deutsche Bank AG, Electronic Data Systems Corp., the U.S.
Army and the U.S. Social Security Administration. In the fiscal year ended
September 30, 1994, Anacomp's revenues were approximately $593 million and
earnings before interest, taxes, depreciation and amortization ("EBITDA") was
approximately $114 million.
The volume of data being generated and processed by businesses and
governments is growing rapidly, primarily as a result of the increasing power
and prevalence of computers. In 1994, more than 90% of this data was stored on
paper, which is the most costly and inefficient way to store information. Faced
with this growing volume of information, private and public enterprises are
increasingly relying on a wide range of technologies to facilitate the storage
and retrieval of data. These technologies include DASD (direct access storage
device), optical disk, magnetic tape and micrographics. Given their
complementary functions, organizations typically employ several storage and
retrieval technologies simultaneously. Demand for each depends on several
important attributes, including cost, speed of retrieval, ongoing feasibility of
retrieval technology, longevity and data integrity. The optimal mix of these
attributes changes according to the frequency of information usage and the
urgency of its retrieval. For example, large commercial banks, with millions of
monthly customer bank statements, receive frequent inquiries during the initial
weeks after the statements are generated. At this stage, a high-cost but fast-
access technology such as DASD is typically used. However, as the frequency and
urgency of customer requests decreases over time, the data may be migrated to a
low-cost but relatively slower retrieval technology such as micrographics.
Micrographics is the least expensive of all storage and retrieval
technologies, costing approximately $0.08-$0.15 per megabyte in 1994, compared
to $3.50-$7.00 per megabyte for DASD, $1.50-$3.50 per megabyte for optical disk
and $0.30-$1.00 per megabyte for magnetic tape. In addition to this cost
advantage, micrographics is the most stable storage medium as it is human
readable and, accordingly, does not require sophisticated electronic retrieval
devices that are subject to rapid technological change. Information stored on
microfilm or microfiche is estimated to remain usable for over 100 years, making
micrographics the preferred method of storing information for extended periods
of time. Micrographics also has the highest degree of integrity because data
cannot be altered once recorded onto microfilm or microfiche.
3
<PAGE> 5
The Company seeks to expand the value of micrographics and target new
digital storage markets by implementing the following strategies:
- Enhance Leadership in Micrographics. Anacomp is expanding its
leadership position in micrographics by (i) continuing to drive
the pace of technological innovations through the introduction
of new micrographics features and products, (ii) offering
upgraded capabilities and services through the Company's data
service centers and (iii) acquiring companies or assets that are
available at attractive prices as a result of industry
consolidation, with an emphasis on acquisitions of data service
centers.
- Pursue Strategic Alliances. Anacomp is developing new
micrographics, digital and consumable products through alliances
with leading technology companies such as International Business
Machines Corporation, Xerox Corporation, FileNet Corporation and
Eastman Kodak Company. The Company will continue to pursue
strategic alliances in order to gain access to new technologies
and reduce development time and expenses. Anacomp's
micrographics technological leadership, worldwide distribution
network and base of over 15,000 customers should continue to
make Anacomp an attractive strategic alliance partner.
- Seek International Growth. Anacomp intends to pursue
international opportunities by targeting new markets in Asian
and Latin American countries that have relied almost exclusively
on paper storage and have no or minimal previous exposure to
micrographics. For example, in 1994, the Company placed its
first two micrographics systems in China.
- Continue Cost Reductions. The Company continues to streamline
its operations in an effort to reduce costs in recognition of
recent declines in revenues. These initiatives include
consolidating manufacturing operations and supply relationships,
outsourcing manufacturing functions and centralizing
administration, customer service and order entry. The Company
estimates that these measures will generate $6 to $8 million in
annual savings at current volume levels.
THE REFINANCING
The Offering is part of a refinancing by Anacomp (the "Refinancing") that
also consists of (i) the concurrent establishment of a revolving credit facility
in an aggregate principal amount of up to $70 million (the "Revolving Credit
Facility") and (ii) the application of certain of the net proceeds from the
Offering to retire approximately $201.7 million of the Company's indebtedness
and trade payables. In connection with the Refinancing, the Company is
soliciting consents (the "Consents") from holders of its 15% Senior Subordinated
Notes due 2000 (the "15% Subordinated Notes") in order to modify or eliminate
certain provisions of the indenture relating to the 15% Subordinated Notes (the
"Subordinated Indenture") necessary to permit, among other things, the
Refinancing. See "The Refinancing" and "Use of Proceeds".
The closings of the Offering and the Revolving Credit Facility will be
conditioned upon each other and upon the receipt of the required Consents from
holders of the 15% Subordinated Notes.
The Refinancing will (i) eliminate an aggregate of $153 million in debt
amortization in fiscal years 1995 through 1998, thereby providing Anacomp with
additional cash for product development and enhancement and for acquisitions;
(ii) simplify Anacomp's capital structure by consolidating long-term
indebtedness; and (iii) provide Anacomp with the flexibility to refinance the
15% Subordinated Notes if the Company elects, subject to market conditions, to
redeem the 15% Subordinated Notes after they become redeemable in November 1995.
4
<PAGE> 6
THE OFFERING
Securities................. $225 million aggregate principal amount of %
Senior Secured Notes due 2002.
Maturity Date.............. , 2002.
Interest Payment Dates..... and , commencing
, 1995.
Optional Redemption........ The Notes will be redeemable at the option of the
Company, in whole or in part, on or after
, 2000, at % of the principal
amount thereof, declining to 100% of the principal
amount thereof on or after , 2001,
plus, in each case, accrued and unpaid interest.
See "Description of the Notes -- Optional
Redemption".
Ranking.................... The Notes will be senior secured obligations of the
Company and will rank pari passu with all other
existing and future senior obligations of the
Company, including the Revolving Credit Facility,
and senior to all existing and future subordinated
or junior indebtedness of the Company.
Security................... The Collateral securing the Notes will consist of
substantially all the assets of the Company, other
than accounts receivable, inventory and the
proceeds thereof. The Collateral will include
after-acquired assets of the Company to the extent
that such assets are acquired by the Company
without financing secured by a lien on such assets.
See "Risk Factors -- Potential Inadequacy of
Security" and "Description of the
Notes -- Collateral".
Change of Control.......... Upon a Change of Control, the Company will be
required to make an offer to purchase the Notes
then outstanding at a purchase price equal to 101%
of the principal amount thereof, plus accrued and
unpaid interest. See "Description of the
Notes -- Change of Control".
Asset Sale Proceeds........ The Company will be required in certain
circumstances to make offers to purchase Notes at a
purchase price of 100% of the principal amount
thereof, plus accrued and unpaid interest, with the
net cash proceeds of certain sales or other
dispositions of assets by the Company or certain of
its subsidiaries. See "Description of the
Notes -- Certain Covenants -- Limitation on Sales
of Assets and Restricted Subsidiary Stock".
Principal Covenants........ The Indenture (as defined herein) relating to the
Notes will contain covenants limiting, among other
things, (i) the incurrence of additional
indebtedness by the Company and certain of its
subsidiaries, (ii) the payment of dividends on, and
the redemption of, capital stock of the Company and
certain of its subsidiaries, (iii) the redemption
of certain subordinated obligations of the Company
and certain of its subsidiaries and the making of
certain investments by the Company and certain of
its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain
subsidiary stock, (v) transactions between the
Company and its affiliates, (vi) liens on the
Collateral securing the Notes, (vii) sale/leaseback
transactions by the Company and certain of its
subsidiaries and (viii) consolidations and mergers
and transfers of all or substantially
5
<PAGE> 7
all the Company's and certain of its subsidiaries'
assets. However, all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of
the Notes -- Certain Covenants" and
"-- Consolidation, Merger and Sale of Assets".
Use of Proceeds............ The net proceeds of the Offering will be used to
repay approximately $201.7 million of the Company's
existing indebtedness and trade payables, as well
as for general corporate purposes. See "Use of
Proceeds".
RISK FACTORS
A number of factors could adversely affect the Company's ability to make
payments on the Notes, including the following business risks: Adverse Effect of
Growth of Digital Technologies, Recent Declines in Revenues, Quarterly Earnings
Fluctuations, Availability of Polyester and Certain Other Supplies, New Products
and International; and the following transaction risks: Substantial Leverage,
Ability to Repay Notes and Other Debt, Potential Inadequacy of Security,
Conflicts Between the Indenture and the Subordinated Indenture, Covenant
Compliance and Lack of Public Market.
6
<PAGE> 8
SUMMARY CONSOLIDATED OPERATING AND FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the five fiscal years ended September 30,
1994, and as of September 30, 1994, which were derived, except as otherwise
noted, from the consolidated financial statements of the Company audited by
Arthur Andersen LLP. The table also summarizes selected unaudited consolidated
historical operating and financial data for the three-month periods ended
December 31, 1994 and 1993 and as of December 31, 1994, derived from unaudited
interim consolidated financial statements of the Company, which, in the opinion
of management, include all adjustments consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. The following table also includes certain unaudited pro forma
financial data that reflect adjustments necessary to give effect to the Offering
and the Revolving Credit Facility (assuming no borrowings thereunder) and the
use of the net proceeds from the Offering as described under "Use of Proceeds".
The pro forma financial data do not purport to represent the Company's results
of operations or financial condition had the Refinancing been effective for the
periods indicated and do not purport to project the Company's results of
operations and financial condition for any future period. This table should be
read in conjunction with, and is qualified in its entirety by reference to,
"Selected Consolidated Operating and Financial Data", "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the Company's
historical consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
------------------- ------------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................. $138,783 $592,599 $590,208 $628,940 $635,361 $652,238
Cost of sales............ 96,292 420,483 404,752 428,308 423,956 431,047
Selling, general and
administrative
expenses............... 21,848 92,539 96,822 100,330 105,861 108,589
Income from continuing
operations............. 20,643 79,577 88,634 100,302 105,544 112,602
Interest expense......... 16,610 65,633 66,526 69,101 76,949 81,080
Net income............... 9,901(a) 14,955(a) 18,591 26,921 29,205 9,576
OTHER FINANCIAL DATA:
EBITDA(b)................ $ 28,607 $114,192 $121,640 $134,871 $137,095 $148,854
Capital expenditures..... 3,039 18,868 20,726 18,755 13,916 22,182
Pro forma interest
expense(c)............. -- 69,118 -- -- -- --
Ratio of EBITDA to pro
forma interest
expense................ -- 1.65x -- -- -- --
Ratio of pro forma total
debt to EBITDA......... -- 3.91x -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------
PRO FORMA(C) ACTUAL AS OF SEPTEMBER 30, 1994
------------ -------- ------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 19,871
Property, plant, and equipment -- net............. 66,769
Intangible assets(d).............................. 279,607
Total assets...................................... 658,639
Total debt........................................ 411,847
Redeemable preferred stock........................ 24,478
Stockholders' equity.............................. 49,756
</TABLE>
7
<PAGE> 9
(a) The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the quarter ended December 31, 1993. The adoption resulted
in a one-time increase to net income of $8,000 reflecting the cumulative
effect on prior years of this accounting change.
(b) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Management believes that EBITDA, as presented, provides an
indicator of the Company's ability to service or incur indebtedness. EBITDA
should not be considered as an alternative to net income (as determined in
accordance with GAAP) as a measure of the Company's operating results or to
cash flows (as determined in accordance with GAAP) as a measure of the
Company's liquidity.
(c) The pro forma data give effect to the Refinancing (assuming no borrowings
under the Revolving Credit Facility) and the application of the estimated
net proceeds therefrom as if the Refinancing had occurred at the beginning
of the periods presented, or, in the case of balance sheet data, at the end
of the period. Pro forma interest expense represents interest expense for
the Notes as if the Notes were outstanding at the beginning of the periods
presented. The pro forma balance sheet data give effect to after-tax charges
of approximately $ relating to the non-cash write-off of unamortized
debt issuance costs and unamortized debt discount of the debt instruments
retired and approximately $ relating to the make-whole payments
required upon the redemption of the 12.25% Series B Senior Notes due 1997.
The balance sheet data also reflect the capitalization of the costs and fees
incurred in connection with the Refinancing, estimated to be $ . See
"Use of Proceeds".
(d) Intangible assets represent primarily the excess of purchase price over net
assets of businesses acquired, which generally is amortized on the
straight-line method over 40 years.
8
<PAGE> 10
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Notes should carefully consider the matters set
forth below before making an investment decision.
BUSINESS RISKS
Adverse Effect of Growth of Digital Technologies
The data storage and management industry facilitates the storage and
retrieval of large volumes of data on systems and with products utilizing
various technologies, including DASD, optical disk, magnetic tape and
micrographics. Anacomp primarily competes, as it has done historically, in the
micrographics segment of the data storage and management industry. Micrographics
represented 82% of the Company's fiscal 1994 revenues and are expected to remain
the Company's primary source of revenues for the foreseeable future.
Technological advancements and attendant price declines have recently lead to a
significant increase in the use of digital systems and products, which generally
have easier and quicker retrieval abilities. This trend is expected to continue
as there are further technological advances in, and decreases in the cost of,
digital systems and products.
Revenues for Anacomp's micrographic services and products have been
adversely affected for each of the past four fiscal years (see "-- Recent
Declines in Revenues") and could in the future be substantially adversely
affected by, among other things, the increasing use of digital technology. The
future effect of digital and other technologies on the demand for micrographics
will depend, in part, on the extent of further technological advances and cost
decreases in such technologies. Nonetheless, potential micrographics customers
have deferred, and may continue to defer, investments in micrographics systems
(including the Company's XFP 2000 system) and the utilization of micrographics
data service centers while evaluating the abilities of digital and other
technologies.
The continuing development of local area computer networks and similar
systems has resulted and will continue to result in at least some Anacomp
customers changing their use of micrographics from data storage and retrieval to
primarily data storage. The Company believes this is at least part of the reason
for the declines in the past two fiscal years in sales of the Company's
duplicate film, readers and reader/printers. Anacomp's service centers also are
producing fewer duplicate microfiche per original for customers, reflecting this
use of micrographics primarily for storage. The rapidly changing data storage
and management industry also has resulted in intense price competition in
certain of the Company's markets, particularly micrographics services. Anacomp's
operating margins have decreased to 13.4% in fiscal 1994 from 15.0% in 1993 and
15.9% in 1992.
Recent Declines in Revenues
As a result of the rapidly changing nature of the data storage and
management industry, the Company has experienced declining or flat revenues in
each of the last four fiscal years. Revenues for fiscal 1994, excluding
contributions from acquisitions made by Anacomp during 1994, decreased $29.1
million from 1993. Fiscal 1993 revenues decreased $42.6 million compared to the
prior year, and revenues in fiscal 1992 decreased $11.7 million from 1991,
excluding, in each case, acquisitions made by Anacomp during such fiscal year.
Reduced demand for duplicate film and retrieval devices has caused revenues from
sales of Anacomp's micrographics supplies and equipment, which accounted for 35%
of fiscal 1994 revenues, to decline 8% in fiscal 1994 from 1993 and 6% in 1993
from 1992. Decreasing prices, and less duplicate film production, have adversely
affected Anacomp's micrographics services business (22% of fiscal 1994
revenues). Revenues from Anacomp's COM (Computer Output to Microfilm) systems
sales (accounting for 10% of fiscal 1994 revenues) declined 22% in 1994 from
1993. Sales of the Company's XFP 2000 system to third parties declined from 274
units in fiscal 1993 (its highest year) to 165 units in 1994. There can be no
assurances that the addition to the XFP 2000 systems of the Xerox Corporation
("Xerox") and International Business Machines Corporation ("IBM") high speed
print data stream features described herein will offset the declining sales.
Maintenance service revenues, accounting for 15% of fiscal 1994 revenues,
increased 4% in 1994 from 1993 but
9
<PAGE> 11
decreased 5% in 1993 from 1992. Although revenues for the Company's magnetics
products (17% of fiscal 1994 revenues) increased 36% in 1994 from 1993, this was
largely a result of the acquisition of Graham Magnetics, Inc. ("Graham"). In
1993, revenues for magnetics products declined 27% from 1992, due in large part
to the completion of a one-time original equipment manufacturer arrangement.
Demand for open reel tape, 92% of which is supplied by Anacomp, has been
declining and is expected to continue to decline at a rate of 30% per year as
newer data storage technologies continue to gain market share. Demand for 3480
magnetics cartridges (of which Anacomp has a 35% worldwide market share) is
expected to decline by approximately 8% per year, while the market for 3490E
magnetics cartridges (which are replacing 3480 cartridges and of which Anacomp
has a 30% worldwide market share) is expected to grow by 35% per year. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition".
Anacomp has used acquisitions in the past to try to offset declining
revenues and increase market share. If Anacomp continues to experience declining
revenues, it may depend, in part, on acquisitions to try to offset such
declines, and there can be no assurance that the Company will be able to effect
any such further acquisitions. For example, revenues for the Company's
micrographics services business increased 5% in fiscal 1994 from 1993 largely
because of the acquisition of 16 data service centers or related customer bases.
Revenues for micrographics services declined 2% in fiscal 1993 from 1992, a
period during which only four data service centers were acquired. Acquisitions
generally have been of companies in markets in which Anacomp already competes.
The Company's substantial leverage limits the amount of cash flow available for
investment. The Indenture for the Notes and the terms of the Company's other
indebtedness will restrict the Company's ability to make acquisitions. See
"-- Substantial Leverage".
Quarterly Earnings Fluctuations
Sales of the Company's COM systems, including its XFP 2000 systems, vary
significantly from quarter to quarter depending on various factors, including
the level and timing of orders and shipments, customer requirements, the mix of
product features selected and pricing changes, some of which are not within the
control of the Company. Additionally, as is the case with many technology
companies, a significant portion of the Company's sales of its COM systems
typically occurs in the last few weeks of a quarter. As a result, Anacomp's COM
systems revenues may shift from one quarter to the next, having a significant
effect on reported results, and quarterly revenues and reported results cannot
be accurately estimated even a few weeks prior to the end of a quarter. See note
16 to the Company's consolidated financial statements appearing elsewhere
herein.
Availability of Polyester and Certain Other Supplies
Polyester is the basic raw material for the Company's film and magnetics
products. In fiscal 1994, Anacomp used more than 11 million pounds of polyester,
costing approximately $20 million, in its magnetics business (including amounts
purchased by Graham prior to its acquisition by Anacomp). Substantial amounts of
this polyester were purchased from SKC Limited and SKC America, Inc.
(collectively, "SKC"). There is currently a worldwide shortage of polyester, and
the price of magnetics-based polyester is expected to increase 5% to 10% over
the next two years. Large increases in the price of polyester are likely to
affect the Company's operating margins adversely as the maturity of the
Company's magnetics markets makes it difficult to effect price increases.
Anacomp and its vendors, including SKC, are currently negotiating polyester
price increases relating to magnetics products, and there can be no assurance as
to the outcome of any such negotiations.
Certain third parties are the sole suppliers of some of the Company's raw
materials and products. SKC is the Company's sole duplicate microfilm supplier,
while Eastman Kodak Company ("Kodak") is the sole supplier of the original
microfilm used in Anacomp's XFP 2000 systems. Polyester is the principal raw
material in microfilm. Any disruption in the supply relationship between the
Company and its vendors, including SKC and Kodak, could result in delays or
reductions in product shipment or increases in product costs that adversely
affect the Company's operating results in any given period. In the event of
10
<PAGE> 12
any such disruption, there can be no assurances that the Company could develop
alternative sources at acceptable prices and within reasonable times.
New Products
The Company is attempting to introduce new data storage and management
products and services incorporating alternative technologies, including those
based on digital technologies. These products and services are all recent
introductions and, accordingly, have limited or no revenues to date. The markets
for such new products and services are very competitive, and there can be no
assurances that Anacomp's products and services will achieve market acceptance.
The Company has no experience in the manufacture, sale or marketing of these new
products and services. The Company currently is in the process of reeducating
and refocusing its sales force to sell its new products and services, as well as
its more traditional COM products and services, and there can be no assurances
that this will be successfully achieved. The Company's substantial leverage also
may hinder the development and deployment of new technologies. See
"-- Substantial Leverage".
International
The Company's financial results are dependent in part on its international
operations, which represented 29% of revenues for fiscal 1994. Anacomp expects
that its international operations will continue to be a significant portion of
the Company's business as the Company seeks to expand its international
presence. Certain risks are inherent in international operations, including
exposure to currency fluctuations. From time to time in the past, the Company's
financial results have been affected both favorably and unfavorably by
fluctuations in currency exchange rates. In fiscal 1993, a relatively stronger
U.S. dollar as compared with fiscal 1992 reduced revenues and operating income
of the Company's foreign subsidiaries by $8.7 million and $1.4 million,
respectively, as the foreign currency results were translated into U.S. dollars.
The impact of foreign currency fluctuations in fiscal 1994 was not significant.
Future unfavorable fluctuations in currency exchange rates also may have an
adverse impact on the Company's revenues and operating results. Anacomp does not
currently enter into hedging arrangements, although it may do so in the future.
TRANSACTION RISKS
Substantial Leverage
The Company is highly leveraged and substantially all its assets are or
will be mortgaged or subject to security interests. For the twelve-month period
ended on September 30, 1994, the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") was $114.2 million. For the same
period, the Company's pro forma interest expense, as adjusted to give effect to
the issuance of the Notes, the creation of the Revolving Credit Facility
(assuming no borrowings thereunder) and the use of net proceeds from the Notes,
would have been $69.1 million. On the same pro forma basis, as of September 30,
1994, the Company's total long-term indebtedness would have been $446.6 million,
the Company would have been permitted to borrow up to $70 million under the
Revolving Credit Facility and the Company would have had no amortization
payments during fiscal years 1995 through 1998.
Concurrently with the issuance of the Notes, the Company will be entering
into the Revolving Credit Facility in an aggregate principal amount of up to $70
million. See "The Refinancing". After the Refinancing, the Company's other
indebtedness will consist (as of September 30, 1994) of $224.9 million in
aggregate principal amount of its 15% Subordinated Notes and $2.2 million of
capital leases and other indebtedness. Subject to the terms of the Notes and the
Company's other indebtedness, the Company may incur additional indebtedness from
time to time, in connection with acquisitions or otherwise.
The degree to which the Company is leveraged, together with the covenants
imposed by the Company's indebtedness, including the Notes, could have adverse
consequences to holders of the Notes, including the following: (i) substantial
cash flow from the Company's operations will be required for the payment of
principal and interest on its indebtedness and will not be available for other
purposes; (ii) the Company's ability to obtain additional financing in the
future, whether for acquisitions, capital
11
<PAGE> 13
expenditures, refinancings or otherwise, may be impaired; (iii) the Company may
be more leveraged than certain of its competitors, which may place it at a
competitive disadvantage; (iv) the Company's loan and other debt agreements
(including the Indenture) will impose significant financial and operating
restrictions; and (v) the Company's high degree of leverage may make it more
vulnerable to changes in economic conditions and may limit its ability to
withstand competitive pressures and technological developments, consummate
acquisitions and capitalize on significant business opportunities.
Ability to Repay Notes and Other Debt
The Company will require substantial cash flow to meet its interest payment
obligations with respect to the Notes, the Revolving Credit Facility (to the
extent drawn upon), the 15% Subordinated Notes and any other borrowings. The
Company's cash flow is dependent on the Company's future performance and is
subject to financial, economic and other factors, some of which are beyond its
control. If the Company is unable to generate such cash flow from operations or
otherwise to satisfy its interest obligations on the Notes and other
indebtedness, it may be required to refinance all or a portion of such
obligations or to sell assets.
The Company expects that any payment of the principal of any of the Notes,
the 15% Subordinated Notes (which become redeemable at Anacomp's option
beginning in November 1995 and which have mandatory sinking fund obligations of
$72 million in each of November 1998 and November 1999) or any other borrowings,
whether upon maturity, acceleration, redemption, under a sinking fund obligation
or other repurchase obligation, such as a change of control, may have to be
refinanced in whole or in part or financed by the sale of assets or similar
transactions. The Indenture and other debt instruments of Anacomp contain
restrictions on the Company's ability to incur additional indebtedness and to
sell assets and, notwithstanding such restrictions, the Company may not be able
to effect a refinancing or sell assets on acceptable terms when needed.
Potential Inadequacy of Security
The proceeds of any sale of the Collateral following an event of default
under the Indenture may not be sufficient to repay the Notes in full. The Notes
will be secured with a lien on the Collateral, which will consist of
substantially all the Company's assets, other than accounts receivable,
inventory and the proceeds thereof. The Collateral will include after-acquired
assets of the Company to the extent that such assets are acquired by the Company
without financing secured by such assets. The Indenture for the Notes permits
the Collateral to be subject to Permitted Liens (as defined herein).
Although the Collateral consists of substantially all the assets of the
Company, most of Anacomp's assets consist of goodwill, other intangibles,
accounts receivable and inventory. The tangible assets comprising the
Collateral, which, as of September 30, 1994, had a book value of approximately
$70.9 million, will consist primarily of processing equipment, manufacturing
equipment and tooling, spare parts, long-term receivables, leasehold
improvements, office furniture and land and buildings. Anacomp's principal
manufacturing facility in Poway, California is leased by the Company. Anacomp's
accounts receivable and inventory are pledged as security for the Revolving
Credit Facility and are not part of the Collateral. The common stock and assets
of the U.S. Restricted Subsidiaries (as defined herein) of the Company are part
of the Collateral. However, the U.S. Restricted Subsidiaries are non-operating
companies and have no significant assets. The Collateral also includes 65% of
the common stock of the Company's Foreign Restricted Subsidiaries (as defined
herein). Although certain of the Foreign Restricted Subsidiaries are operating
companies, they have few assets, other than accounts receivables and inventory,
which may be pledged to secure foreign currency revolving credit facilities.
There is no public market for the common stock of either the U.S. Restricted
Subsidiaries or the Foreign Restricted Subsidiaries.
If a bankruptcy proceeding were to be commenced by or against the Company
and the bankruptcy court were to conclude that the Notes were inadequately
secured, the holders of the Notes would have only an unsecured deficiency claim
to the extent of such inadequacy and would not be entitled to post-petition
interest. Any deficiency claim (whether or not in a bankruptcy proceeding
involving the Company) of the holders of the Notes would rank pari passu with
any deficiency claims of the lenders of
12
<PAGE> 14
the Revolving Credit Facility and all other general unsecured creditors. In
addition, the ability of the holders of the Notes to effect a sale of the
Collateral may be subject to certain bankruptcy limitations in the event of a
bankruptcy proceeding involving the Company. See "Description of the
Notes -- Certain Bankruptcy Limitations" and "-- Collateral".
Conflicts Between the Indenture and the Subordinated Indenture
The Indenture for the Company's 15% Subordinated Notes (the "Subordinated
Indenture") requires the Company to offer to repurchase the 15% Subordinated
Notes upon the occurrence of certain events (collectively, the "Mandatory
Repurchase Offers"). Under the Indenture for the Notes, the Company will be
prohibited from making (i) certain of such Mandatory Repurchase Offers without
the consent of the holders of the Notes and the lenders under the Revolving
Credit Facility or the prepayment in full of both the Notes and the Revolving
Credit Facility and (ii) any such Mandatory Repurchase Offer unless the Company
can satisfy the conditions for making a Restricted Payment (as defined herein)
in the amount of any payments to be made pursuant to such Mandatory Repurchase
Offer. As of September 30, 1994, on a pro forma basis giving effect to the
Refinancing, Anacomp would not have satisfied certain of the conditions for
making Restricted Payments.
Failure to make any such Mandatory Repurchase Offer and satisfy the
conditions relating thereto, including payment, could result in an acceleration
of the maturity of the 15% Subordinated Notes, thereby triggering an event of
default under the Indenture for the Notes. Conversely, if the Company makes a
payment pursuant to a 15% Mandatory Repurchase Offer without satisfying the
conditions for making a Restricted Payment under the Indenture, the maturity of
the Notes may be accelerated, thereby triggering cross-acceleration under the
Subordinated Notes. Any such default or acceleration also could result in the
acceleration of other debt of the Company under agreements that contain
cross-default or cross-acceleration provisions.
The Consents being solicitated from the holders of the 15% Subordinated
Notes in order to permit, among other things, the Refinancing do not eliminate
the following covenants requiring Anacomp to make Mandatory Repurchase Offers:
(i) maintain a minimum consolidated net worth maintenance; (ii) changes of
control; (iii) sales of assets; (iv) incurrence of indebtedness; and (v)
adoption of liquidation plans. See "Description of Other Indebtedness -- 15%
Subordinated Notes -- Mandatory Repurchase Offers".
Covenant Compliance
The terms and conditions of the Indenture relating to the Notes and the
instruments applicable to the Company's other indebtedness impose restrictions
that limit, among other things, Anacomp's ability to: (i) incur additional
indebtedness (including indebtedness incurred by means of guarantees); (ii)
create liens on assets; (iii) sell assets; (iv) engage in mergers or
consolidations; (v) make acquisitions and investments; (vi) engage in certain
transactions with affiliates; (vii) make dividends, investments and certain
other payments; and (viii) engage in sale/leaseback transactions. The
Subordinated Indenture for the 15% Subordinated Notes contains various covenants
more restrictive on the operations and actions of Anacomp, and certain events of
default that are more likely to be declared, than the covenants and events of
default contained in the Indenture for the Notes. See "Description of Other
Indebtedness -- 15% Subordinated Notes -- Mandatory Repurchase Offers".
The ability of the Company to comply with such covenants will be dependent
on the future financial performance of the Company which will be subject to
prevailing economic conditions and other factors, including factors beyond the
control of the Company. A failure to comply with any of these covenants could
result in a default or event of default under the relevant debt agreements
(including the Indenture), permitting lenders to accelerate the maturity of the
indebtedness under such agreements, to foreclose
13
<PAGE> 15
upon the collateral securing such indebtedness and to terminate their
commitments (if any) with respect to additional funding obligations under such
agreements. Any such default, event of default, acceleration or failure to
comply also could result in the acceleration of other debt of the Company under
agreements that may contain cross-default or cross-acceleration provisions.
Under any of these circumstances, there can be no assurance that the Company
would have sufficient funds or other resources to satisfy all such obligations
on a timely basis.
Lack of Public Market
There is no existing market for the Notes, and there can be no assurance
that any market for the Notes will develop or, if any such market does develop,
as to the liquidity of any such market. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price thereof depending on many factors, including prevailing interest
rates, the Company's operating results and the markets for similar securities.
Salomon Brothers Inc has advised the Company that it currently intends to make a
market in the Notes; however, it is not obligated to do so and any market making
may be discontinued at any time without notice. The Company does not intend to
apply for listing of the Notes on any securities exchange or for quotation of
the Notes through the Nasdaq National Market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market for the Notes
will not be subject to similar disruptions.
14
<PAGE> 16
THE REFINANCING
The Offering is part of the Refinancing that also consists of (i) the
concurrent establishment of the Revolving Credit Facility in an aggregate
principal amount of up to $70 million and (ii) the application of certain of the
net proceeds from the Offering to retire approximately $201.7 million of the
Company's indebtedness and trade payables. See "Use of Proceeds". The closing of
the Offering and the Revolving Credit Facility are conditioned upon each other
and upon the receipt of the required Consents from holders of the 15%
Subordinated Notes as described below.
The Refinancing will (i) eliminate an aggregate of $153 million in debt
amortization in fiscal years 1995 through 1998, thereby providing Anacomp with
additional cash for product development and enhancement and for acquisitions;
(ii) simplify Anacomp's capital structure by consolidating long-term
indebtedness; and (iii) provide Anacomp with the flexibility to refinance the
15% Subordinated Notes if the Company elects, subject to market conditions, to
redeem the 15% Subordinated Notes after they become callable in November 1995.
REVOLVING CREDIT FACILITY
As part of the Refinancing the Company will be entering into the Revolving
Credit Facility in an aggregate principal amount of up to $70 million. The
Revolving Credit Facility will have such customary terms and provisions as are
negotiated between the Company and the lenders under the Revolving Credit
Facility.
CONSENT SOLICITATION
In connection with the Refinancing, the Company is soliciting Consents (the
"Consent Solicitation") from holders of its 15% Subordinated Notes in order to
modify certain provisions of the Subordinated Indenture necessary to permit,
among other things, the Refinancing. The Subordinated Indenture requires that
the Company receive the Consents from holders of 66 2/3% of the outstanding
principal amount of the 15% Subordinated Notes. In connection with the Consent
Solicitation, the Company will pay a fee equal to $10 for each $1,000 principal
amount of 15% Subordinated Notes for which a Consent has been accepted by the
Company. The Consent Solicitation will expire on February 20, 1995, unless
extended by the Company pursuant to the terms of the Consent Solicitation. Upon
receipt of the required Consents prior to such expiration date, the Company and
State Street Bank and Trust Company, as trustee for the 15% Subordinated Notes,
will execute an amendment and restatement of the Subordinated Indenture that
effects the amendments that are the subject of the Consents. The application of
such amendment and restatement of the Subordinated Indenture will be conditioned
upon the closing of the Refinancing.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
(after deduction of the underwriting discount and expenses payable by the
Company) are estimated to be $ million. The net proceeds will be used to
retire approximately $201.7 million of Anacomp's indebtedness and trade payables
and to pay expenses related thereto. The remainder of the net proceeds from the
Offering, approximately $7.4 million, will be retained by the Company for
general corporate purposes.
The estimated sources and uses of the funds to be raised in the Offering
are as if the Offering had occurred on December 31, 1994, in millions:
<TABLE>
<S> <C>
Sources:
% Senior Secured Notes due 2002..................................... $ 225.0
==========
Uses:
Revolving Loan due 1995(a)............................................ $ 32.0
Multicurrency Revolving Loan due 1995(b).............................. 29.8
Term Loans due 1996(c)................................................ 17.6
12.25% Series B Senior Notes due 1997(d).............................. 65.0
13 7/8% Convertible Subordinated Debentures due January 15, 2002...... 23.2
9% Convertible Subordinated Debentures due January 15, 1996........... 10.5
SKC Trade Payable due 2001(e)......................................... 25.0
Graham Note payable at 10% due July 15, 1997.......................... 3.5
Refinancing Fees and Expenses......................................... 11.0
General Corporate Purposes............................................ 7.4
-------------
Total......................................................... $ 225.0
==========
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) The Revolving Loan bears interest at 2.75% over the one, two, three or six-month reserve adjusted London
Interbank Offer Rate ("LIBOR"), selected at the Company's option (8.88% at December 31, 1994).
(b) The Multicurrency Revolving Loan bears interest at 2.75% over the one, two, three or six-month LIBOR, selected
at the Company's option (8.84% at December 31, 1994).
(c) The Term Loans due 1996 bear interest at 2.75% over the three-month LIBOR (8.38% at December 31, 1994).
(d) Includes make-whole payment relating to the prepayment of the 12.25% Series B Senior Notes due 1997.
(e) The SKC Trade Payable due 2001 bears interest at 1.75% over the prime rate of The First National Bank of
Boston (10.25% at December 31, 1994).
</TABLE>
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization as
of September 30, 1994 on a historical basis and as adjusted to give effect to
the Offering, the Revolving Credit Facility (assuming no borrowings are
outstanding thereunder) and the use of certain of the net proceeds from the
Offering as described under "Use of Proceeds". This table should be read in
conjunction with the Company's historical consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1994
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash................................................................ $ 19,871 $
=========
Senior Debt:
Revolving Loan.................................................... $ 23,000 $
Multicurrency Revolving Loan...................................... 20,665
Term Loans........................................................ 40,261
Series A Senior Notes............................................. 3,548
Series B Senior Notes............................................. 67,500
Senior Secured Notes offered hereby............................... --
Capitalized Leases and Other...................................... 2,193
Subordinated Debt:
15% Subordinated Notes............................................ 219,384
13 7/8% Convertible Subordinated Debentures....................... 20,922
Graham Note....................................................... 3,895
9% Convertible Subordinated Debentures............................ 10,479
---------- -----------
Total Debt................................................ 411,847
Redeemable preferred stock.......................................... 24,478
Stockholders' equity................................................ 49,756
---------- -----------
Total Capitalization.................................... $ 486,081 $
========= ==========
</TABLE>
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<PAGE> 19
SELECTED CONSOLIDATED OPERATING AND FINANCIAL DATA
The following table sets forth the selected consolidated historical
operating and financial data of the Company for the five fiscal years ended
September 30, 1994 and as of September 30 for the five fiscal years ended
September 30, 1994, which were derived, except as otherwise noted, from the
consolidated financial statements of the Company audited by Arthur Andersen LLP.
The table also sets forth selected unaudited consolidated historical operating
and financial data for the three-month periods ended December 31, 1994 and 1993
and as of December 31, 1994, derived from the unaudited interim consolidated
financial statements of the Company, which, in the opinion of management of the
Company, include all adjustments consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. The following table also includes certain unaudited pro forma
financial data that reflect adjustments necessary to give effect to the Offering
and the Revolving Credit Facility (assuming no borrowings thereunder) and the
use of the net proceeds from the Offering as described under "Use of Proceeds".
The pro forma financial data do not purport to represent the Company's results
of operations or financial condition had the Refinancing been effective for the
periods indicated and do not purport to project the Company's results of
operations and financial condition for any future period. This table should be
read in conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Company's historical consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------------- ----------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.......................... $138,783 $592,599 $590,208 $628,940 $635,361 $652,238
Cost of sales..................... 96,292 420,483 404,752 428,308 423,956 431,047
Selling, general and
administrative expenses......... 21,848 92,539 96,822 100,330 105,861 108,589
Income from continuing
operations...................... 20,643 79,577 88,634 100,302 105,544 112,602
Interest expense.................. 16,610 65,633 66,526 69,101 76,949 81,080
Net income........................ 9,901(a) 14,955(a) 18,591 26,921 29,205 9,576
Ratio of earnings to fixed
charges(b)...................... 1.25x 1.23x 1.31x 1.47x 1.41x 1.20x
Ratio of earnings to fixed charges
and preferred dividends......... 1.19x 1.18x 1.25x 1.40x 1.35x 1.15x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994 AS OF SEPTEMBER 30,
----------------------- ----------------------------------------------------
PRO FORMA(C) ACTUAL 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ............................... $ 19,871 $ 24,922 $ 29,881 $ 19,811 $ 11,577
Property, plant and
equipment -- net.................. 66,769 66,399 67,872 70,609 79,414
Intangible assets(d)................ 279,607 296,426 310,333 318,575 335,084
Total assets........................ 658,639 643,548 681,561 686,062 717,513
Total debt.......................... 411,847 439,093 477,303 514,749 539,707
Redeemable preferred stock.......... 24,478 24,383 24,287 24,191 24,095
Stockholder's equity................ 49,756 13,799 8,290 (25,017) (58,580)
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) The Company adopted Financial Accounting Standards No. 109, Accounting for Income Taxes, in the first quarter of fiscal
year 1994. The adoption resulted in a one-time increase to net income of $8,000 reflecting the cumulative effect on prior
years of this accounting change.
(b) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus
fixed charges. Fixed charges consist of interest expense on indebtedness, amortization of deferred debt issuance costs and
the portion of rental expense under operating leases that has been deemed by the Company to be representative of the
interest factor, all on a pre-tax basis.
(c) Pro forma data give effect to the Refinancing (assuming no borrowings under the Revolving Credit Facility) and the
application of the estimated net proceeds therefrom as if the Refinancing had occurred at December 31, 1994. The pro forma
balance sheet data give effect to after-tax charges of approximately $ relating to the non-cash write-off of
unamortized debt issuance costs and unamortized debt discount of the debt instruments retired, and approximately $
relating to the make-whole payments required upon the redemption of the 12.25% Series B Senior Notes due 1997. The pro
forma data also reflect the capitalization of the costs and fees incurred in connection with the Refinancing, estimated to
be $ . See "Use of Proceeds".
(d) Intangible assets represents primarily the excess of purchase price over net assets of businesses acquired, which
generally is amortized on the straight-line method over 40 years.
</TABLE>
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS -- GENERAL
Anacomp's fiscal 1994 revenues totalled $592.6 million compared to $590.2
million in fiscal 1993. Anacomp acquired Graham, a manufacturer of magnetics
products, in early May 1994. The Graham acquisition contributed $22.4 million to
1994 revenues. Anacomp also acquired the COM services customer base of 14 data
service centers from National Business Systems Inc. ("NBS") in early January
1994 which contributed $9.1 million to 1994 revenues. Excluding the
contributions from these two acquisitions, fiscal 1994 revenues decreased $29.1
million from fiscal 1993 principally due to decreased sales of COM systems,
duplicate film and retrieval devices.
Revenues in 1993 decreased $38.7 million compared to the prior year. The
continued maturing of certain of Anacomp's magnetics products caused
approximately one-half of the decline, with another quarter attributable to
unfavorable currency fluctuations compared to the prior year. The balance was
generally attributable to the continued weakness in the European economies.
Revenues in 1992 decreased $6.5 million from fiscal 1991's $635.4 million.
Micrographics services, maintenance services, COM systems and magnetics products
experienced revenue increases ranging from 2% to 13% in 1992. Micrographics
supplies revenues, however, decreased 8%, primarily reflecting a decline in film
and chemistry sales, most of which occurred in the indirect channels.
Selling, general and administrative costs in 1994 decreased $4.3 million,
due in part to the receipt of insurance proceeds related to Environmental
Protection Agency liabilities. Selling, general and administrative costs in 1993
decreased $3.5 million, primarily as a result of favorable settlements of
certain facility lease obligations.
Operating margins (which is defined as continuing operating income before
interest, other income, income taxes and extraordinary credits) as a percent of
revenues was 13.4% in 1994 compared to 15% in 1993. Accordingly, operating
income decreased $9.0 million in 1994. The decrease was largely attributable to
a change in product mix as the relatively less profitable magnetics products
represented a greater portion of total sales. Operating income decreased $11.7
million from 1992 to 1993, generally in proportion to the decline in revenues.
Operating margins were 15.9% in 1992.
Operating income decreased $5.2 million in 1992, due in part to the $6.4
million reduction in revenue. In addition, Anacomp completed two major factory
consolidations during the third and fourth quarters of 1992 in which its
manufacturing operations in Hartford, Wisconsin, and its ten separate
manufacturing facilities around San Diego county were relocated to a single site
in Poway, California (outside San Diego). One-time costs associated with this
consolidation totalled more than $3.2 million and are reflected in operating
income for 1992.
RESULTS OF OPERATIONS -- PRODUCTS AND SERVICES
Micrographics Supplies and Equipment
Micrographics supplies and equipment revenues decreased 8% in 1994,
principally due to reduced demand for duplicate film, readers and
reader/printers. Although the Company expects to effect price increases to at
least partially offset this reduced demand for duplicate film, the market may
not accept any such price increases. As the Company's supplies and equipment
business partly depends on sales of the Company's COM systems to generate repeat
business, revenues from this business unit will be gradually affected by the
declines in COM systems sales discussed below.
During the fourth quarter of fiscal 1993, Anacomp introduced the DS 300.
The DS 300 contributed $1 million in revenue in fiscal 1994, which was less than
expected. However, each quarter's sales
19
<PAGE> 21
increased during the year, and Anacomp expects further increases in fiscal 1995,
as a result of product improvements and better identification of the user
markets.
Micrographics supplies and equipment revenues decreased from $237.3 million
in 1992 to $223.1 million in 1993, a 6% decline. However, approximately 2% of
this decline was attributable to currency fluctuations, and another 2% was
attributable to the loss in mid-1992 of First Image Management Company ("First
Image") as a duplicate film customer. Micrographics supplies revenues declined
8.5% in 1992. Anacomp believes that the decrease in 1992 resulted principally
from the generally weak worldwide economic conditions.
Micrographics supplies and equipment operating profits decreased in fiscal
1994 in proportion to the decline in revenue. In 1993, micrographics supplies
operating margins were down 2% to 3%, due in part to currency fluctuations
affecting both revenues and costs as well as pricing competition in certain
product lines. Micrographics supplies and equipment operating profits decreased
in fiscal 1992 in proportion to the decline in revenues, excluding approximately
$2 million of costs associated with the factory relocation.
Micrographics Services
Micrographics services revenues, predominantly from COM services through
Anacomp's 50 U.S. data service centers, increased 5% in 1994, decreased 2% in
1993 and increased 6% in 1992, on volume increases of 10%, 13% and 14% in 1994,
1993 and 1992, respectively. The increase in fiscal 1994 volume was the result
of the acquisition of the COM services customer base of 14 data service centers
from NBS. Decreasing prices adversely affected Anacomp's micrographics services
business in 1994. The revenues decline in 1993 was due to the absence of certain
government contracts that expired in 1992 and were not replaced as well as
reduced prices. The growth of volume resulted both from an increase in new
customers as well as an increase in services to existing customers. Operating
margins as a percent of revenue in 1994 decreased 2% as reductions in average
selling prices exceeded reductions in production costs. In 1993 and 1992,
reductions in operating costs kept margins steady despite keen price
competition.
Maintenance Services
Maintenance revenues are derived principally from COM recorders and
duplicators. Such revenues increased $3.1 million in 1994, decreased $4.8
million in 1993 and increased $1.7 million in 1992. The improvement in 1994 is
largely the result of the addition of a national data service center company to
Anacomp's customer base. Approximately one-half of the decline in 1993 was
caused by currency fluctuations. The remaining decline was caused in part by the
improved capacity and efficiency of the XFP 2000, which allows customers to
produce more volume on fewer machines. The Company's maintenance revenues are
adversely affected by the replacement of older COM systems with XFP 2000 systems
because fewer XFP 2000 systems are required to process the same volume as older
COM systems. Operating margins modestly decreased in 1994 after remaining level
in 1993 and 1992.
COM Systems
COM systems revenues decreased 22% in 1994 because of the decline in sales
of XFP 2000 COM systems to third parties from 274 systems in 1993 to 165 systems
in 1994. This decline was partly the result of reduced original equipment
manufacturer ("OEM") shipments (25 systems in 1994 versus 67 in 1993). Although
the Company believes that the introduction of the Xerox and IBM data stream
features ("XCF" and "AFP", respectively) for the XFP 2000 system will help to
offset the declining sales, there can be no assurances that such features will
improve the marketability of the XFP 2000 system.
COM systems revenues increased slightly in 1993 after consideration of
currency effects. COM systems revenues increased 7% in 1992 as a result of an
84% increase in sales of XFP 2000 COM systems from 114 in 1991 to 212 in 1992.
20
<PAGE> 22
Operating margins as a percent of revenue improved in 1994 despite reduced
revenues as a result of higher average selling prices. Operating margins in 1993
improved significantly both as a result of higher XFP volumes and the benefits
from the facility consolidation that took place in 1992. Operating margins in
1992 were essentially unchanged from the prior years, excluding costs associated
with the San Diego facility consolidation. During the fourth quarter of fiscal
1992, Anacomp consolidated its San Diego-based manufacturing, engineering,
maintenance and product marketing operations into a newly constructed facility
in Poway, California, just outside San Diego. The move consolidated 10 different
sites around San Diego county and involved approximately 1,000 employees.
Anacomp spent approximately $1.2 million in the fourth quarter of fiscal 1992 in
connection with the consolidation.
In early November 1993, Anacomp announced the signing of an OEM agreement
with the IBM Storage Systems division to produce XSTAR, an extended data storage
and retrieval product that combines on-line data management and long-term COM
storage. Anacomp received its first order for an XSTAR in the fourth quarter of
fiscal 1994 and has placed additional units with selected customers for
evaluation and possible sale.
Magnetics
Anacomp's acquisition of Graham in May 1994 was the primary reason for a
36% increase in magnetics revenues over 1993. Graham manufactures magnetics
products at its facility in Graham, Texas. Anacomp has shifted all its U.S.
production of those products from its Omaha, Nebraska plant to the Graham
facility during the first half of fiscal 1995. The costs associated with this
relocation were not significant. The consolidation allows Anacomp to dedicate
its Omaha magnetics media coating line exclusively to the production of cookies,
thereby substantially improving the quality of its cookies. The consolidation
also results in improved manufacturing efficiencies and overall head count
reduction.
Magnetics revenues decreased $16.5 million in 1993. Almost half of the
decrease was due to the completion of a one-time OEM arrangement, which
contributed $9.7 million in revenues in 1992 and only $1.1 million in 1993. In
addition, Anacomp experienced decreased demand for 3480 and TK 50/52 cartridges
as well as open reel tape, as these products continued to mature. Anacomp
introduced the high-compression 3490E cartridge in mid-1993, which contributed
over $8 million of revenues in 1994.
The revenues added in 1994 from the Graham acquisition resulted in
increased operating profits. The reduced revenues in 1993 resulted in a
significant reduction in operating profits. In 1992, operating profits declined
despite increased revenues, due principally to increased pricing pressures.
RESULTS OF OPERATIONS -- OTHER
Interest
The reduction in interest expense in 1994 resulted from lower debt levels,
partly offset by the increase in short-term interest rates. Interest expense in
1993 and 1992 declined as a result of debt repayments as well as reduced
interest rates.
Income Taxes
Income taxes as a percentage of income from continuing operations were 54%
in 1994, 43% in 1993 and 44% in 1992. In 1994 and 1993, income tax expense was
reduced $1.2 million and $3.7 million, respectively, as a result of the
favorable settlement and disposition of previously established tax reserves. In
1992, the effective tax rate was reduced by the receipt of $1.2 million in state
tax refunds and by the inclusion in income of certain foreign exchange gains,
which were not subject to tax. The effective tax rate is higher than the U.S.
statutory rate because of amortization of goodwill which is not deductible for
tax purposes and generally higher foreign tax rates. See note 10 to Anacomp's
consolidated financial statements included elsewhere herein.
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<PAGE> 23
Discontinued Operations and Other
The loss from discontinued operations represents the accretion of interest
(net of taxes) on the present value of obligations recorded in prior years for
unfavorable lease commitments and future lease costs. See note 1 to Anacomp's
consolidated financial statements included elsewhere herein.
The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal year 1994. The adoption resulted in
a one-time increase to income of $8 million reflecting the cumulative effect on
prior years of this accounting change. See note 10 to Anacomp's consolidated
financial statements included elsewhere herein for a further discussion of the
effect of this adoption on the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
In 1994, Anacomp continued to invest in retooling its data service centers,
to make important acquisitions such as Graham and NBS and to make significant
investments in software including the XCF and AFP features. At the same time,
short and long-term debt was reduced by $27.2 million. These expenditures were
funded primarily from operating cash flow. In addition, common stock was issued
in each of the major acquisitions, inventory turnover rates were improved and
certain data service center equipment was sold under sale/leaseback arrangements
that generated approximately $12 million during the year.
As disclosed in the Company's consolidated financial statements appearing
elsewhere in this Prospectus, net cash provided by operating activities was
$52.7 million for fiscal 1994 compared to $45.9 million for the prior year. Net
cash used in investing activities increased $21.1 million primarily because of
the Graham and NBS business acquisitions and the decline in proceeds from sales
of assets. Net cash used in financing activities decreased $13.0 million
primarily due to reduced debt fees and long-term debt payments.
The Company has experienced positive cash flow from operations for the last
four years and anticipates that positive cash flow will continue in the future.
In addition, the Revolving Credit Facility will provide the Company further
liquidity. The Refinancing eliminates an aggregate of $153 million in
amortization in fiscal years 1995 through 1998. The Company intends to reinvest
any net cash provided by operating activities in its business, including in
product development and enhancements, as well as to use any such net cash to
pursue strategic acquisitions. The 15% Subordinated Notes are redeemable after
November 1995, and Anacomp will consider redeeming them through a refinancing,
subject to market conditions. Accordingly, Anacomp believes it has sufficient
liquidity to fund operations and planned capital expenditures in fiscal 1995.
Management does not believe that the effects of inflation will have a
material impact on the Company. Moreover, management is currently unaware of
changes in the price of materials, other than polyester, or other operating
costs or in the selling price of Anacomp's products and services that will
materially affect the Company.
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<PAGE> 24
THE DATA STORAGE AND MANAGEMENT INDUSTRY
OVERVIEW
The volume of data being generated and processed by businesses and
governments is growing rapidly, primarily as a result of the increasing power
and prevalence of computers. In 1994, more than 90% of this data was stored on
paper, which is the most costly and inefficient way to store information. Faced
with this growing volume of information, private and public enterprises are
increasingly relying on a wide range of technologies to facilitate the storage
and retrieval of data. These technologies include DASD, optical disk, magnetic
tape and micrographics (Computer Output Microfilm), as shown in the following
chart:
DATA STORAGE AND MANAGEMENT TECHNOLOGIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COMPUTER OUTPUT
DASD OPTICAL DISK MAGNETIC TAPE MICROFILM
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Description Direct access stor- Peripheral storage Peripheral storage Tape-like reels of
age devices com- devices written and technology film and 4" X 6"
prised of magnetic read by laser light consisting of tape sheets of film that
disk drives directly technology. Data are drives, tape reels store information in
connected to host stored on CDs and and cartridges; data scaled down page
computers. CD-ROMs. are sequentially layout format.
read from and
written to the
media.
- ----------------------------------------------------------------------------------------------------------
Example Application Airline reservation Storage of bank Nightly backup of Storage/archiving
systems statements 30-90 data stored on DASD of bank statements
days old or optical devices over six months old
- ----------------------------------------------------------------------------------------------------------
Speed of Retrieval <1 second 5-10 seconds 10-30 seconds >30 seconds
- ----------------------------------------------------------------------------------------------------------
Cost per Megabyte $3.50 - $7.00 $1.50 - $3.50 $0.30 - $1.00 $0.08 - $0.15
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Given their complementary functions, organizations typically employ several
storage and retrieval technologies simultaneously. Demand for each depends on
several important attributes, including cost, speed of retrieval, ongoing
feasibility of retrieval technology, longevity and data integrity. The optimal
mix of these attributes changes according to the frequency of information usage
and the urgency of its retrieval. At the early stage of a document's life, a
high-cost but fast-access technology such as DASD is typically used. In later
stages, the data may be migrated to a low-cost but relatively slower retrieval
technology such as micrographics.
MICROGRAPHICS
Micrographics is the conversion of information stored in digital form or on
paper to microfilm or microfiche. Computer output microfilm (COM) converts
textual and graphical digital information at high speed directly to microfilm or
microfiche. COM was initially developed as an information management system that
would reduce the cost and increase the speed of computer output by "printing"
computer-generated data on microfilm or microfiche, instead of paper. Compared
to paper, COM has a number of benefits. COM recorders can print reports
substantially faster than typical impact printers, and multiple copies can be
made easily and economically on high-speed duplicators. In addition, a COM
recorder can print a 1,000 page report on a single 4" by 6" microfiche. With the
advent of indexing, retrieval of information became easier and faster with COM
than with paper storage.
A COM recorder receives data directly from a computer or magnetic tape,
interprets and converts the data from digital to analog format and performs
certain functions such as film manipulation, output formatting, titling and
index extraction. The data are then converted into images and transferred
directly onto film, and the finished microfilm or microfiche, as well as
duplicates, are produced. Retrieval of images on microfilm or microfiche is
accomplished by the use of low-cost readers or reader/printers. In
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<PAGE> 25
addition, micrographic images may be returned to a digital format for computer
use. The comparative advantages of micrographics are:
- Cost. Micrographics is the least expensive of all storage and
retrieval technologies, costing $0.08 - $0.15 per megabyte in 1994,
compared to $3.50 - $7.00 per megabyte for DASD, $1.50 - $3.50 per
megabyte for optical disk and $0.30 - $1.00 per megabyte for magnetic
tape.
- Ongoing feasibility of retrieval technology. Micrographics is the
most stable storage medium as it is human readable and, accordingly,
does not require sophisticated electronic retrieval devices, that are
subject to rapid technological change.
- Longevity. Information stored on microfilm or microfiche is estimated
to remain usable for over 100 years, making micrographics the
preferred method of storing information for extended periods of time.
- Integrity of data image. Microfilm and microfiche are reproduced in
an analog, not digital, format. Once recorded on a micrographics
medium information cannot be altered, as micrographics image is
tamper-free and not susceptible to computer or digital errors, all of
which ensure that the image retrieved exactly resembles the image
stored.
Storage of the monthly account statements generated by commercial banks
illustrates the benefits of micrographics. Bank statements generally require
frequent and urgent retrieval only during the first few months after they have
been prepared (when customer inquiries are highest). During this period, a high-
cost but fast-retrieval technology such as DASD generally is used. Thereafter,
as the frequency and urgency of customer requests decrease, the data may be
migrated to several lower-cost but slower retrieval technologies such as optical
disk or magnetic tape. Still further decreases in the frequency of customer
requests make data migration to micrographics the most cost-effective and
reliable long-term data storage option. In certain cases, an organization may
output some data directly to COM given the relative lack of retrieval urgency
throughout such data's life cycle. For example, the same bank may output
internal personnel records directly to micrographics.
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<PAGE> 26
BUSINESS
STRATEGY
Anacomp is introducing new data storage and management products and
services which are designed to expand the value of micrographics and target new
digital storage markets. To achieve these objectives, the Company is
implementing the following strategies.
ENHANCE LEADERSHIP IN MICROGRAPHICS
Anacomp is the world's leading full-service provider of micrographics
systems, services and supplies. In order to capitalize further on the Company's
leading position in the micrographics industry, Anacomp seeks to expand the
value of micrographics by:
- Continuing to Drive the Pace of Technological Innovation. Anacomp has
been the leader in providing technological improvements in
micrographics. In 1990, the Company introduced the XFP 2000 COM
system, the fourth generation of COM system which continues to be the
most significant COM industry advancement during the last decade. The
Company has developed, in conjunction with Xerox, the XCF technology
which enables the XFP 2000 to process and image Xerox high-speed,
high-volume data streams, including those containing fonts, forms,
logos, signatures and other images, onto microfilm or microfiche. A
similar alliance with IBM's Pennant division is developing AFP, which
will enable, when available, the XFP 2000 to process and image IBM's
AFP formatted data streams used by IBM high-speed, high-volume laser
printers. Anacomp believes that both developments will extend the
market potential of the XFP 2000 and increase the effectiveness of
micrographics. As part of its continuing effort to develop integrated
data storage solutions that broaden various COM applications, the
Company recently introduced a new workstation, the DS 300, that
enables users to digitize and transmit micrographics images and data
to an electronic network.
- Maximizing Value of Data Service Centers. Anacomp upgraded its data
service center COM capabilities through the recently completed
installation of the Company's XFP 2000 COM systems in all 50 Anacomp
data service centers. The Company will upgrade its data center
services further by introducing the XCF enhancement feature. The
Company also will offer in its data centers the AFP enhancement
feature when it becomes available in mid-1995. Competitors of the
Company have begun to purchase Anacomp XFP 2000 systems in order to
upgrade their capabilities to match those now available at Anacomp's
centers. Anacomp also believes that it can increase the value of its
data service centers by offering the following services made recently
available: (i) recording computer generated data and information onto
CD-Rs, a digital storage medium and (ii) scanning paper or microfilm
for recording onto CD-Rs.
- Capitalizing on Industry Consolidation. The micrographics industry is
undergoing industry consolidation, and the Company anticipates making
acquisitions that capitalize on market opportunities created by these
consolidations. In fiscal 1994, the Company acquired 14 data service
centers from NBS, further enhancing Anacomp's COM services market
share.
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<PAGE> 27
PURSUE STRATEGIC ALLIANCES
Anacomp is developing new micrographics, digital and consumable products
through alliances with leading technology companies such as IBM, Xerox
Corporation, FileNet Corporation ("FileNet") and Kodak. Examples of product
developments from these relationships include the XCF and AFP enhancement
features for XFP 2000 systems developed with Xerox and IBM, respectively. In
addition, the Company also markets VELLOS under an OEM arrangement with FileNet
and has developed XSTAR through an alliance with IBM and RSD America Inc. The
Company will continue to pursue strategic alliances in order to gain access to
technologies and reduce development time and expenses. Anacomp's technological
leadership, worldwide distribution network and base of over 15,000 customers
should continue to make Anacomp an attractive strategic alliance partner. See
"Business -- Products and Services -- New Products and Markets" for a
description of the VELLOS and XSTAR products.
SEEK INTERNATIONAL GROWTH
The Company currently markets its COM products and maintenance services in
more than 65 countries, with international operations accounting for 29% of
Anacomp's fiscal 1994 revenue. Anacomp is targeting new international markets in
certain Latin American and Asian countries, such as China, with no or minimal
previous exposure to COM. In fiscal 1993, the Company formed a separate
Americas/Asia division to spearhead various strategic efforts, including (i) the
Company's alliance with Kodak, begun in fiscal 1994, whereby Kodak became the
Company's exclusive distributor in Asia (except Japan) and Australia, and which
has already resulted in the successful placement of XFPs at two of the largest
banks in China, and (ii) the current development of software that will for the
first time make native-language COM systems available for sale in China, Korea
and Taiwan.
CONTINUE COST REDUCTIONS
The Company continues to streamline its operations in an effort to reduce
costs in recognition of recent declines in revenues. These initiatives include
consolidating manufacturing operations and supply relationships, outsourcing
manufacturing functions and centralizing administration, customer service and
order entry. The Company estimates that these measures will generate $6 to $8
million in annual savings at current volume levels.
PRODUCTS AND SERVICES
Anacomp is the world's leading full-service provider of micrographics
systems, services and supplies with customers in more than 65 countries. Anacomp
has the world's largest installed base of COM systems (58% of the machines in
use), and micrographics accounted for 82% of Anacomp's revenues in fiscal 1994.
Micrographics is the conversion of information stored in digital form or on
paper to microfilm or microfiche. COM converts digital and graphical information
at high speed directly to microfilm or microfiche.
The table below sets forth Anacomp's revenues by product and service line
for the years indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------- ----------------------------------------------------
1994 1993 1994 1993 1992
-------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Micrographics:
Supplies and Equipment......... $ 46,755 34% $204,589 35% $223,120 38% $237,287 38%
Services....................... 30,927 22 131,654 22 125,226 21 127,853 20
Maintenance.................... 23,456 17 89,912 15 86,777 15 91,604 15
COM Systems.................... 17,114 12 59,149 10 75,900 13 76,845 12
Magnetics........................ 18,693 14 98,817 17 72,703 12 89,217 14
Other............................ 1,838 1 8,478 1 6,482 1 6,134 1
-------- --- -------- --- -------- --- -------- ---
$138,783 100% $592,599 100% $590,208 100% $628,940 100%
========= ==== ========= ==== ========= ==== ========= ====
</TABLE>
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<PAGE> 28
Anacomp provides (i) micrographics processing services to customers on an
outsourcing basis through its 50 data service centers nationwide; (ii)
micrographics systems for users who perform their own data conversion; (iii)
consumable supplies and equipment for micrographics systems; and (iv)
maintenance services for micrographics equipment. Anacomp also is a leading
manufacturer and distributor of a wide range of magnetics storage products.
MICROGRAPHICS SERVICES
General
The Company operates 50 data service centers located in the United States.
Anacomp's data service centers, which generally operate 24 hours per day every
day of the year, receive on a daily basis thousands of magnetic tapes or direct
computer transmissions from more than 8,000 customers. The data service centers
then convert the information on these tapes to 16mm microfilm or to microfiche,
which is a 4" X 6" microfilm card capable of storing up to 1,000 pages of
computer output. Anacomp has recently begun to offer CD-R services to its
customers. As with COM, Anacomp receives data on computer tape or via direct
transmission and records the data onto CD-Rs. For most CD-R customers, Anacomp
simultaneously records their data onto microfilm or microfiche.
The Company has been successful in acquiring data service centers located
in attractive markets and, in most cases, has consolidated these operations with
its existing network. Such acquisitions result in incremental volumes being
serviced by Anacomp's existing data service centers, thereby improving operating
margins. Anacomp has acquired 24 data service centers or their customer bases
during the past three fiscal years and anticipates continuing to make such
acquisitions.
The Company upgraded the capabilities of its data service centers by
installing XFP 2000 systems in each of its 50 centers. In addition, the Company
plans on offering the XCF enhancement feature (which became available in
December 1994) and the AFP enhancement feature (which should become available in
mid-1995). The Company's XFP 2000 and the related XCF and AFP capabilities
enable the Company's data service centers to offer customers applications
previously unavailable, thereby expanding the market for COM services.
In October 1994, Anacomp established the Image Conversion Services division
("ICS"). Through ICS, Anacomp operates 11 image conversion centers where
original source paper documents are scanned and recorded onto either microfilm
or microfiche or CD-Rs. The Company has identified image conversion as a growth
market and plans to expand into this area by making these services available in
additional locations.
Customers and Distribution
Anacomp's micrographics services customers include a majority of the
Fortune 500 companies, banks, insurance companies, financial service companies,
retailers, healthcare providers and government agencies, such as Automatic Data
Processing, Inc. (ADP), Citicorp, Electronic Data Systems Corp. ("EDS"), General
Electric Capital Corporation, The Home Depot, Inc. and IBM. The typical service
contract is exclusive, lasts one year with a one-year automatic renewal period
and provides for usage-based monthly fees, subject to increase on 30 days'
notice. Approximately 75% of Anacomp's micrographics services customers are
subject to contracts and more than 95% of such contracts are renewed annually.
For the typical Anacomp data service center customer, an Anacomp
salesperson identifies potential COM applications through a survey performed
on-site or by observing paper reports at a data processing location. For
example, a company may need to transfer a computerized record of all accounts
payable activity to microfiche for active records management and archival
storage. The Anacomp salesperson obtains information regarding any specialized
requirements, such as indexing, rapid turnaround and distribution, and relays
this information to Anacomp's software programmers. The Anacomp data service
center then creates a sample output for the customer. Once the sample output is
approved by the
27
<PAGE> 29
customer, Anacomp establishes a regular schedule for gathering the customer's
digital tapes for processing or establishes a direct transmission link. Upon
receipt of customer computer data, the data service center creates, processes,
duplicates, packages and distributes the microfilm or microfiche to the
customer. Turnaround time ranges from two to 36 hours depending on customer
needs.
In the Company's ICS division, sales personnel work closely with Anacomp's
COM sales force to identify COM customers who are potential users of ICS.
Additionally, the ICS sales force prospects for new business from non-Anacomp
COM customers. ICS has over 600 customers, including Aetna Life Insurance and
Annuity Company ("Aetna"), Pillsbury Corporation, The Chase Manhattan Bank N.A.
and the Commonwealth of Massachusetts.
Competitors
Data service center industry competition is primarily limited to service
centers within a 50-mile radius of a customer because of the emphasis on rapid
turnaround. Anacomp and First Image (which has 66 data service centers) are the
two largest national data service center organizations with approximately 25%
and 38% of the market, respectively. The remainder of the market is served by
numerous small data service centers.
The market in which ICS operates is highly fragmented with no one
competitor, including Anacomp, having more than a 10% market share. Anacomp
competes primarily with numerous small regional providers.
COM SYSTEMS
General
Anacomp is the world's leading manufacturer and distributor of COM systems,
offering a complete line of COM recorders, processors, duplicators and related
software. Anacomp's installed base of COM systems is more than twice as large as
its nearest competitor (58% of those in use worldwide), and related sales of COM
services and supplies to the installed base provide the Company with a recurring
revenue stream that constitutes a significant portion of its annual revenues.
The Company's COM recorders offer a complete line of features, including wet or
dry process technology, roll or cut fiche, medium to high speed, stand-alone or
integrated film processors and duplicators, PC-based operator control interface
and electronic forms generation.
Anacomp's XFP 2000, introduced in 1990 as the fourth generation of COM
recorder technology, continues to be the most significant technological
advancement in the COM industry during the last decade. The XFP 2000 is faster
and more reliable than previous COM recorders and, through its laser technology,
provides the capability to generate precise reproductions of any image. When
coupled with Anacomp's proprietary XCF and AFP software, the XFP 2000 can
duplicate the output of high-speed, high-volume laser printers of various
manufacturers. This capability, which is not available in older generation COM
recorders, allows for the first time images such as fonts, forms, logos,
signatures, photographs and other images to be output to microfilm or
microfiche.
The Company has recently completed the development of XCF in conjunction
with Xerox. This software feature enables the XFP 2000 to process the same data
stream used by Xerox high-speed, high-volume laser printers. In connection with
XCF, Anacomp must make royalty payments to Xerox. The Company recently prepaid
to Xerox $1.3 million for 100 software licenses. XCF became available in
December 1994, and, the Company had shipped four of them as of December 31,
1994.
A similar alliance with IBM's Pennant division is producing software that
will enable Anacomp's XFP 2000 to process and image AFP formatted data streams
used by IBM high-speed mainframe laser printers. AFP is expected to be available
in mid-1995. Anacomp has paid Pennant certain fees for the development of AFP
and must make royalty payments over the next six years. The worldwide installed
base of IBM, Xerox and IBM-compatible Siemans AG high-speed, high-volume laser
printers is estimated to be 25,000.
The Company has sold a total of 808 XFP 2000 systems to third parties since
its introduction in 1990 (43 in 1990, 114 in 1991, 212 in 1992, 274 in 1993 and
165 in 1994), including 149 sold to Kodak
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through an OEM supply agreement (12 in 1990, 13 in 1991, 32 in 1992, 67 in 1993
and 25 in 1994). To the extent Kodak purchases fewer than a total of 300 XFP
2000 systems by October 1997, it will be obligated pursuant to the OEM agreement
to pay a penalty. The Company is uncertain how many XFP 2000 systems Kodak will
purchase.
As part of the Company's plan to enhance its position in the COM market
place, Anacomp has installed 163 XFP 2000 systems in its 50 data service
centers. Anacomp's XCF and AFP enhancement features will further differentiate
the Company's micrographics service capabilities. Competitors of the Company
have begun to purchase Anacomp XFPs in order to upgrade their capabilities to
match those now available at Anacomp's data service centers. In 1994, Anacomp
sold 51 XFP 2000 systems to domestic non-Anacomp service centers, including two
to Anacomp's largest data services competitor, First Image. There are currently
more than 1,900 non-XFP systems in service centers worldwide, representing a
significant potential market for XFP sales.
As compared to the United States and Europe, COM is substantially
underutilized in certain Latin American and Asian countries, particularly China.
In fiscal 1993, the Company formed a separate Americas/Asia division to take
advantage of growing opportunities in Latin America and Asia. The Company is
currently developing software for the XFP 2000 that will permit data to be
recorded utilizing kanji characters. As a result of this software,
native-language COM systems will be available for sale for the first time in
China, Korea and Taiwan. The Company believes that this software will be
available in the second half of 1995.
Customers and Distribution
Principal customers for the Company's COM systems include information
intensive organizations such as banks, insurance companies, financial service
companies, retailers, healthcare providers, manufacturers and government
agencies and, as described above, non-Anacomp COM data service centers. Recent
purchasers of the XFP 2000 include Aetna, American Airlines, Inc., AT&T Corp.,
Chemical Banking Corporation, CIGNA Corporation, Cincinnati Bell Inc., EDS, GTE
Corporation, NYNEX Corporation, PepsiCo, Inc., The Travelers Inc., the State of
Washington and the Westinghouse Electric Corporation. While the vast majority of
COM systems are sold outright, the Company does offer customers three or
five-year lease options.
Of the Company's installed base of 2,770 COM systems, 77% constitutes older
generation technology. The Company believes that represents a significant
opportunity for replacement sales of XFP 2000 systems, particularly in light of
the introduction of the XCF and AFP software features.
International sales accounted for 35% of the Company's fiscal 1994 COM
system revenues. In foreign markets, Anacomp sells COM systems through wholly
owned operating subsidiaries and, in countries in which Anacomp does not have a
subsidiary, through dealers and agents. In 1994, Kodak became the Company's
exclusive distributor in Asia (other than Japan) and Australia. Utilizing
Kodak's local sales network, the Company increased its sales in Asia, including
XFP sales to the two largest banks in China.
Competitors
The Company's primary competitors in the sale of COM systems are
Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation ("MTC").
Anacomp manufactures, on a private label basis, the COM systems sold by Kodak
through an OEM agreement. In some instances, Anacomp and Kodak compete directly
for the same COM system sales. Competition is based principally on product
features, as well as on such factors as product quality, service and price.
Anacomp sells approximately 70% of all new COM system sales worldwide (inclusive
of OEM unit sales). Anacomp's large installed base is an important competitive
advantage in the sale of new COM systems because changing from one
manufacturer's COM system to another is difficult as a result of software
conversion and operator training costs.
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MICROGRAPHICS SUPPLIES AND EQUIPMENT
General
Anacomp sells the most comprehensive line of micrographics supplies in the
world, offering original silver halide film, duplicate film, chemicals for
microfilm processing, paper and toners for reader/printers, micrographics lamps
and bulbs and other consumables. A majority of the supplies sold consists of
silver halide film, which is used to produce original masters of computer
information (such as a bank statement) on microfilm or microfiche, and duplicate
microfilm, which is used to create one or more additional copies of such master
(e.g., copies of a bank statement at several local branches). Anacomp is the
exclusive supplier of proprietary wet and dry original halide film used in its
XFP series of COM systems and of the proprietary dry original halide film for
its X Series, an earlier generation of Anacomp COM systems. Most original
microfilm for Anacomp's COM systems is specifically manufactured for Anacomp by
Kodak in a proprietary package. For original film sales to other COM systems and
to the source document marketplace, Anacomp has national distribution and vendor
agreements with Agfa, Kodak and Fuji.
In addition to offering supplies, Anacomp designs, manufactures and markets
a complete line of microfilm/microfiche readers and reader/printers. Readers,
which sell for approximately $100 to $400 per unit, are relatively simple,
low-cost devices used to view microfilm or microfiche. Reader/printers, which
allow users to print a paper copy of the microfilm or microfiche being viewed,
sell for approximately $1,250 to $6,300 per unit.
In April 1993, the Company announced the introduction of the DS 300, a
low-cost, full function workstation that scans, digitizes and electronically
converts micrographic images on demand. The images can then be viewed, edited or
enhanced on a PC screen and output to a laser printer or fax machine or
distributed over a WAN or LAN to other PC imaging users. By so doing, the DS
300, the only scanning system that features a Windows-based open architecture,
bridges on-line and off-line technologies and facilitates such applications as
customer service, billing and statement research.
Customers and Distribution
Anacomp sells its consumable supplies directly to more than 90% of its
worldwide installed base of approximately 2,770 COM systems. In addition, the
Company's indirect sales operation sells supplies to dealers and distributors
throughout the United States.
Anacomp's original microfilm sales include film sold specifically for
Anacomp's COM systems (85% of original microfilm sales), for other
manufacturers' COM systems (4% of original microfilm sales) and for the source
document marketplace (11% of original microfilm sales).
Beginning in October 1994, Anacomp became the exclusive provider of
duplicate film to First Image, Anacomp's primary competitor in the data service
center business and one of the world's largest consumers of duplicate microfilm.
Anacomp sells readers and reader/printers to its COM systems and data
service center customers and is an OEM supplier to Kodak and Bell & Howell
Company. Anacomp also sells readers and reader/printers through distributors and
to customers of competing data service centers both directly and through such
competing data service centers.
International sales in fiscal 1994 accounted for 31% of the Company's total
micrographics supplies and equipment revenues. In foreign markets, Anacomp
offers supplies through wholly owned operating subsidiaries and, in countries in
which Anacomp does not have a subsidiary, through a network of dealers and
distributors.
Competitors
For non-OEM sales of the XFP 2000, Anacomp is the exclusive supplier for
original microfilm because of the proprietary nature of the film. Anacomp
competes in sales of non-proprietary original microfilm with other
manufacturers, including Agfa, Fuji Photo Film Co., Ltd. ("Fuji"), Kodak and
Minnesota Mining &
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Manufacturing Company ("3M"). Anacomp's worldwide market share for this product
is approximately 55%.
Anacomp believes it is the world's largest supplier of duplicate microfilm
with an estimated 70% of the U.S. market and an estimated 65% of the non-U.S.
market. Anacomp's primary competitor in the duplicate microfilm market is Rexham
Graphics Ltd. ("Rexham") with an estimated 31% share of the worldwide duplicate
film market.
Anacomp's market share of the worldwide reader market is estimated to be
63%, with the remainder of the market held by Eye Communication Systems, Inc.
and several small manufacturers, none of which has more than 10% of total unit
shipments. Anacomp's share of the worldwide reader/printer market is
approximately 28%. Anacomp competes with Canon Inc. ("Canon"), Information and
Graphics Systems Inc. and Minolta Co., Ltd. ("Minolta"). Anacomp has
approximately 5% of the worldwide digital scanner market with its DS 300 product
and competes with Canon, Kodak, Minolta and 3M.
Anacomp has an estimated 33% of the micrographics supplies and equipment
market in Europe and 39% of the supplies and equipment market in the Americas
(excluding the United States) and Asia. In Europe, the Company's primary
competitors for micrographics supplies and equipment are Kalle Microfilm
Division of Hoechst AG ("Kalle"), A. Messerli AG and Rexham. Its primary
competitors in Japan are Kodak and Fuji.
MAINTENANCE SERVICES
General
Anacomp provides 24-hour a day maintenance services to 98% of its installed
base, with over 900 service employees operating worldwide. Through a network of
maintenance service centers and resident service representatives, the Company's
maintenance organization offers installation, ongoing maintenance and field
technical support for existing and new products. Increased maintenance margins
usually result from incremental COM systems sold to the same customer site
because the Company is able to provide maintenance without adding maintenance
centers or a significant number of personnel. The improved capacity and
efficiency of the XFP 2000 will result in reduced maintenance revenues as
customers are able to process more volume on fewer COM systems. However, Anacomp
believes that operating margins will benefit from sales of additional XFP 2000
systems because XFP 2000 systems require less maintenance than older COM
systems.
Customers and Distribution
Anacomp's maintenance services division is made up of 500 field service
engineers and managers who provide geographic coverage through ten districts in
the United States. Anacomp provides maintenance services primarily to its
installed base of COM systems, although the Company has begun to service
non-Anacomp COM systems and selected data processing products. As part of a
September 1993 agreement between Anacomp and First Image, Anacomp became First
Image's exclusive COM system maintenance provider nationally. Anacomp's standard
maintenance contract is an exclusive, two-year contract with an automatic
two-year renewal period. The prices under a standard maintenance contract are
fixed for nine months and thereafter are subject to up to 10% annual increases
upon 90 days' notice. Maintenance contracts on the XFP 2000 also provide for
incremental charges for every image over a certain number of images processed.
International operations accounted for 32% of the Company's maintenance
revenues in fiscal 1994. COM systems sold directly in foreign markets are
maintained by Anacomp employees operating through Anacomp's foreign
subsidiaries. COM systems sold in foreign markets through distributors are
generally maintained by the employees of such distributors.
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Competitors
Historically, competition in maintenance has been limited as most customers
tend to use the maintenance services of the vendor that installed their system,
though some customers choose to use in-house maintenance staffs. Thus, revenues
are primarily a function of new COM system sales and the size of the installed
base.
Anacomp has the infrastructure to compete for service contracts on other
COM products or selected data processing products, and the Company is actively
seeking such business. In March 1992, Anacomp acquired the COM maintenance
service operations of TRW Inc. ("TRW"), the last major third party provider of
such services. The TRW operations were integrated into Anacomp's existing
maintenance organization. These operations expanded the Company's maintenance
service base and created new opportunities for COM system and supplies sales.
Anacomp's maintenance market share is approximately 65% in the United
States, 50% in Europe and 15% in the Americas (excluding the United States) and
Asia.
NEW PRODUCTS AND MARKETS
The Company is introducing new data storage and management products and
services based on digital technologies. Anacomp seeks to establish strategic
alliances with leading technology companies in order to gain access to digital
technologies and reduce development time and expense. Anacomp's technological
leadership, large customer base and worldwide distribution network have made it
an attractive strategic alliance partner. Anacomp's digital-based products are
sold through Anacomp's sales force to its micrographics customer base. For a
discussion of the risks associated with the Company's development and
introduction of new products, see "Risk Factors -- New Products".
In November 1993, the Company announced an OEM agreement with IBM to
produce XSTAR, an extended data storage product that combines on-line data
management and long-term COM storage. XSTAR allows users to store computer
generated documents on a variety of storage media (such as magnetic disks,
optical disks, magnetic tape and COM) and remotely retrieve them through desktop
PCs or host computer terminals. XSTAR is well suited for high-value,
long-retention cycle documents that will migrate over time from digital to
micrographics storage. Anacomp received its first order in the fourth quarter of
fiscal 1994 and has placed additional units with selected customers for
evaluation and possible sale.
In April 1994, Anacomp announced an OEM agreement with FileNet to market
VELLOS, a rewritable magneto-optical disk storage system. VELLOS enables
customers to manage and store information that was initially stored on paper in
digital format. VELLOS software, developed by FileNet, is installed on hardware
that Anacomp buys from third parties and resells to its customers, unless
purchased by customers from a different source. In connection with the sale of
VELLOS, Anacomp also offers electronic scanning services as well as COM services
if the data stored on VELLOS eventually migrate to micrographics for long-term
archiving. VELLOS became available in late 1994 and is marketed through the ICS
division.
MAGNETICS
General
Anacomp manufactures, sells and distributes a broad range of magnetics
products such as open reel tape, 3480 data tape cartridges, TK 50/52
"CompacTape" data tape cartridges, 3490E data tape cartridges and "cookies",
which are the magnetic media used in manufacturing flexible (or "floppy")
diskettes. Anacomp also distributes other data storage products manufactured by
third parties, including flexible diskettes and emerging products such as
optical and magneto-optical disks and 1/4 inch, 4mm and 8mm data tape
cartridges.
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In May 1994, Anacomp acquired Graham, a leader in providing magnetic data
storage products. The acquisition of Graham increased Anacomp's share of the
open reel tape market to approximately 92% worldwide and its share of the
3480/3490E data tape cartridge market to approximately 38%. As a result of the
Graham acquisition, Anacomp also will be able to reduce by approximately $2
million annually its manufacturing costs for these products by transferring its
domestic 3480/3490E manufacturing operation from Omaha, Nebraska to its Graham,
Texas facility.
Open reel tape, 3480 and 3490E data tape cartridges are used in mainframe
computers manufactured by companies such as Amdahl Corporation, IBM and NEC
Corporation. CompacTape data tape cartridges are used in Digital Equipment
Corporation mid-range computers. The demand for 3480 data tape cartridges,
CompacTape and open reel tape is estimated to be declining at per annum rates of
8%, 30% and 30%, respectively, as users migrate to 3490E data tape cartridges
(which contain up to four times as much information as 3480 data tape
cartridges) and other types of data storage technology. The market for 3490E
data cartridges is expected to grow 35% per year.
Anacomp is seeking new applications and markets based on its magnetics
coating capacity. The Company manufactures voice logging tape, which is used by
brokerage companies, "911" emergency service providers and other entities to
tape telephone conversations. Anacomp also uses coated media to manufacture
instrumentation tape, which is used by various government agencies to measure
and record sensitive data, and transfer tape, which is found on the back of
charge and credit cards.
Anacomp also seeks to increase its market share in the magnetic "cookies"
that it manufactures and sells to fabricators for insertion into flexible
diskettes. Anacomp has improved its cookie quality by investing capital and
labor to upgrade its Omaha, Nebraska facility and by transferring the
manufacture of 3480/3490E cartridges from Omaha to Graham, Texas. During fiscal
1994, Anacomp manufactured and sold approximately 200 million cookies, compared
to 188 million cookies in fiscal 1993, and Anacomp estimates that it will sell
approximately 325 million cookies during fiscal 1995.
Customers and Distribution
Anacomp primarily sells its magnetics products through its worldwide
distributor and dealer network and, to a lesser extent, through its 250-person
micrographics direct sales force. In addition, the Company also manufactures its
open reel, 3480 and 3490E tape products on an OEM basis for internationally
recognized brands. Anacomp manufactures its products under the "Dysan",
"StorageMaster" and "Graham Magnetics" trademarks. Anacomp's principal cookie
customers are Hanny Magnetics Limited and Eden Magnetics Limited, both of which
are flexible diskette fabricators located in Asia.
Competitors
Anacomp has no significant competitors with respect to the manufacture of
open reel tape, and its worldwide market share is estimated at 92%. Anacomp
competes with 3M, BASF AG and Memorex Telex N.V. in the sale of open reel tape,
3480 and 3490E data cartridges. Anacomp's worldwide market share for 3480 and
3490E data cartridges is estimated to be 35% and 30%, respectively. Anacomp
competes with Teijin Limited and TDK Corporation in the sale of cookies, and its
worldwide market share is estimated to be 15%.
SALES FORCE
The Company employs 300 salespeople worldwide. The Company maintains four
separate domestic sales forces: (i) Area Business Units ("ABUs") responsible for
sales of micrographics services, COM systems and related maintenance services
and supplies, for sales of digital products and for direct sales of magnetics
products; (ii) the Strategic Resellers Division responsible for sales of all
micrographics equipment and supplies, other than original microfilm, to dealers
and distributors as well as through the Company's ABUs; (iii) Image Conversion
Services responsible for sales of source document and scanning services and
related equipment and supplies; and (iv) the Magnetics Division responsible for
sales of magnetics products to dealers and distributors.
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Anacomp's ABUs collectively employ 170 salespeople. Utilizing Anacomp's
"STAR" (Saving Through Application Review) program, an Anacomp salesperson
tracks the flow of information through a customer's organization to determine
which employees need access to various information and the urgency and frequency
of retrieval of such information. The salesperson then recommends a
comprehensive data storage and management program utilizing micrographics and
digital solutions that effectively manage the customer's information throughout
the document life cycle. For micrographics storage and retrieval, the Anacomp
salesperson works with the customer to determine the best alternative between
outsourcing to one of the Company's data service centers and purchasing COM
systems for in-house operation. The Anacomp salesperson also sells to these data
management and storage customers the maintenance services and consumable
supplies and equipment needed to support the use of micrographics.
Internationally, Anacomp employs 70 salespeople through its wholly owned
foreign operating subsidiaries. In countries in which Anacomp does not have a
subsidiary, the Company sells through approximately 100 distributors and agents.
RAW MATERIALS AND SUPPLIERS
Polyester is a principal raw material for microfilm and magnetics products.
In October 1993, SKC purchased Anacomp's Sunnyvale, California duplicate
microfilm facility and entered into a ten-year supply agreement (the "Supply
Agreement") pursuant to which SKC became the Company's sole duplicate microfilm
supplier. In connection therewith, SKC invested several million dollars to
consolidate and enhance the Sunnyvale facilities in order to improve both
productivity and quality. SKC's duplicate film production is dedicated
exclusively to Anacomp. Pursuant to the Supply Agreement, SKC provides Anacomp
with a substantial portion of its polyester requirements for its magnetics
products.
The Company's XFP 2000 utilizes a proprietary, patented original film
canister. While all original film used for the XFP 2000 is supplied by Kodak,
the Company does have substantial (in excess of $15 million) original film
resale agreements with Fuji and Agfa with respect to microfilm utilized in other
COM systems. The Company believes that original film for its XFP 2000 systems
can be obtained by the Company, if necessary, from Fuji, Agfa and 3M. For a
discussion of certain of the risks involved in the Company's use of polyester
and Anacomp's relationships with SKC and Kodak, see "Risk Factors --
Availability of Polyester and Certain Other Supplies".
RESEARCH AND DEVELOPMENT
The Company supports several engineering initiatives, including COM systems
and related software product development and support for existing customer
installations. The engineering department is located in the Company's principal
manufacturing facility in Poway, California and employs approximately 130
engineers and technicians. The total expenditures associated with all
engineering programs (including research and development) amounted to
approximately $10.4 million in 1994, $11.1 million in 1993 and $10.2 million in
1992. Most of these costs were related to continued software development for the
XFP 2000. Management expects that its near-term engineering efforts will
continue to be concentrated on adding additional software capabilities to the
XFP 2000.
Anacomp has intensified its development efforts aimed at providing bridge
technologies between micrographics and digital technologies. Anacomp expects to
continue to expand its efforts in this area over the next several years through
strategic alliances with other technology companies. See "Business -- Strategy".
Anacomp owns several patents and licenses covering certain aspects of its
products and production processes. Nevertheless, the Company believes that the
patent protection is of lesser significance than the knowledge and experience of
its management and personnel and their abilities to develop and market the
Company's products.
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FACILITIES
Anacomp's principal administrative headquarters is located at 11550 North
Meridian Street in Carmel, Indiana (a suburb of Indianapolis). In 1992, the
Company opened a new manufacturing and operations center in Poway, California,
near San Diego. The facility consolidated one-fourth of Anacomp's work force and
ten separate manufacturing facilities into one facility. Micrographics
manufacturing, engineering and product maintenance facilities are all located in
Poway.
Anacomp's magnetics manufacturing and engineering facilities are located in
Graham, Texas; Omaha, Nebraska; and Brynmawr, Wales. During 1994, Anacomp's
Graham and Brynmawr facilities received international recognition for quality
standards, earning International Standards Organization (ISO) 9002
certification.
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MANAGEMENT
The current directors and executive officers of the Company and their ages
(as of September 30, 1994) and positions are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ---- ---------------------------------------------------
<S> <C> <C>
Louis P. Ferrero................... 52 Chairman of the Board and Chief Executive Officer
William C. Ater.................... 54 Vice President and Chief Administrative Officer
K. Gordon Fife..................... 49 Vice President -- Tax
Hasso Jenss........................ 51 Vice President -- European Micrographics
P. Lang Lowrey..................... 41 Vice President -- Magnetics Group
Thomas W. Murrell.................. 54 Vice President and General Manager -- Poway
Operations
Jack R. O'Donnell.................. 64 Executive Vice President, Treasurer and Chief
Financial Officer
Michael H. Riley................... 47 Vice President -- Product Development and Marketing
Gary M. Roth....................... 52 Vice President -- Americas/Asia Division
Thomas R. Simmons.................. 47 Vice President -- Direct Sales Division -- East
Donald L. Viles.................... 48 Vice President and Controller
Michael P. Wessner................. 34 Vice President -- Strategic Resellers Group
J. Frederick Williams.............. 52 Vice President, Direct Sales Division -- West
J. Mark Woods...................... 52 President, Chief Operating Officer and Director
Clark A. Johnson................... 63 Director
Richard E. Neal.................... 69 Director
Roger S. Palamara.................. 48 Director
Paul G. Roland..................... 60 Director
Frederick W. Zuckerman............. 60 Director
</TABLE>
The business experience of the above officers and directors for the past
five years is described below. Each executive officer is elected for a term of
one year and holds office until his successor is chosen and qualified or until
his death, resignation or removal.
Louis P. Ferrero was appointed as President of the Company in May 1984, and
became a member of the Offices of the Chairman of the Board and Chief Executive
Officer in November 1984. In February 1985, the Board of Directors of the
Company amended the By-Laws of the Company to eliminate the Office of the
Chairman of the Board and Office of the Chief Executive Officer and elected Mr.
Ferrero Chairman of the Board and Chief Executive Officer. Mr. Ferrero has been
a member of the Company's senior management team since he joined the Company in
1979 as part of the Company's acquisition of Computer Micrographics, Inc. At the
Company, Mr. Ferrero initially served as a Senior Vice President with
responsibility for micrographics field operations, and later became a Senior
Division Vice President with responsibility for new business development. Mr.
Ferrero also is a director of Conseco, Inc.
The Commission conducted an investigation relating to the trading of the
common stock of Xidex Corporation ("Xidex") prior to the announcement in July
1988 of the possible acquisition of Xidex by the Company. In January 1991, the
Commission approved bringing a civil action against Mr. Ferrero and
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certain other individuals alleging that Mr. Ferrero had been a source of
information to certain other individuals who traded prior to such announcement.
The Commission allegations did not include any trading by, or financial benefit
to, Mr. Ferrero. In March 1991, Mr. Ferrero settled the charges with the
Commission without admitting or denying guilt and paid a fine of $277,750.
Pursuant to the Company's Restated Articles of Incorporation and Mr. Ferrero's
Amended and Restated Employment Agreement, the Company indemnified Mr. Ferrero
for the amount of the Commission settlement plus an amount equal to the Federal
and state tax liability incurred by Mr. Ferrero as a result of such
indemnification (a total of $428,000) plus legal fees in the amount of $35,000.
After a non-jury trial before the United States District Court for the Southern
District of Indiana during 1993, the Court found that such other individuals had
engaged in insider trading in violation of the Federal securities laws and
ordered disgorgement of approximately $562,000 and payment of penalties and
interest of approximately $1.2 million.
William C. Ater was elected Vice President and Chief Administrative Officer
in February 1988. From March 1981 to February 1988, Mr. Ater served as Vice
President of Administration. He has served as Secretary since March 1985.
K. Gordon Fife was elected Vice President of Tax in October 1985.
Hasso Jenss was elected Vice President -- European Micrographics in
November 1993. Prior to that, he served from October 1989 to October 1993 as
Managing Director of Anacomp's German subsidiary.
P. Lang Lowrey was elected Vice President -- Magnetics Group in November
1992. Prior to that, he served from October 1990 to October 1992 as Vice
President -- Worldwide Marketing Division. He was Vice President -- MultiproduX
Division from December 1987 through September 1990.
Thomas W. Murrel was elected Vice President and General Manager of Poway
Operations in January 1993. Prior to that, he served from February 1988 to
December 1992 as Vice President -- Maintenance Division. From June 1987 to
February 1988, he served as Vice President -- Product Service, DatagraphiX.
Jack R. O'Donnell joined Anacomp in March 1992 as Executive Vice President,
Treasurer and Chief Financial Officer. Prior to joining Anacomp, Mr. O'Donnell
was an office managing partner with Arthur Andersen LLP.
Michael H. Riley was elected Vice President, Product Development and
Marketing in November 1994. From January 1993 to November 1994, he served as
Vice President, Product Planning and Marketing. Prior to that, he served from
1990 to 1992 as Vice President of Information Systems Marketing and from 1989 to
1990 as Director of Product Management.
Gary M. Roth was elected Vice President, Americas/Asia Division in November
1992. From October 1991 to October 1992, he served as Manager, LAAP/Canada
Operations. From October 1988 to October 1991, he served as Vice
President -- Data Systems Division. From July 1982 to October 1988, he served as
Regional Vice President -- COM Services Division.
Thomas R. Simmons was elected Vice President, Direct Sales Division -- East
on November 12, 1994. He had served as Vice President -- Information Systems
Division since November 4, 1991. Prior to that, he served from 1987 to 1991 as
Vice President -- Micrographics Services Division.
Donald L. Viles was elected Vice President and Controller of Anacomp in
October 1985.
Michael P. Wessner was elected Vice President -- Strategic Resellers Group
in November 1994. He had served as Vice President -- Strategic Resellers
Division since November 1992. Prior to that, from October 1991 to October 1992,
he served as a Regional Vice President in the Strategic Resellers Division. From
November 1988 to October 1991, he was a Regional Vice President in the
MultiproduX Division. Mr. Wessner joined Anacomp in July 1985, and served as
supplies sales representative until October 1988.
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J. Fredrick Williams was elected Vice President, Direct Sales
Division -- West in November 1994. He had served as Vice
President -- Micrographics Services Division since November 1991. From October
1988 through October 1991, he served as a Regional Vice President in the
Micrographics Services Division. For the two years prior to that, he was Vice
President -- Commercial and Government Services Division.
J. Mark Woods was elected President and Chief Operating Officer in February
1993. Prior to that, he served as Executive Vice President and Chief Operating
Officer since May 1989. From August 1988 through April 1989, he served as
President of the Micrographics Group. He served as Executive Vice President and
Chief Operating Officer from January 1985 to August 1988. In February 1988, Mr.
Woods was elected a director of Anacomp. He currently serves on the nominating
committee of the Board of Directors.
Clark A. Johnson has served as a director since 1991. Mr. Johnson joined
Pier 1 Imports in 1985 as President and Chief Executive Officer and was elected
Chairman and Chief Executive Officer in 1988. Mr. Johnson also is a director of
Albertsons, Inc., Actava, Inc., Heritage Media Corp., and InterTAN, Inc.
Richard E. Neal has served as a director since 1984. Mr. Neal retired as an
Executive Vice President of the investment banking firm of City Securities
Corporation in Indianapolis, Indiana in June 1994, a position which he held for
more than the prior five years.
Roger S. Palamara has served as a director since 1983. Mr. Palamara has
been Vice President of Bank One, Indianapolis, N.A., in charge of its
International Services Department, since June 1984.
Paul G. Roland has served as a director since 1984. Mr. Roland has been a
partner with the law firm of Ruckelshaus, Roland, Hasbrook & O'Connor for more
than the past five years.
Frederick W. Zuckerman has served as a director since 1990. Mr. Zuckerman
is an independent consultant and professional director for public companies. Mr.
Zuckerman served as Vice President and Treasurer of IBM from September 1993
until January 1995. Prior to that, he was Senior Vice President and Treasurer of
Nabisco, Inc. from February, 1991. Prior to that, he was an independent
consultant and professional director. From 1981 until September 1990, he was
Vice President and Treasurer of Chrysler Corporation. Mr. Zuckerman is also a
director of Northeast Federal Corporation, Meditrust, Inc., The Singapore Fund,
Northeast Savings Bank, The Turner Corporation, The Japan Equity Fund and NVR,
Inc.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture to be dated as of
, 1995 (the "Indenture"), between the Company, as issuer, and , as
Trustee (the "Trustee"), a copy of the proposed form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary, which describes certain material provisions of the Indenture
and the Notes, does not purport to be complete, and is subject to the detailed
provisions of, and is qualified in its entirety by reference to, the provisions
of the Indenture and the Notes, including the definitions therein of certain
terms. The terms of the Notes include those set forth in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"), as in effect on the date of the Indenture. Wherever
particular provisions or definitions of the Indenture, the Notes or terms
defined therein are referred to herein, such provisions or definitions are
incorporated herein by reference. Capitalized terms that are used but not
otherwise defined herein have the meanings assigned to them in the Indenture.
For purposes of this Description of the Notes, the term "Company" refers to
Anacomp, Inc. and does not include its subsidiaries except for purposes of
financial data determined on a consolidated basis.
GENERAL
The Notes will mature on , 2002, and will be limited to an
aggregate principal amount of $225,000,000. The Notes will bear interest at the
rate set forth on the cover page of this Prospectus from , 1995
(the "Issue Date"), or from the most recent interest payment date to which
interest has been paid, payable semi-annually on and of
each year, beginning on , 1995, to the person in whose name the Note (or
any predecessor Note) is registered at the close of business on the preceding
or , as the case may be.
Principal of, and premium, if any, and interest on, the Notes will be
payable, and the Notes will be exchangeable and transferable, at an office or
agency of the Company, one of which will be maintained for such purpose in New
York, New York (which initially will be the Corporate Trust Office of the
Trustee, at ) or such other office or agency permitted under the
Indenture; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the registered address of the holder entitled
thereto. The Notes will be issued only in fully registered form without coupons,
in denominations of $1,000 or any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, except for
any tax or other governmental charge that may be imposed in connection
therewith.
All moneys paid by the Company to a Paying Agent for the payment of the
principal of, or premium, if any, or interest on, any Notes that remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable may be repaid to the Company, and the holder of such Note
thereafter may look only to the Company for payment thereof.
RANKING
The Notes will be senior secured obligations of the Company ranking pari
passu in right of payment with all existing and future senior obligations of the
Company and senior in right of payment to all existing and future indebtedness
of the Company that is designated as subordinate or junior in right of payment
to the Notes. The Notes will be secured by a Lien on substantially all the
assets of the Company and the U.S. Restricted Subsidiaries, other than Accounts
Receivable, Inventory and the proceeds thereof (collectively referred to as the
"Collateral"). The Collateral will include after-acquired assets of the Company
and the U.S. Restricted Subsidiaries to the extent that such assets are acquired
by the Company or any such U.S. Restricted Subsidiary without financing secured
by a lien on such assets. The Collateral consists of (i) tangible assets with a
book value substantially less than the aggregate principal amount of the Notes
and (ii) intangible assets (principally goodwill). See "-- Collateral" and "Risk
Factors -- Potential Inadequacy of Security".
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At September 30, 1994, after giving effect to the issuance of the Notes,
the creation of the Revolving Credit Facility and the use of proceeds therefrom,
the pro forma amount of Senior Indebtedness of the Company outstanding would
have been $227.2 million. In addition, after the Issue Date the Company will be
permitted to borrow up to $70 million under the Revolving Credit Facility.
Although the Indenture contains limitations on the amount of additional
indebtedness that the Company may incur, the amounts of such indebtedness could
be substantial and, in any case, such indebtedness may be Senior Indebtedness.
The Notes will be effectively subordinated to all indebtedness and other
liabilities of the Company's Subsidiaries, which, as of September 30, 1994,
amounted to $26.7 million. The Indenture permits the Company's Subsidiaries to
incur certain amounts of additional indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness" and "-- Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock".
OPTIONAL REDEMPTION
The Notes will not be redeemable prior to , 2000. On and after such
date, the Notes will be redeemable at the option of the Company, at any time as
a whole, or from time to time in part, on not less than 30 days nor more than 60
days' notice, at a redemption price of % of the principal amount thereof,
plus accrued and unpaid interest (if any) to the date of redemption, through,
2001, and thereafter at 100%.
SINKING FUND
There will be no sinking fund payments for the Notes.
CHANGE OF CONTROL
In the event of a Change of Control, the Company will (i) within 30 days
after the occurrence of such Change of Control, notify each holder of the Notes,
with a copy of such notice to the Trustee, in writing of the occurrence of and
the circumstances and relevant facts regarding such Change of Control and (ii)
make an offer to purchase (the "Change of Control Offer") the Notes at a
purchase price equal to 101% of the principal amount thereof, plus any accrued
and unpaid interest thereon to the Change of Control Purchase Date (as defined
below) (such price, together with such interest, the "Change of Control Purchase
Price") on or before the date specified in such notice, which date shall be no
earlier than 30 days nor later than 60 days from the date such notice is mailed
(the "Change of Control Purchase Date"). The Change of Control Offer will remain
open from the time such offer is made until the Change of Control Purchase Date.
The Company will purchase all Notes properly tendered in the Change of Control
Offer and not withdrawn in accordance with the procedures set forth in such
notice. The Change of Control Offer will state, among other things, the
procedures that holders of the Notes must follow to accept the Change of Control
Offer.
The occurrence of certain of the events which would constitute a Change of
Control could constitute a default under the Company's existing and future
indebtedness. In addition, the exercise by the holders of the Notes and of their
right to require the Company to repurchase Notes could cause a default under
such indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, if a Change of
Control Offer is made, there can be no assurance that the Company will have
sufficient funds or other resources to pay the Change of Control Purchase Price
for all the Notes that might be delivered by holders thereof seeking to accept
the Change of Control Offer.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Company and, thus, the
removal of incumbent management. The Change of Control provisions will not
prevent a change in a majority of the members of the Board of Directors of the
Company which is approved by a majority of the then-present Board of Directors
of the Company. One of the events that constitutes a Change of Control under the
Indenture is a sale, conveyance, transfer or lease of all or substantially all
the property of the Company and its Subsidiaries, taken as a whole, to any
Person (other than a Restricted Subsidiary). The phrase "all or substantially
all"
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is subject to judicial interpretation depending on the facts and circumstances
of the subject transaction. The Indenture will be governed by New York law, and
there is no established quantitative definition under New York law of
"substantially all" the assets of a corporation. Accordingly, in certain
circumstances it may be unclear whether a Change of Control has occurred and
whether the Company may therefore be required to make a Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to any Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with provisions relating to the Change of Control Offer, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Change of Control covenant by
virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness unless
(i) no Default or Event of Default shall have occurred and be continuing at the
time of such Incurrence or would occur as a consequence of such Incurrence and
(ii) in the case of the Company, such Indebtedness is Permitted Indebtedness or,
in the case of any Restricted Subsidiary, such Indebtedness is permitted under
"-- Limitation on Restricted Subsidiary Indebtedness and Preferred Stock".
"Permitted Indebtedness" will be defined as:
(i) Indebtedness represented by the Notes;
(ii) Indebtedness remaining outstanding immediately after the Issue Date
(and not otherwise permitted by clause (i) or (iv));
(iii) Indebtedness Incurred if, after giving pro forma effect to such
Incurrence, the Consolidated Coverage Ratio would be equal to at least 2 to 1;
(iv) Indebtedness under the Revolving Credit Facility or any other
revolving credit facility in an aggregate principal amount outstanding from time
to time not to exceed the sum of 80% of the book value from time to time of the
Accounts Receivable of the Company and 60% of the book value from time to time
of the Inventory of the Company, in each case computed in accordance with GAAP;
(v) Indebtedness (A) under Interest Rate Protection Agreements relating to
Indebtedness permitted hereunder entered into in the ordinary course of the
Company's financial management and not for speculative purposes; provided,
however, that the notional amount of each such Interest Rate Protection
Agreement does not exceed the principal amount of the Indebtedness to which such
Interest Rate Protection Agreement relates; or (B) under Currency Exchange
Protection Agreements entered into in the ordinary course of the Company's
financial management and not for speculative purposes; provided, however, in the
case of either clause (A) or (B), any such Interest Rate Protection Agreement or
Currency Exchange Protection Agreement, as the case may be, does not increase
the Indebtedness of the Company outstanding at any time other than as a result
of fluctuations in the interest rates or exchange rates, as the case may be, or
by reason of customary fees, indemnities and compensation payable thereunder;
(vi) Indebtedness owing to and held by any Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital Stock
that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Company or another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the occurrence of such Indebtedness by the issuer thereof;
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(vii) Indebtedness in connection with a prepayment of the Notes pursuant to
a Change of Control Offer; provided, however, that the aggregate principal
amount of such Indebtedness does not exceed 101% of the aggregate principal
amount of the Notes prepaid; provided, further, however, that such Indebtedness
(A) has an Average Life equal to or greater than the remaining Average Life of
the Notes and (B) does not mature prior to the Stated Maturity of the Notes;
(viii) Indebtedness in respect of Purchase Money Indebtedness or Capital
Lease Obligations directly Incurred by the Company; provided, however, that the
sum of (A) the aggregate principal amount of such Purchase Money Indebtedness,
(B) the aggregate amount of such Capital Lease Obligations and (C) the aggregate
amount of Capital Lease Obligations Incurred by Restricted Subsidiaries as
permitted under clause (iii) under "-- Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock" does not at any one time outstanding exceed
$20 million;
(ix) Indebtedness Incurred (A) in the ordinary course of business of the
Company with respect to trade credit made available to the Company in connection
with the obtaining of goods or services by the Company (including commercial
letters of credit, bankers' acceptances or accommodation Guarantees for the
benefit of trade creditors or suppliers), in each case for a period not to
exceed 180 days, in an amount not to exceed the purchase price for the goods or
services for which such credit is made available and which do not constitute
obligations for borrowed money, and (B) with respect to standby letters of
credit, performance bonds and surety bonds that do not constitute obligations
for borrowed money Incurred by the Company in the ordinary course of business
relating to services to be performed by or on behalf of the Company; provided,
however, that the aggregate amount of related reimbursement obligations under
Indebtedness permitted by clause (A) or (B) and clause (iv) under "-- Limitation
on Restricted Subsidiary Indebtedness and Preferred Stock" does not exceed $25
million at any one time outstanding;
(x) Indebtedness in respect of Guarantees by the Company of Indebtedness of
any Restricted Subsidiary permitted to be Incurred under "-- Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock"; provided, however, that
any Guarantee by the Company of any Indebtedness of a Foreign Subsidiary shall
be limited to an aggregate principal amount at any one time not to exceed (A)
the sum of 80% of the book value from time to time of the Accounts Receivable of
the Company and 60% of the book value from time to time of the Inventory of the
Company, in each case computed in accordance with GAAP, minus (B) the aggregate
principal amount of Indebtedness of the Company outstanding at any time pursuant
to clause (iv);
(xi) Indebtedness represented by the Exchange Notes issued in exchange for
any of the 8.25% Preferred Stock outstanding on the Issue Date pursuant to the
terms of the 8.25% Preferred Stock as in effect on the Issue Date;
(xii) Refinancing Indebtedness Incurred in respect of Indebtedness Incurred
pursuant to clause (i), (ii), (iii), (vii) or (xi); and
(xiii) in addition to any Indebtedness permitted by clauses (i) through
(xii), up to an aggregate of (A) $25 million in principal amount of Indebtedness
at any one time outstanding minus (B) the principal amount of Indebtedness at
such time outstanding of any Foreign Subsidiaries permitted pursuant to clause
(viii) under "-- Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock".
The Company will not directly or indirectly Incur any Indebtedness if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations; provided, however, that the Company may Incur up
to an aggregate principal amount of $5 million of Indebtedness under clause (iv)
if the proceeds of such Indebtedness are used to purchase or redeem any 15%
Subordinated Notes outstanding on the Issue Date.
Limitation on Restricted Subsidiary Indebtedness and Preferred Stock. The
Company will not permit any Restricted Subsidiary to, directly or indirectly,
Incur any Indebtedness or issue or permit to exist any Preferred Stock unless
(i) no Default or Event of Default shall have occurred and be continuing
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at the time of such Incurrence or would occur as a consequence of such
Incurrence and (ii) such Indebtedness or Preferred Stock is Permitted Restricted
Subsidiary Indebtedness.
"Permitted Restricted Subsidiary Indebtedness" will be defined as:
(i) Indebtedness or Preferred Stock remaining outstanding immediately
after the Issue Date (and not otherwise permitted by clause (ii));
(ii) Indebtedness of any Foreign Restricted Subsidiary under any
foreign currency revolving credit facility in an aggregate principal amount
outstanding from time to time not to exceed the sum of 80% of the book
value from time to time of the Accounts Receivable of such Foreign
Subsidiary and 60% of the book value from time to time of the Inventory of
such Foreign Subsidiary, in each case computed in accordance with GAAP;
(iii) Indebtedness in respect of Capital Lease Obligations directly
Incurred by any Restricted Subsidiary; provided, however, that the sum of
(A) the aggregate amount of such Capital Lease Obligations, (B) the
aggregate principal amount of Purchase Money Indebtedness and (C) the
aggregate amount of Capital Lease Obligations Incurred by the Company
pursuant to clause (viii) under "-- Limitation on Indebtedness" does not at
any one time outstanding exceed $20 million;
(iv) Indebtedness Incurred (A) in the ordinary course of business of
any Restricted Subsidiary with respect to trade credit made available to
such Restricted Subsidiary in connection with the obtaining of goods or
services by such Restricted Subsidiary (including commercial letters of
credit, bankers' acceptances or accommodation Guarantees for the benefit of
trade creditors or suppliers), in each case for a period not to exceed 180
days, in an amount not to exceed the purchase price for the goods or
services for which such credit is made available and which do not
constitute obligations for borrowed money and (B) standby letters of
credit, performance bonds and surety bonds that do not constitute
obligations for borrowed money Incurred by any Restricted Subsidiary in the
ordinary course of business relating to services to be performed by or on
behalf of such Restricted Subsidiary; provided, however, that the aggregate
amount of any related reimbursement obligations under Indebtedness
permitted by clause (A) or (B) and clause (ix) under "-- Limitations on
Indebtedness" does not exceed $25 million at any one time outstanding;
(v) Indebtedness (A) under Interest Rate Protection Agreements
relating to Indebtedness permitted hereunder entered into in the ordinary
course of any Restricted Subsidiary's financial management and not for
speculative purposes; provided, however, that the notional amount of each
such Interest Rate Protection Agreement does not exceed the principal
amount of the Indebtedness to which such Interest Rate Protection Agreement
relates; or (B) under Currency Exchange Protection Agreements entered into
in the ordinary course of any Foreign Subsidiary's financial management and
not for speculative purposes; provided, however, in the case of either
clause (A) or (B), any such Interest Rate Protection Agreement or Currency
Exchange Protection Agreement, as the case may be, does not increase the
Indebtedness of such Subsidiary outstanding at any time other than as a
result of fluctuations in the interest rates or exchange rates, as the case
may be, or by reason of customary fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness or Preferred Stock owing to and held by the Company
or any Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock that results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the occurrence of
such Indebtedness by the issuer thereof;
(vii) Refinancing Indebtedness Incurred in respect of Indebtedness
Incurred pursuant to clause (i); and
(viii) in addition to any Indebtedness permitted by clauses (i)
through (vii), up to an aggregate of $5 million in principal amount of
Indebtedness at any one time outstanding.
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Limitation on Restricted Payments. The Company will not, and the Company
will not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend on, or make any distribution on or in respect of,
its Capital Stock (including any such payment in connection with any merger or
consolidation involving the Company), except dividends payable solely in its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock and except dividends or distributions
payable to the Company or any Restricted Subsidiary, (ii) purchase, redeem or
otherwise acquire for value any Capital Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or any Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value (including pursuant to mandatory repurchase covenants), prior to any
scheduled repayment, scheduled sinking fund payment or other scheduled maturity,
any Subordinated Obligation which had a Stated Maturity equal to or later than
the Stated Maturity of the Notes (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) make any Investment
(other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment"),
unless at the time of and after giving effect to the proposed Restricted Payment
(a) no Default or Event of Default shall have occurred and be continuing (or
would result therefrom), (b) the Company could Incur at least $1.00 of
additional Indebtedness pursuant to clause (iii) under "-- Limitation on
Indebtedness" and (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors of the Company, whose
determination shall be evidenced by a resolution of such Board furnished to the
Trustee) declared or made since the Issue Date, would not exceed, without
duplication, the sum of (1) an amount equal to 50% of the Consolidated Net
Income accrued during the period (treated as one accounting period) beginning on
the last day of the last completed fiscal quarter of the Company immediately
preceding the Issue Date and ending on the last day of the Company's last fiscal
quarter ended prior to the date of such proposed Restricted Payment (or, if such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) and
minus 100% of the amount of any write-downs, write-offs, other negative
revaluations and other negative extraordinary charges not otherwise reflected in
Consolidated Net Income during such period, (2) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital Stock, including
Capital Stock of the Company issued upon conversion of convertible debt or the
exercise of options, warrants or rights to purchase Capital Stock of the
Company, but excluding Disqualified Stock, subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries), (3) the amount by which the Indebtedness of the Company or any
Restricted Subsidiary is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash or other property distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange) and (4)
the amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) payments of dividends, repayments of loans or
advances or other transfers of assets to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries or (y) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was a Restricted Payment.
The foregoing provisions will not prohibit: (i) any purchase or redemption
of Capital Stock of the Company or Subordinated Obligations of the Company made
by exchange for, or out of the proceeds of a substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries) or out of proceeds of an equity
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contribution made substantially concurrently with such purchase or redemption;
provided, however, that (A) such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale or equity contribution will be excluded from subclause (2) of the
above paragraph; (ii) any purchase or redemption of Subordinated Obligations
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Company which is permitted to be Incurred pursuant
to "-- Limitation on Indebtedness"; provided, however, that (A) such
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate sum of (1) the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding of such
Subordinated Obligations being so purchased or redeemed and (2) any premiums,
fees and other expenses paid by the Company or any Restricted Subsidiary in
connection with such purchase or redemption, (B) such Indebtedness is at least
as subordinated to the Notes as such Subordinated Obligations so purchased or
redeemed and the covenants relating to such Indebtedness are no more restrictive
in the aggregate than those of such Subordinated Obligations, (C) such
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of such
Subordinated Obligations, (D) such Indebtedness has an Average Life at the time
such Indebtedness is Incurred equal to or greater than the Average Life of such
Subordinated Obligations and (E) such purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments; (iii) any declaration or
payment of any dividend on the 8.25% Preferred Stock outstanding on the Issue
Date and required to be so declared or paid by the terms thereof; provided,
however, that such dividend will be included in the calculation of the amount of
Restricted Payments from and after the date of declaration of such dividend;
(iv) any purchase or redemption of the 8.25% Preferred Stock outstanding on the
Issue Date pursuant to the mandatory repurchase provisions of the 8.25%
Preferred Stock as in effect on the Issue Date; provided, however, that such
purchase or redemption will be included in the calculation of the amount of
Restricted Payments; (v) any purchase or redemption of the 8.25% Preferred Stock
outstanding on the Issue Date in exchange for, or out of the proceeds of the
substantially concurrent sale of, the Exchange Notes which are permitted to be
Incurred pursuant to clause (xi) under "-- Limitation on Indebtedness";
provided, however, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments; (vi) any payment in cash in
lieu of the issuance of fractional shares of Capital Stock to any holder of
Capital Stock warrants of the Company outstanding on the Issue Date pursuant to
the exchange of such warrants for other Capital Stock of the Company upon the
exercise of such warrants pursuant to the terms thereof; provided, however, that
such payment shall be excluded in the calculation of the amount of Restricted
Payments; (vii) any purchase or redemption of rights issued to holders of the
Company's Common Stock pursuant to the Company's Shareholder Rights Plan adopted
on February 4, 1990; provided, however, that (A) all such purchases or
redemptions shall not be in an aggregate principal amount in excess of $250,000
and (B) such purchase or redemption will be included in the calculation of the
amount of Restricted Payments; (viii) any purchase or redemption of any 15%
Subordinated Notes outstanding on the Issue Date; provided, however, that (A)
such purchase or redemption is made solely with the proceeds of Indebtedness
Incurred pursuant to clause (iv) under "-- Limitation on Indebtedness" and such
Indebtedness does not exceed an aggregate principal amount of $5 million and (B)
such purchase or redemption will be included in the calculation of the amount of
Restricted Payments; or (ix) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with the above paragraph; provided, however, that (A) at the time of
payment of such dividend, no other Default or Event of Default shall have
occurred and be continuing (or would result therefrom) and (B) such dividend
will be included in the calculation of the amount of Restricted Payments from
and after the date of declaration of such dividend.
Transactions with Affiliates. The Company will not, and the Company will
not permit any Restricted Subsidiary to, directly or indirectly, conduct any
business, enter into or permit to exist any transaction (including the sale,
conveyance, disposition, purchase, exchange or lease of any property or the
rendering of any services) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless (i) the terms of such Affiliate
Transaction are in writing, (ii) such Affiliate Transaction is in the best
interest of the Company or such Restricted Subsidiary, as the case may be,
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(iii) such Affiliate Transaction is on terms as favorable to the Company or such
Restricted Subsidiary, as the case may be, as those that could be obtained at
the time of such Affiliate Transaction for a similar transaction in arm's-length
dealings with a Person who is not such an Affiliate and (iv) with respect to
each Affiliate Transaction involving aggregate payments or value in excess of $5
million, the Company delivers to the Trustee an opinion letter from an
Independent Appraiser (in which such Independent Appraiser identifies itself as
such) to the effect that such Affiliate Transaction complies with clauses (ii)
and (iii) and an Officer's Certificate certifying that such Affiliate
Transaction was approved by a majority of the Board of Directors of the Company,
including a majority of the disinterested members of such Board, as evidenced by
a resolution of such Board, and that such Affiliate Transaction complies with
clauses (ii) and (iii), such opinion letter and resolution to be dated within 30
days of such Affiliate Transaction; provided, however, that the foregoing will
not prohibit (A) any Restricted Payment permitted to be paid as described above
under "-- Limitation on Restricted Payments", (B) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors of the Company, (C) loans or advances
permitted under the Indenture from time to time to employees of the Company or
any Restricted Subsidiary in the ordinary course of business in accordance with
past practices of the Company, (D) the payment of reasonable fees to directors
of the Company and of Restricted Subsidiaries who are not employees of the
Company or any Restricted Subsidiary, (E) any transaction between the Company
and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries or (F)
reasonable and customary indemnification arrangements between the Company or any
Restricted Subsidiary and their respective directors and officers pursuant to
which the Company or any such Restricted Subsidiary agrees to indemnify such
directors and officers against losses and expenses incurred by such directors
and officers in connection with their service to the Company or such Restricted
Subsidiary, as the case may be (to the extent that such indemnification
arrangements are permitted under applicable law).
Limitation on Liens and Impairment of Collateral. The Company will not,
and the Company will not permit any of its Subsidiaries to, directly or
indirectly, create or permit to exist any Lien on any of its property or assets
(including Capital Stock), or any right, title or interest thereto, other than
Permitted Liens.
Except as permitted by the Indenture or any of the other Collateral
Documents, the Company will not, and the Company will not permit any of its
Subsidiaries to, directly or indirectly, (i) take or omit to take any action
which might or would have the result of adversely affecting or impairing the
perfected first priority Lien of the Indenture and the other Collateral
Documents with respect to the Collateral or any right, title or interest thereto
or (ii) grant to any Person any interest in, or right, title or interest to, the
Collateral, other than, in each case, Permitted Liens.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and the Company will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distribution on or in respect to its Capital Stock or pay any Indebtedness owed
to the Company or any Restricted Subsidiary, (ii) make loans or advances to the
Company or any Restricted Subsidiary or (iii) transfer any of its property or
assets to the Company or any Restricted Subsidiary, except for (a) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issue Date, (b) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary became a Subsidiary of, or was acquired by, the Company
(other than Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary of, or was acquired by, the Company) and outstanding on such
date, (c) any encumbrance or restriction pursuant to an agreement relating to an
acquisition of property, so long as the encumbrances or restrictions in such
agreement relate solely to the property so acquired, (d) any encumbrance or
restriction with respect to any Foreign Restricted
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<PAGE> 48
Subsidiary pursuant to any foreign currency revolving credit facility of such
Foreign Restricted Subsidiary permitted under clause (ii) under "-- Limitation
on Restricted Subsidiary Indebtedness and Preferred Stock", (e) any encumbrance
or restriction pursuant to an agreement effecting a refinancing of Indebtedness
Incurred pursuant to an agreement permitted pursuant to clause (a), (b) or (c)
or contained in any amendment to any such agreement or amendment; provided,
however, that any encumbrance or restriction contained in any such refinancing
agreement is no less favorable to the holders of the Notes than any encumbrance
or restriction contained in such agreement, and (f) in the case of clause (iii),
any encumbrance or restriction (1) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (2) arising by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the terms of the Indenture or (3) arising
or agreed to in the ordinary course of business and that does not, individually
or in the aggregate, detract from the value of property or assets of the Company
or any Restricted Subsidiary in any manner material to the Company or any such
Restricted Subsidiary.
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company will not permit (i) any Restricted Subsidiary to
issue any Capital Stock other than to the Company or a Wholly Owned Subsidiary;
or (ii) any Person (other than the Company or a Wholly Owned Subsidiary) to own
any Capital Stock of any Restricted Subsidiary (other than directors' qualifying
shares); provided, however, that clauses (i) and (ii) will not prohibit (a) any
sale of 100% of the shares of the Capital Stock of any Restricted Subsidiary
owned by the Company or any Wholly Owned Subsidiary effected in accordance with
"-- Limitation on Sales of Assets and Restricted Subsidiary Stock", (b) any
Person from owning any of the Pledged Stock (as defined herein) subsequent to
any foreclosure on or other transfer of such Pledged Stock in connection with an
exercise of remedies under any of the Collateral Documents or (c) any issuance
of Preferred Stock to any Person permitted under "-- Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock".
Limitation on Sales of Assets and Restricted Subsidiary Stock. The Company
will not, and the Company will not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Disposition at
least equal to the Fair Market Value of the shares, property and assets subject
to such Asset Disposition, (ii) at least 75% of such consideration (or, in the
event of any Asset Disposition of all or any portion of the Company's Magnetics'
Division, 50% of such consideration) consists of cash, Temporary Cash
Investments or the assumption of Senior Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability under such Senior Indebtedness and (iii) in
connection with any Asset Disposition with an aggregate consideration greater
than $10 million, the Company delivers an Officer's Certificate to the Trustee
certifying that such Asset Disposition complies with clauses (i) and (ii) and
that such Asset Disposition was approved by a majority of the Board of Directors
of Company, including a majority of the disinterested members of such Board, as
evidenced by a resolution based on an opinion letter from an Independent
Appraiser to the effect that such Asset Disposition complies with clause (i)
(which opinion letter shall identify such Independent Appraiser as such and
shall be dated not more than 30 days prior to such Asset Disposition).
Upon the closing of any such Asset Disposition, the Company shall cause the
Net Cash Proceeds from such Asset Disposition to be delivered to the Trustee and
pledged to the Trustee for deposit in a collateral account in the name and under
the sole dominion and control of the Trustee and shall take such other actions,
at the sole expense of the Company, as shall be reasonably requested by the
Trustee to create in favor of the Trustee on behalf of the holders of the Notes
a perfected first priority Lien in respect of such Net Cash Proceeds and all
other property and assets received in connection with such Asset Disposition and
to insure that all such Collateral shall be free and clear of all Liens other
than Permitted Liens.
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<PAGE> 49
Within 270 days after the receipt of any Net Cash Proceeds in connection
with any Asset Disposition, the Company or such Restricted Subsidiary, as the
case may be, may, subject to the procedures set forth below, reinvest such Net
Cash Proceeds in Replacement Collateral at a purchase price which does not
exceed the Fair Market Value of such Replacement Collateral so purchased (a
"Replacement Collateral Purchase"). If it so reinvests, the Company or such
Restricted Subsidiary shall (A) deliver an Officers' Certificate to the Trustee
certifying that such Replacement Collateral Purchase complies with the first
sentence of this paragraph and that, in the event such Replacement Collateral
Purchase involves Net Cash Proceeds in excess of $10 million, such Replacement
Collateral Purchase was approved by a majority of the Board of Directors,
including a majority of the disinterested members of such Board, as evidenced by
a resolution of such Board, and (B) in the case of any Replacement Collateral
Purchase in excess of such amount, deliver to the Trustee an opinion letter from
an Independent Appraiser to the effect that such Replacement Collateral Purchase
complies with the first sentence of this paragraph (which opinion letter shall
identify such Independent Appraiser as such and be dated within 30 days of the
effective date of such Replacement Collateral Purchase). The Company shall take
such actions, at the sole expense of the Company, to create in favor of the
Trustee for the benefit of the holders of the Notes a perfected first priority
Lien in respect of any Replacement Collateral (other than the Company's Accounts
Receivable and Inventory and the proceeds thereof) concurrently with the
acquisition thereof. Such Replacement Collateral shall be free and clear of
Liens other than Permitted Liens. Upon receipt by the Trustee of such documents
and instruments in a form satisfactory to the Trustee and evidence of the taking
of such actions satisfactory to the Trustee, as may be necessary or desirable,
to create then in favor of the Trustee the Lien in respect of the related
Replacement Collateral required by the Indenture and the other Collateral
Documents, unless a Default or Event of Default shall have occurred at any time
and be continuing, the Trustee shall simultaneously release from the Lien of the
Indenture and the other Collateral Documents, and deliver to the Company, the
Net Cash Proceeds that were delivered to the Collateral Agent, together with the
proceeds thereof in the amount requested by the Company or such Restricted
Subsidiary; provided, that such amount shall not exceed the purchase price of
the Replacement Collateral. In the event any Replacement Collateral is Capital
Stock of any Person, the Company shall cause such Capital Stock to be pledged to
the Trustee for the benefit of holders of the Notes. In the event of any such
pledge of Capital Stock, all the assets and property of the issuer of such
Capital Stock shall be considered Replacement Collateral and the requirements
described above relating to the pledge thereof to the Trustee shall apply in
full. Any Net Cash Proceeds that are not used within the time period specified
in the provisions described in the first sentence of this paragraph and in
accordance with the procedures referenced in such sentence shall constitute
"Excess Proceeds".
To the extent that any or all of the Net Cash Proceeds of any Foreign Asset
Disposition received by a Restricted Subsidiary is prohibited or delayed by
applicable local law from being repatriated to the United States of America, the
portion of such Net Cash Proceeds so affected will not be required to be applied
at the time provided above, but may be retained by such Restricted Subsidiary so
long, but only so long, as the applicable local law will not permit repatriation
to the United States of America (the Company agreeing to, and to cause such
Restricted Subsidiary to, promptly take all actions required by the applicable
local law to permit such repatriation). Once such repatriation of any such
affected Net Cash Proceeds is permitted under the applicable local law, such
repatriation will be immediately effected and such repatriated Net Cash Proceeds
will be applied in the manner set forth above.
Each time that the aggregate amount of Excess Proceeds relating to Asset
Dispositions equals or exceeds $10 million (the "Asset Disposition Trigger"),
taking into account income earned on such Excess Proceeds, the Company shall
make an offer to purchase (an "Asset Disposition Purchase Offer") an aggregate
principal amount of outstanding Notes equal to the aggregate Excess Proceeds at
such time (the "Asset Disposition Purchase Amount") for cash at a purchase price
(such price, the "Asset Disposition Purchase Price") equal to 100% of the
principal amount thereof plus any accrued and unpaid interest thereon to the
Asset Disposition Purchase Date (as defined below), in accordance with the
procedures (including prorationing in the event of oversubscription) set forth
in the Indenture. Any such Excess Proceeds which remain after the acquisition by
the Company of the Notes tendered (and not withdrawn) by holders thereof
pursuant to such Asset Disposition Purchase Offer in accordance with the
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procedures in the Indenture shall cease to be Excess Proceeds; provided,
however, that any such Excess Proceeds in respect of Collateral shall continue
to remain on deposit with the Trustee until such time as the Company shall
determine to reinvest such Excess Proceeds in respect of Replacement Collateral
in accordance with the procedures and limitations set forth in the provisions
described in the Indenture; provided, further, however, that any such Excess
Proceeds not so used shall remain on deposit with the Trustee in accordance with
the provisions described in the immediately preceding proviso of this paragraph.
Within 30 business days of the occurrence of an Asset Disposition Trigger,
(i) the Company shall notify the Trustee in writing of the occurrence of the
Asset Disposition Trigger and shall make the Asset Disposition Purchase Offer to
purchase Notes in an aggregate principal amount equal to the Asset Disposition
Purchase Amount at the Asset Disposition Purchase Price on or before the date
specified in such notice, which date shall be no more than 60 business days
after the occurrence of the Asset Disposition Trigger (the "Asset Disposition
Purchase Date"), (ii) the Trustee shall mail a copy of the Asset Disposition
Purchase Offer to each holder of the Notes and (iii) the Company shall cause a
notice of the Asset Disposition Purchase Offer to be sent to the Dow Jones News
Service or similar business news service in the United States of America. The
Asset Disposition Purchase Offer shall remain open from the time such offer is
made until the Asset Disposition Purchase Date. The Company shall purchase all
Notes properly tendered in the Asset Disposition Purchase Offer and not
withdrawn in accordance with the procedures set forth in the Asset Disposition
Purchase Notice (as defined in the Indenture). The Asset Disposition Purchase
Offer shall state, among other things, the procedures that holders of the Notes
must follow to accept the Asset Disposition Purchase Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to any Asset Disposition
Purchase Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions relating to the Asset Disposition Purchase
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described
above by virtue thereof.
Limitation on Sale/Leaseback Transactions. The Company will not, and the
Company will not permit any Restricted Subsidiary to, enter into, Guarantee or
otherwise become liable with respect to any Sale/Leaseback Transaction with
respect to any property or assets unless (i) such property or assets are, at the
time the Company or such Restricted Subsidiary enters into such Sale/Leaseback
Transaction, subject to a Permitted Lien under clause (viii) or (ix) of the
definition of "Permitted Liens", (ii) the Company or such Restricted Subsidiary,
as the case may be, would be entitled thereunder to Incur Indebtedness secured
by a Permitted Lien on such property or assets in an amount equal to the
Attributable Indebtedness with respect to such Sale/Leaseback Transaction, (iii)
the net proceeds from such Sale/Leaseback Transaction are at least equal to the
Fair Market Value of the property or assets subject to such Sale/Leaseback
Transaction (such Fair Market Value determined, in the event such property or
assets have a Fair Market Value in excess of $2 million, no more than 30 days
prior to the effective date of such Sale/Leaseback Transaction, by the Board of
Directors of the Company, including a majority of the disinterested members of
such Board, as evidenced by a resolution of such Board), (iv) the net proceeds
of such Sale/Leaseback Transaction are applied in accordance with the provisions
described under "-- Limitation on Sales of Assets and Restricted Subsidiary
Stock" and (v) the Company complies with the provisions described under
"-- Possession, Use and Release of Collateral".
Reports to Holders. The Company will file the annual report and other
documents, reports and information required by Section 13 or 15(d) of the
Exchange Act with the Securities and Exchange Commission (the "Commission") and,
upon such filing, will promptly furnish such reports, documents and information
to the Trustee and, within 15 days after such filing with the Commission, the
holders of the Notes. In the event the Company is no longer subject to the
periodic reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall continue to file with the Commission and furnish to the Trustee
and to the holders of the Notes the annual reports and other documents, reports
and information as if it were subject to such reporting requirements.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, and the Company will not permit any Restricted
Subsidiary to, enter into any transaction or series of transactions to
consolidate, amalgamate or merge with or into any other Person (other than the
merger of a Wholly Owned Subsidiary (i) with another Wholly Owned Subsidiary or
(ii) into the Company), or directly or indirectly through its Subsidiaries,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all its property and assets to any Person (other than to one or
more Wholly Owned Subsidiaries or to the Company) unless: (1) the Person, if the
Company is a party to such transaction and is not the surviving entity (the
"Surviving Entity"), formed by such consolidation or amalgamation or into which
the Company is merged or that acquires, by sale, conveyance, assignment,
transfer, lease or other disposition, all or substantially all the properties
and assets of the Company as an entirety shall be a corporation organized and
validly existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume (x) by a supplemental indenture
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company pursuant to the Indenture and (y) by written
instruments executed and delivered to the Trustee, in form satisfactory to the
Trustee all the obligations of the Company pursuant to the other Collateral
Documents; (2) the Surviving Entity, if any Restricted Subsidiary is a party to
such transaction and is not the Surviving Entity, shall, by written instruments
executed and delivered to the Trustee, in form satisfactory to the Trustee,
expressly assume all the obligations of such Restricted Subsidiary pursuant to
the Collateral Documents; (3) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the Company, the Surviving Entity or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been incurred by the Company, such Surviving Entity or
such Restricted Subsidiary at the time of such transaction or series of
transactions) no Default or Event of Default shall have occurred and be
continuing; (4) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the Company, the Surviving Entity or any Restricted Subsidiary
as a result of such transaction or series of transactions as having been
incurred by the Company, such Surviving Entity or such Restricted Subsidiary at
the time of such transaction or series of transactions), the Company or the
Surviving Entity, as the case may be, could incur at least $1.00 of additional
Debt pursuant to clause (iii) under "-- Limitation on Indebtedness"; (5)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (and treating any Indebtedness which becomes an obligation of
the Company, the Surviving Entity or any Restricted Subsidiary as a result of
such transaction or series of transactions as having been incurred by the
Company, such Surviving Entity or such Restricted Subsidiary at the time of such
transaction or series of transactions), the Company or the Surviving Entity, as
the case may be, shall have a Consolidated Net Worth which is not less than the
Consolidated Net Worth of the Company immediately prior to such transaction or
transactions; and (6) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, amalgamation, merger or transfer and such supplemental indenture
(if any) comply with the Indenture and that the perfected first priority Lien of
the Trustee for the benefit of the holders of the Notes with respect to the
Collateral continues in all respects.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Subsidiary of the
Company or any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the
Subsidiary to be so designated does not own any Capital Stock, Redeemable Stock
or Indebtedness of, or own or hold any Lien on any property or assets of, the
Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated by any Indebtedness or Lien that, if in default,
would result (with the passage of time or notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary, and (iii) either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (b)
such designation is effective immediately upon such Person becoming a Subsidiary
of the Company or of a Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
any Restricted Subsidiary will be classified as a Restricted Subsidiary.
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Except as provided in the first sentence of this paragraph, no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary. Subject to the
following paragraph, an Unrestricted Subsidiary may not be redesignated as a
Restricted Subsidiary. Any such designation by the Board of Directors of the
Company will be evidenced to the Trustee by promptly filing with the Trustee a
copy of the resolution of such Board giving effect to such designation and an
Officers' Certificate certifying that such designation complies with the
foregoing provisions.
The Company will not, and will not permit any Restricted Subsidiary to,
take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless after giving effect to such action, transaction or series of
transactions, on a pro forma basis, (i) the Company could incur at least $1.00
of additional Indebtedness pursuant to clause (iii) under "-- Limitation on
Indebtedness", (ii) such Restricted Subsidiary could then Incur under
"-- Limitation on Restricted Subsidiary Indebtedness and Preferred Stock" all
Indebtedness as to which it is obligated at such time, (iii) no Default or Event
of Default would occur or be continuing and (iv) there exist no Liens with
respect to the property or assets of such Restricted Subsidiary other than
Permitted Liens.
EVENTS OF DEFAULT
An "Event of Default" will occur under the Indenture if (i) the Company
fails to make any payment of interest on any Note when the same shall become due
and payable, and such failure continues for a period of 30 days; (ii) the
Company (A) fails to make the payment of the principal of, or premium, if any,
on, any Note when the same becomes due and payable at its Stated Maturity, upon
acceleration, redemption or declaration, or otherwise or (B) fails to redeem or
purchase Notes when required pursuant to the Indenture or the Notes; (iii) the
Company fails to comply with any of its covenants or agreements described under
"-- Consolidation, Merger and Sale of Assets"; (iv) the Company fails to comply
with any of its covenants or agreements described under "-- Change of Control",
"-- Limitation on Indebtedness", "-- Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock", "-- Limitation on Restricted Payments",
"-- Transactions with Affiliates", "-- Limitation on Liens and Impairment of
Collateral", "-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries", "-- Limitation on Sales of Assets and Restricted Subsidiary
Stock", "-- Limitation on Sale/Leaseback Transactions", "-- Limitation on
Issuance and Sale of Capital Stock of Restricted Subsidiaries" or "-- Reports to
Holders" (other than a failure to purchase Notes when required under "-- Change
of Control" and "-- Limitation on Sales of Assets and Restricted Subsidiary
Stock"), and such failure continues for 30 days after the notice specified below
or the Company fails to give the notice specified below; (v) the Company fails
to comply with any of its agreements in the Notes or the Indenture (other than
those specified in clauses (i), (ii), (iii) and (iv)) and such failure continues
for a period of 60 days after the notice specified below or the Company fails to
give the notice specified below; (vi) Indebtedness of the Company or any
Restricted Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof, the total amount of such
Indebtedness unpaid or accelerated which exceeds $5 million or its Dollar
Equivalent at the time; (vii) (A) the Company fails to comply with any of its
representations, warranties, covenants or agreements contained or incorporated
by reference in any Collateral Document (other than the Indenture) and such
failure continues beyond the applicable grace period provided in such Collateral
Document, (B) on or after the Issue Date, other than in accordance with the
provisions of the Indenture, for any reason, other than the satisfaction in full
and discharge of all obligations secured thereby, any Collateral Document ceases
to be or is not in full force and effect or any Lien with respect to Collateral
with a Fair Market Value that exceeds $3 million in the aggregate intended to be
created by any Collateral Document ceases to be or is not a valid and perfected
first priority Lien, (C) the occurrence of any event of default under any
Collateral Document or (D) on or after the Issue Date, other than in accordance
with the provisions of the Indenture, the Company asserts in writing that any
Collateral Document has ceased to be or is not in full force and effect; (viii)
any judgment or decree aggregating in excess of $5 million or its Dollar
Equivalent at the time is rendered against the Company or any Restricted
Subsidiary and is not discharged and either (A) an enforcement proceeding has
been commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following
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the entry of such judgment or decree during which such judgment or decree is not
discharged, waived or the execution thereof stayed and, in the case of either
clause (A) or (B), such default continues for ten days after the notice
specified below; (ix) the Company or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B)
consents to the entry of an order for relief against it in an involuntary case;
(C) consents to the appointment of a Custodian of it or for any substantial part
of its property; or (D) makes a general assignment for the benefit of its
creditors; or takes any comparable action under any foreign laws relating to
insolvency; or (x) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Company or any
Restricted Subsidiary in an involuntary case; (B) appoints a Custodian of the
Company or any Restricted Subsidiary or for any substantial part of its
property; or (C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary; or any similar relief is granted under any foreign laws
and the order or decree remains unstated and in effect for 60 days.
A Default under clause (iv), (v), (vi) or (viii) will not be an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the Notes notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default".
The Company will deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which, with the giving of notice and the lapse of time, would become
an Event of Default under clause (iv), (v), (vi) or (viii), its status and what
action the Company is taking or proposes to take with respect thereto.
If an Event of Default (other than an Event of Default specified in clause
(ix) or (x)) occurs and is continuing, the Trustee, by notice to the Company or
the holders of at least 25% in principal amount of the Notes by notice to the
Trustee (who shall promptly notify the Company), may declare the principal of
and accrued interest on all the Notes to be due and payable. Upon such
declaration, such principal and interest will be due and payable immediately. If
an Event of Default specified in clause (ix) or (x) occurs, the principal of and
interest on all the Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of Notes. The holders of a majority in principal amount of the Notes by
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
will affect any subsequent Default or impair any right consequent thereto.
The holders of a majority in principal amount of the Notes by notice to the
Trustee may waive an existing Default and its consequences except (i) a Default
in the payment of the principal of or interest on a Note or (ii) a Default in
respect of a provision that cannot be amended without the consent of each holder
affected. When a Default is waived, it is deemed cured, but no such waiver will
extend to any subsequent or other Default or impair any consequent right.
The holders of a majority in principal amount of the Notes may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law,
the Indenture or the other Collateral Documents or that the Trustee determines
is unduly prejudicial to the rights of other holders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action under the Indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
A holder of Notes may not pursue any remedy with respect to the Indenture,
the other Collateral Documents or the Notes unless: (i) such holder gives to the
Trustee written notice stating that an Event of Default is continuing; (ii)
holders of at least 25% in principal amount of the Notes make a written request
to the Trustee to pursue the remedy; (iii) such holder or holders offer to the
Trustee reasonable
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security or indemnity against any loss, liability or expense; (iv) the Trustee
does not comply with the request within 60 days after receipt of the request and
the offer of security or indemnity; and (v) the holders of a majority in
principal amount of the Notes do not give the Trustee a written direction
inconsistent with the request during such 60-day period.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Law, secured creditors such as the Trustee are
prohibited from repossessing their security from a debtor in a bankruptcy case,
or from disposing of security repossessed from such debtor, without bankruptcy
court approval. Moreover, the Bankruptcy Law permits the debtor to continue to
retain and to use collateral even though the debtor is in default under the
applicable debt instrument; provided, that the secured creditor is given
"adequate protection". The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the lack of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could repossess or dispose of the
Collateral or whether or to what extent holders of the Notes would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection". In addition, the holders of the Notes
would not be entitled to post-petition interest in any bankruptcy involving the
Company if the bankruptcy court concluded that the Notes were not fully secured.
See "Risk Factors -- Potential Inadequacy of Security".
COLLATERAL
The Notes will be secured by a Lien on the Collateral, which will consist
of substantially all the assets, real and personal, of the Company and the U.S.
Restricted Subsidiaries, other than Accounts Receivable, Inventory and the
proceeds thereof. See "The Refinancing" and "Description of Other
Indebtedness -- Revolving Credit Facility". The Collateral will include
after-acquired assets of the Company and the U.S. Restricted Subsidiaries to the
extent that such assets are acquired by the Company or any such U.S. Restricted
Subsidiary without financing secured by a Lien on such assets.
In connection with the Offering, no appraisals have been prepared or
obtained for any of the Collateral. The Collateral will consist of (i) tangible
assets with, as of September 30, 1994, a book value of $70.9 million,
substantially less than the aggregate principal amount of the Notes, and (ii)
intangible assets (principally goodwill). If a bankruptcy proceeding were to be
commenced by or against the Company and the bankruptcy court were to conclude
that the Notes were inadequately secured, the holders of the Notes would have
only an unsecured deficiency claim to the extent of such inadequacy and would
not be entitled to post-petition interest. Any deficiency claim (whether or not
in a bankruptcy proceeding involving the Company) of the holders of the Notes
would rank pari passu with any deficiency claims of the lenders under the
Revolving Credit Facility and all other general unsecured creditors of the
Company. See "Risk Factors -- Potential Inadequacy of Security".
The tangible assets of the Company pledged as part of the Collateral will
consist primarily of processing equipment; manufacturing equipment and tooling;
spare parts; long-term receivables; leasehold improvements; office furniture;
certain of the COM equipment in Anacomp's data service centers; and certain land
and buildings. The Company's principal manufacturing facility in Poway,
California is leased by the Company. The Company's Accounts Receivable and
Inventory are pledged to secure the Revolving Credit Facility. The Collateral
also consists of substantially all the assets of the
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Company's U.S. Restricted Subsidiaries and a pledge of all the common stock of
the U.S. Restricted Subsidiaries and 65% of the common stock of the Company's
Foreign Restricted Subsidiaries (such stock collectively referred to herein as
the "Pledged Stock"). The U.S. Restricted Subsidiaries are non-operating
companies and have no significant assets. Although certain of the Foreign
Restricted Subsidiaries are operating companies, they have few assets, other
than Accounts Receivable and Inventory, which may be pledged under foreign
currency revolving credit facilities. There is no public market for the common
stock of either the U.S. Restricted Subsidiaries or the Foreign Restricted
Subsidiaries.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company will have the right to remain in possession and retain exclusive control
of the Collateral securing the Notes (other than any cash, securities,
obligations and Temporary Cash Investments constituting part of the Collateral
and deposited with the Trustee and other than as set forth in the Collateral
Documents), to freely operate the Collateral and to collect, invest and dispose
of any income thereon.
Release of Collateral with Trustee Consent. The Company will have the right
at any time and from time to time to sell, exchange or otherwise dispose of any
of the Collateral (other than Trust Monies, which are subject to release from
the Lien of the Indenture and the other Collateral Documents as described under
"-- Use of Trust Monies" or upon substituting Substitute Collateral therefor as
described under "-- Substitute Collateral" below) (a "Release Transaction"),
upon compliance with the requirements and conditions of the provisions described
above under "-- Limitation on Sales of Assets and Restricted Subsidiary Stock"
and the provisions described below, and the Trustee will release the same from
the Lien of the Indenture and any of the other Collateral Documents upon receipt
by the Trustee of a notice requesting such release and describing the property
to be so released, provided that:
(i) If the Collateral to be released has a book value of at least $3
million, the Trustee is provided with a resolution of the Board of
Directors of the Company requesting such release and authorizing an
application to the Trustee therefor.
(ii) The security afforded by the Indenture and the other Collateral
Documents will not be impaired by such release in contravention of the
provisions of the Indenture and the other Collateral Documents, and either
(1) other property is to be substituted as Substitute Collateral in
accordance with the provisions set forth below or (2) the proceeds from the
property to be released are being deposited in accordance with the
provisions set forth above under "-- Limitation on Sales of Assets and
Restricted Subsidiary Stock".
(iii) The Company has disposed of or will dispose of the Collateral so
to be released for a consideration representing its Fair Market Value.
(iv) No Event of Default has occurred and is continuing (or will
result therefrom).
(v) If the Collateral to be released is only a portion of a discrete
parcel of real property, following such release and the release of the Lien
of any applicable Mortgage with respect thereto, the non-released mortgaged
property will have sufficient utility services and sufficient access to
public roads, rail spurs, harbors, canals, terminal and other
transportation structures for the continued use of such mortgaged property
in substantially the manner carried on by the Company and its Subsidiaries
prior to such release.
(vi) If the Collateral to be released is only a portion of a discrete
parcel of real property, following such release, the non-released mortgaged
property will comply in all material respects with applicable laws, rules,
regulations and ordinances relating to land use and building and workplace
safety.
(vii) If the Collateral to be released is only a portion of a discrete
parcel of real property, following such release, the Fair Market Value of
the mortgaged property (exclusive of the Fair Market
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Value of the released mortgaged property) will not be less than the Fair
Market Value of such mortgaged property prior to such release.
(viii) If the Collateral to be released is only a portion of a
discrete parcel of real property, the Company will have delivered to the
Trustee a survey depicting the real property to be released.
(ix) The first priority perfected Lien pursuant to the Collateral
Documents shall be in full force and effect continuously and uninterrupted
at all times.
(x) If the Collateral to be released is subject to a prior Permitted
Lien, there will be delivered to the Trustee a certificate of the trustee,
mortgagee or other holder of such prior Permitted Lien that it has received
the applicable Net Cash Proceeds (except to the extent that the assignment
thereof would violate the terms thereof or any agreement relating thereto)
and has been irrevocably authorized by the Company to pay over to the
Trustee any balance of such Net Cash Proceeds remaining after the discharge
of the Indebtedness secured by such prior Permitted Lien; and, if any
property other than cash, Temporary Cash Investments or other obligations
is included in the consideration for any Collateral to be released, there
will be delivered to the Trustee such instruments of conveyance, assignment
and transfer, if any, as may be reasonably necessary, in the Opinion of
Counsel to be given pursuant to clause (xii), to subject to the Lien of the
Indenture and the other Collateral Documents all the right, title and
interest of the Company in and to such Collateral.
(xi) If the Collateral to be released is only a portion of a discrete
parcel of real property, there will be delivered to the Trustee evidence
that a title company shall have committed to issue an endorsement to the
title insurance policy relating to the non-released mortgaged property
confirming that after such release, the Lien of the applicable Mortgage
continues unimpaired as a first priority perfected Lien upon the remaining
mortgaged property.
(xii) There will be delivered to the Trustee an Opinion of Counsel
with respect to certain matters relating to the release.
(xiii) The Company will deliver to the Trustee an Officers'
Certificate, dated not more than 30 days prior to the date of the
application for such release, with respect to the matters described in
clauses (i) through (xii); provided, that, if the Collateral to be released
has a book value of at least $2 million, the matters described in clauses
(ii) (as to impairment of security), (iii) and (vii) shall also be
certified by an Independent Appraiser who, if such property consists of
securities, shall be a nationally or internationally recognized investment
banking firm.
In case an Event of Default shall have occurred and be continuing, the
Company, while in possession of the Collateral (other than cash, Temporary Cash
Investments, securities and other personal property held by, or required to be
deposited or pledged with, the Trustee under the Indenture or the other
Collateral Documents or with the trustee, mortgagee or other holder of a prior
Permitted Lien), may do any of the things described in the above paragraphs, if
the Trustee, in its discretion, or the holders of 66 2/3% in aggregate principal
amount of the Notes outstanding, by appropriate action of such holders shall
consent to such action, in which event any certificate filed pursuant to this
paragraph shall omit the statement to the effect that no Event of Default has
occurred and is continuing. This paragraph shall not apply, however, during the
continuance of an Event of Default of the type specified in paragraphs (i),
(ii), (iii), (ix) or (x) under "-- Events of Default".
All cash or Temporary Cash Investments received by the Trustee pursuant to
this covenant will be held by the Trustee, for the benefit of the holders of the
Notes, as Trust Monies subject to application as provided under "-- Use of Trust
Monies" and "-- Limitation on Sales of Assets and Restricted Subsidiary Stock".
Substitute Collateral. The Company will be permitted to, at its option,
obtain a release of any of the Collateral (including any Trust Monies other than
Trust Monies which at such time (i) constitute Excess Proceeds as described
under "-- Limitation on Sales of Assets and Restricted Subsidiary Stock" or
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(ii) have been deposited with the Paying Agent in an amount sufficient to pay
(A) the aggregate Change of Control Purchase Price of all Notes or portions
thereof that are to be purchased on the Change of Control Purchase Date as
described under "-- Change of Control" or (B) the redemption price of and
accrued interest on all Notes or portions thereof to be redeemed on the
redemption date in accordance with the requirements of the Notes) by subjecting
other property, if such substitute property has a Fair Market Value equal to or
greater than the Collateral to be released (the "Substitute Collateral"), to the
perfected first priority Lien of the Indenture and the other Collateral
Documents or a similar instrument in place of and in exchange for any of the
Collateral to be released upon receipt by the Trustee of certain documentation,
appraisals, an Opinion of Counsel, surveys (in certain cases) and title
insurance (in certain cases).
Disposition of Collateral Without Trustee Consent. Notwithstanding the
provisions of "-- Release of Collateral with Trustee Consent" and "-- Substitute
Collateral", so long as no Event of Default shall have occurred and be
continuing, the Company will be permitted to, without any consent by the
Trustee:
(i) sell or otherwise dispose of any machinery, equipment, furniture,
apparatus, tools or implements, materials or supplies or other similar
property subject to the Lien of the Indenture and the other Collateral
Documents, which may have become worn or obsolete, not exceeding in value
in any one calendar year $1 million;
(ii) grant rights-of-way and easements over or in respect of any real
property rights relating to the Collateral; provided, that such grant will
not impair the usefulness of such property in any material respect in the
conduct of the Company's business and will not be prejudicial to the
interests of the holders of the Notes;
(iii) abandon, terminate, cancel, release or make alterations in or
substitutions of any leases, contracts or rights-of-way subject to the Lien
of the Indenture and the other Collateral Documents; provided, that any
altered or substituted leases, contracts or rights-of-way shall forthwith,
without further action, be subject to the Lien of the Indenture and the
other Collateral Documents to the same extent as those previously existing;
provided, further, that, if the Company will receive any money or property
in excess of the Company's expenses in connection with such termination,
cancellation, release, alteration or substitution (other than any such
money or property received in connection with a contract or lease
terminated, cancelled, released, altered or substituted in the ordinary
course of business) as consideration or compensation for such termination,
cancellation, release, alteration or substitution, such money or property,
if it exceeds $1,000 (in which case all the money and property so received
and not just the portion in excess of $1,000 will be subject to this
clause), forthwith upon its receipt by the Company, will be deposited with
the Trustee (unless otherwise required by a prior Permitted Lien) as Trust
Monies subject to disposition as provided in "-- Limitation on Sales of
Assets and Restricted Subsidiary Stock" and subjected to the Lien of the
Indenture and the other Collateral Documents;
(iv) surrender or modify any franchise, license or permit subject to
the Lien of the Indenture and the other Collateral Documents which it may
own or under which it may be operating; provided, that, if, after the
surrender or modification of any such franchise, license or permit, the
Company will not be entitled, under some other, or without any, franchise,
license or permit, to conduct its business in the territory in which it is
then operating and the Fair Market Value of such franchise, license or
permit exceeds $5 million, then the Board of Directors of the Company will
have determined, in its reasonable opinion, that such territory is not
material to the conduct of the Company's business; provided, further, that,
if the Company will be entitled to receive any money or property in excess
of the Company's expenses in connection with such surrender or modification
(other than any such money or property received in the ordinary course of
business in connection with a franchise, license or permit surrendered or
modified) as consideration or compensation for such surrender or
modification, such money or property, if it exceeds $1,000 (in which case
all the money and property so received and not just the portion in excess
of $1,000 will be subject to this clause), forthwith upon its receipt by
the Company, will be deposited with the Trustee (unless
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otherwise required by a prior Permitted Lien) as Trust Monies subject to
disposition as provided in "-- Limitation on Sales of Assets and Restricted
Subsidiary Stock" and subjected to the Lien of the Indenture and the other
Collateral Documents;
(v) alter, repair, replace, change the location or position of and add
to its plants, structures, machinery, systems, equipment, fixtures and
appurtenances; provided, that no change in the location of any such
Collateral subject to the Lien of the Indenture and the other Collateral
Documents will be made which (A) removes such property into a jurisdiction
in which any instrument required by law to preserve the Lien of the
Indenture and any other Collateral Document on such property, including all
necessary financing statements and continuation statements, has not been
recorded, registered or filed in the manner required by law to preserve the
Lien of the Indenture and the other Collateral Documents on such property,
(B) does not comply with the terms of the Indenture and the other
Collateral Documents or (C) otherwise impairs the Lien of the Indenture and
the other Collateral Documents;
(vi) demolish, dismantle, tear down or scrap any Collateral, or
abandon any thereof other than land or interests in land (other than
leases), if such demolition, dismantling, tearing down, scrapping or
abandonment is in the best interests of the Company and the Fair Market
Value (except to the extent of the relevant Collateral being released) and
utility of the Collateral as an entirety, will not thereby be impaired; and
(vii) sell or otherwise dispose of other Collateral that do not exceed
$100,000 per transaction, whether in a single transaction or a series of
related transactions which constitute a single plan of disposition, and
$1.5 million in the aggregate.
USE OF TRUST MONIES
All Trust Monies (including, without limitation, all Net Cash Proceeds
consisting of cash and Temporary Cash Investments required to be deposited with
the Trustee) will be held by the Trustee as a part of the Collateral securing
the Notes and, so long as no Event of Default shall have occurred and be
continuing, may, at the direction of the Company, be applied by the Trustee from
time to time in accordance with the provisions described under "-- Limitation on
Sales of Assets and Restricted Subsidiary Stock" or to the acquisition of
property or assets to be made subject to the Lien of the Indenture and the other
Collateral Documents pursuant to the provisions described under "-- Possession,
Use and Release of Collateral -- Substitute Collateral", to the payment of the
principal of, and premium, if any, and interest on, any Notes from time to time,
at maturity or upon redemption, declaration or acceleration or in any one or
more of such ways, in each case in accordance with the terms of the Indenture.
Application of Trust Monies as described in this paragraph requires that the
Company provide the Trustee with Officers' Certificates, Opinions of Counsel and
appraisals similar to those described in "-- Possession, Use and Release of
Collateral -- Release of Collateral with Trustee Consent" and "-- Substitute
Collateral".
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the written consent of the holders of at least a majority in principal
amount of the Notes then outstanding and any existing Default or compliance with
any provisions may be waived with the consent of the holders of at least a
majority in principal amount of the Notes then outstanding. However, without the
consent of each holder of an outstanding Note, no amendment may, among other
things, (i) reduce the percentage of principal amount of Notes whose holders
must consent to an amendment, (ii) reduce the rate of or extend the time for
payment of interest on any Notes, (iii) reduce the principal of or extend the
Stated Maturity of any Notes, (iv) reduce the premium payable upon the
redemption of any Note or change the time or times at which any Notes may be
redeemed, (v) make any Note payable in money other than that stated in the Note,
(vi) impair the right of any holder of Notes to institute suit for the
enforcement of any payment on or with respect to any Notes, (vii) permit the
creation of any Lien on the Collateral or any part
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thereof (other than the Lien of the Indenture and the other Collateral Documents
and other Permitted Liens (as defined on the Issue Date)) or terminate the Lien
of the Indenture and the other Collateral Documents as to the Collateral or any
part thereof or deprive the holders of Notes of the security afforded by the
Lien of the Indenture and the other Collateral Documents or any part thereof,
except as set forth under "-- Limitation on Liens and Impairment of Collateral"
and "-- Possession, Use and Release of Collateral", or (viii) make any change in
the amount of Notes whose holders must consent to any amendment or action.
Without the consent of any holder of the Notes, the Company and the Trustee
may, among other things, amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
Successor Company of the obligations of the Company under the Indenture, to
establish or maintain the Lien of the Indenture and the other Collateral
Documents as a perfected first priority Lien of the Trustee in respect of the
Collateral, to correct or amplify the description of any Collateral subject to
the Lien of the Indenture or the other Collateral Documents, to subject
additional property or assets to the Lien of the Indenture or the other
Collateral Documents, to add Guarantees with respect to the Notes, to add to the
covenants of the Company for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any holder of the Notes or to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at any time, terminate (i) all the Company's obligations
under the Notes and the Indenture ("legal defeasance option") or (ii) the
Company's obligations to comply with certain restrictive covenants, including
certain of the covenants described under "-- Certain Covenants" ("covenant
defeasance option"). The legal defeasance option may be exercised
notwithstanding the prior exercise of its covenant defeasance option.
If the legal defeasance option is exercised, payment of the Notes may not
be accelerated because of an Event of Default. If the covenant defeasance option
is exercised, payment of the Notes may not be accelerated because of certain
Events of Default described under "-- Events of Defaults" (not including, among
others, Events of Default relating to non-payment, bankruptcy and insolvency
events) or because of the failure of the Company to comply with certain
covenants specified in the Indenture. Upon compliance with the provisions set
forth below, all rights of the Trustee in the Collateral shall be released.
The legal defeasance option or the covenant defeasance option may be
exercised only if: (1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of principal of and
interest on the Notes to maturity or redemption, as the case may be; (2) the
Company delivers to the Trustee a certificate from a nationally recognized firm
of independent certified public accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment will
provide cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Notes to maturity or redemption, as
the case may be; (3) 123 days pass after the deposit is made and during the
123-day period no Default described in clause (ix) or (x) under "-- Events of
Defaults" occurs which is continuing at the end of the period; (4) no Default or
Event of Default has occurred and is continuing on the date of such deposit and
after giving effect thereto; (5) the deposit does not constitute a default under
any other agreement or instrument binding on the Company; (6) the Company
delivers to the Trustee an Opinion of Counsel to the effect that the trust
resulting from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940; (7) in the case of
the legal defeasance option, the Company delivers to the Trustee an Opinion of
Counsel stating that (i) the Company has received from the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable Federal income tax law, to the effect, in either case,
that, and based thereon such Opinion of Counsel shall confirm that, the holders
of the Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such defeasance and will be subject to Federal income
tax on the
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same amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred; (8) in the case of the covenant
defeasance option, the Company delivers to the Trustee an Opinion of Counsel to
the effect that the holders of the Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such covenant defeasance and will
be subject to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred; and (9) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes have been complied with as required by the
Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect (except as otherwise
expressly provided for in the Indenture) when either (i) all outstanding Notes
have been delivered (other than lost, stolen or destroyed Notes which have been
replaced) to the Trustee for cancellation or (ii) all outstanding Notes have
become due and payable and the Company has irrevocably deposited with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Notes, including interest thereon (other than lost, stolen or destroyed Notes
which have been replaced), and, in either case, the Company has paid all sums
payable under the Indenture. The Trustee is required to acknowledge satisfaction
and discharge of the Indenture on demand of the Company accompanied by an
Officer's Certificate and an Opinion of Counsel at the cost and expense of the
Company.
NOTICES
Notices to holders of Notes will be given by mail to the registered
addresses of such holders.
CONCERNING THE TRUSTEE
will be the Trustee under the Indenture. The Trustee's
current address is .
GOVERNING LAW
The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
The following definitions, among others, are used in the Indenture. Many of
the definitions of terms used in the Indenture have been negotiated specifically
for the purposes of the Offering and may not be consistent with the manner in
which such terms are defined in other contexts. Prospective purchasers of Notes
are encouraged to read each of the following definitions carefully and to
consider such definitions in the context in which they are used in the
Indenture.
"Accounts Receivable" will mean any and all rights of the Company or any
U.S. Restricted Subsidiary to payment for Inventory sold or services performed
in the Ordinary Course of Business, whether due or to become due, whether or not
earned by performance, whether now in existence or arising from time to time
hereafter, including, without limitation, rights evidenced by or in the form of
an account, note, draft, letter of credit, contract right, security agreement,
chattel paper or other evidence of indebtedness or security.
"Affiliate" of any specified Person will mean (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or officer (A) of such specified Person, (B) of any Subsidiary of such
specified Person or (C) of any Person described in clause (i). For the purposes
of this definition, "control" when used with respect to any Person will mean the
power to direct the management and policies of such
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Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of
"-- Transactions with Affiliates" only, "Affiliate" will also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof. Notwithstanding the foregoing, each Unrestricted
Subsidiary shall be deemed to be an Affiliate of the Company and of each other
Subsidiary of the Company.
"Asset Disposition" will mean any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or other dispositions) of shares of Capital Stock (including,
without limitation, the Pledged Stock) of any Restricted Subsidiary (other than
directors' qualifying shares), property or other assets by the Company or any
Restricted Subsidiary (including by means of a merger, consolidation or similar
transaction), other than (i) a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of the Company's Accounts Receivable or Inventory
(other than the disposition of Inventory pursuant to a Sale/Leaseback
Transaction) in the ordinary course of business and consistent with past
practices of the Company or (iii) a disposition of property or assets, whether
in a single transaction or a series of related transactions which constitute a
single plan of disposition, that have an aggregate Fair Market Value not in
excess of $100,000. The term "Asset Disposition" will include the requisition of
title to, service of or forfeiture of any property or assets, or any actual or
constructive total loss or an agreed or compromised total loss of any property
or assets. The term "Asset Disposition" when used with respect to the Company
will not include any disposition pursuant to "-- Merger, Consolidation and Sale
of Assets" which constitutes a disposition of all or substantially all the
assets of the Company.
"Attributable Indebtedness," in respect of a Sale/Leaseback Transaction,
will mean, as at the time of determination, the greater of (i) the Fair Market
Value of the property subject to such Sale/Leaseback Transaction or (ii) the
present value (discounted at the interest rate borne by the Notes, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Average Life" will mean, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" will mean Title 11, United States Code, or any similar
Federal or state law for the relief of debtors.
"Capital Lease Obligations" will mean an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP; the amount of Indebtedness represented by such
obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person will mean any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests (including partnership interests) in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.
"Change of Control" will mean the occurrence of any of the following
events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than an underwriter
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engaged in a firm commitment underwriting in connection with a public offering
of the Voting Stock of the Company or a Restricted Subsidiary, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock of
the Company; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of 66 2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of such Board then in office; or (iii) the Company sells, conveys,
leases or otherwise transfers all or substantially all the assets of the Company
and the Restricted Subsidiaries, taken as a whole, to any Person (other than a
Restricted Subsidiary).
"Collateral Documents" will mean the Indenture, the Security and Pledge
Agreement, the Mortgages and each other document, agreement or instrument
evidencing, perfecting, assuring or otherwise relating to the Lien in respect of
the Collateral and all amendments or supplements thereto.
"Commodity Price Protection Agreement" will mean, in respect of any Person,
any forward contract, commodity swap agreement, commodity option agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Coverage Ratio" will mean, as of any date of determination,
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) the aggregate Consolidated Interest Expense
for such four fiscal quarters; provided, however, that (1) if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, or both, EBITDA for such
period shall be reduced by an amount equal to EBITDA (if positive) directly
attributable to the property or assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and the continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and the continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary
(or any Person which becomes a Restricted Subsidiary) or an acquisition of
property or assets, including any acquisition of property or assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such period and (4)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the
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Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition or Investment occurred on the first day of such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of property or assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company and as further contemplated by the definition of pro forma. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" will mean, for any period, the sum of (i)
the total cash and noncash interest expense of the Company and its consolidated
Subsidiaries, plus, to the extent not included in such interest expense, (A)
interest expense attributable to Capital Lease Obligations, (B) amortization of
debt discount and debt issuance cost, (C) capitalized interest, (D) accrued
interest, (E) commissions, discounts and other fees and charges paid or owed
with respect to letters of credit and bankers' acceptance financing, (F)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (G) net costs
associated with Hedging Obligations (including amortization of discounts and
fees), (H) the interest portion of any deferred obligation, (I) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries of the Company and
Redeemable Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary and (J) cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary, less (ii) to
the extent included in clause (i), amortization or write-off of deferred
financing costs of the Company and its consolidated Subsidiaries during such
period and any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness of the Company and its consolidated
Subsidiaries prior to its Stated Maturity.
"Consolidated Net Income" will mean, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
will be excluded therefrom (i) any net income (loss) of any Person if such
Person is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in clause (iv), the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii)) and (B)
the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income, (ii) any net income (loss) of any Person acquired by
the Company or a Restricted Subsidiary of the Company in a pooling of interests
transaction for any period prior to the date of such acquisition, (iii) any net
income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the limitations contained
in clause (iv), the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend (subject, in the case of a dividend to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net
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loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain (but not loss) realized
upon the sale or other disposition of any property, plant or equipment of the
Company or its consolidated Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person, (v) any extraordinary
gain or loss, as well as the tax effects thereof and all reasonable expenses
incurred in connection therewith, (vi) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan or (vii) the cumulative
effect of any change in accounting principles; provided, however, that, in the
case of Statement of Financial Accounting Standards No. 106, such cumulative
effect shall be excluded only to the extent expenses recognized pursuant to the
adoption thereof exceed the amounts with respect to such expenses which would
have been recognized during such period using the "pay as you go" accounting
method.
"Consolidated Net Worth" will mean the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined in
accordance with GAAP, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Exchange Protection Agreement" will mean, in respect of any
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in foreign currency exchange rates.
"Custodian" will mean any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Default" will mean any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" of a Person will mean Redeemable Stock of such Person
as to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the Notes.
"EBITDA" will mean, for any period, the Consolidated Net Income for such
period, plus, to the extent deducted in calculating such Consolidated Net
Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense and (v) any charge related to
any premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its Stated Maturity, in each case for such period.
"8.25% Preferred Stock" will mean the Company's 8.25% Cumulative
Convertible Redeemable Exchangeable Preferred Stock.
"Exchange Notes" will mean the Company's 8.25% Senior Subordinated Notes
Due March 1, 2002.
"Fair Market Value" will mean, with respect to any property or asset, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value will
be determined, except as otherwise provided herein, (i) if such property or
asset has a Fair Market Value less than $5 million, by any officer of the
Company or (ii) if such property or asset has a Fair Market Value in excess of
$5 million, by a majority of each of the disinterested members of the Board of
Directors of the Company and such Board as a whole and evidenced by a
resolution, dated within 30 days of the relevant transaction, of such Board
delivered to the Trustee.
"Foreign Asset Disposition" will mean an Asset Disposition in respect of
Capital Stock or assets of a Restricted Subsidiary of the type described in
Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that
the proceeds of such Asset Disposition are received by a Person subject in
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respect of such proceeds to the tax laws of a jurisdiction other than the United
States of America, any State thereof or the District of Columbia.
"Foreign Restricted Subsidiaries" will mean, collectively, (i) the
following Subsidiaries of the Company to the extent such Subsidiaries are
Restricted Subsidiaries: Anacomp Holdings Ltd., Anacomp Ltd. (UK), Xidex (UK)
Ltd., Anacomp International N.V., Anacomp Canada, Inc., Anacomp GesmbH, Anacomp
Belgium S.A., Xidex (Pty) Ltd., Xidex GmbH, Anacomp GmbH, Datamagnetics GmbH,
Sun-Flex Industries of Puerto Rico, Anacomp Pty Ltd., Xidex New Zealand Ltd.,
Anacomp Japan Ltd., Anacomp DO Brazil, Xidex Magnetics S.A., Xidex Corporation
S.A., Anacomp Italia SRL, Anacomp S.A., Anacomp B.V., Anacomp A.B., Anacomp A/S
(Norway), Anacomp A/S (Denmark) and Anacomp O.Y; and (ii) any other Restricted
Subsidiary that is incorporated in a jurisdiction other than the United States
of America, any State thereof or the District of Columbia.
"Guarantee" will mean any obligation, contingent or otherwise, of any
Person, directly or indirectly, guaranteeing any Indebtedness or other
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay for (or advance
or supply funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" will not include
endorsements for collection or deposit in the ordinary course of business.
"Hedging Obligations" of any Person will mean the obligations of such
Person pursuant to any Interest Rate Protection Agreement, Commodity Price
Protection Agreements or Currency Exchange Protection Agreement or other similar
agreement or arrangement.
"Incur" will mean to, directly or indirectly, create, issue, assume,
Guarantee, incur (by conversion, exchange or otherwise) extend, assume, or
otherwise become liable for, contingently or otherwise; provided, however, that
any Indebtedness or Capital Stock of a Person existing at the time such Person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) will be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary. "Incurrence", "Incurred" and "Incurring" shall each have a
correlative meaning.
"Indebtedness" will mean, with respect to any Person on any date of
determination, (without duplication) (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all Capital Lease
Obligations and all Attributable Indebtedness of such Person; (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (A) trade payables and (B) any obligation to pay
any portion of such purchase price that becomes due only if the earnings
attributable to such property or services satisfy predetermined minimum amounts
subsequent to the purchase of such property or services and the amount of such
obligation cannot be determined on the date of such purchase); (v) all
obligations of such Person in respect of letters of credit, banker's acceptances
or other similar instruments or credit transactions (including reimbursement
obligations with respect thereto), other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iv)) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on any such letter of credit; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided,
however, that the
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amount of such Indebtedness shall be the lesser of (A) the Fair Market Value of
such asset at such date of determination and (B) the amount of such Indebtedness
of such other Person; (viii) all Indebtedness of other Persons to the extent
Guaranteed by such Person; and (ix) to the extent not otherwise included in this
definition, obligations of such Person in respect of Hedging Obligations. For
purposes of this definition, the maximum fixed redemption, repayment or
repurchase price of any Disqualified Stock or Preferred Stock that does not have
a fixed redemption, repayment or repurchase price shall be calculated in
accordance with the terms of such Stock as if such Stock were redeemed, repaid
or repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; provided, however, that if such Stock is
not then permitted to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price shall be the book value of such Stock as reflected
in the most recent financial statements of such Person. The amount of
Indebtedness of any Person at any date will be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Independent Appraiser" will mean a nationally or internationally
recognized appraisal, accounting, investment banking or other firm (which may
include the independent certified public accountants of the Company), as
appropriate, that (i) is in fact independent in respect of the transaction in
question, (ii) is an expert in respect of the relevant valuation or appraisal
activity, (iii) does not have any direct financial interest or any material
indirect financial interest in the Company, any Subsidiary of the Company or the
Trustee or in any Affiliate of any of them and (iv) is not connected with the
Company, a Subsidiary of the Company or the Trustee or with any such Affiliate
as a director, officer, employee or Affiliate.
"Interest Rate Protection Agreement" will mean, in respect of any Person,
any interest rate swap agreement, interest rate option agreement, interest rate
cap agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"Inventory" will mean all goods of the Company held for sale or lease, or
furnished or to be furnished by the Company or any U.S. Restricted Subsidiary
under contracts of service, or consumed in the Company's or such U.S. Restricted
Subsidiary's, as the case may be, business, including raw materials,
intermediates, work in process, packaging materials, finished goods,
semi-finished inventory, scrap inventory, manufacturing supplies and spare
parts, and all such goods that have been returned to or repossessed by or on
behalf of the Company or such U.S. Restricted Subsidiary.
"Investment" in any Person will mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any such Person) or
other extension of credit (including by way of Guarantee or similar arrangement)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others) such Person, or any purchase or acquisition of all or substantially all
the business or assets of, Capital Stock, Indebtedness, any other evidence of
beneficial ownership or other similar instruments issued by, such Person. For
purposes of "-- Restricted and Unrestricted Subsidiaries" and "-- Limitation on
Restricted Payments", (i) the term "Investment" will include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue and have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the Fair Market Value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at its Fair
Market Value at the time of such transfer. In determining the amount of any
Investment in respect of any property or assets other than cash, such property
or asset will be valued at its Fair Market Value at the time of such Investment
(unless otherwise specified in this definition).
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"Issue Date" will mean the date on which the Notes are originally issued.
"Lien" will mean any mortgage, deed of trusts, pledge, hypothecation,
assignment, deposit arrangement, preference, priority, security interest,
encumbrance, easement, restriction, covenant, right-of-way, servitude, lien
(statutory or otherwise), charge, other security or similar agreement or
preferential arrangement of any kind or nature whatsoever or other adverse
claim of any kind or nature (including, without limitation, any conditional
sale or other title retention agreement or lease having substantially the same
economic effect of any of the foregoing).
"Magnetics' Division" will mean the property and assets of the Company or
any Restricted Subsidiary used in connection with the manufacture, marketing and
sale of magnetic tape, computer tape or other magnetic products.
"Net Cash Proceeds" from an Asset Disposition will mean the sum of (i) cash
payments and Temporary Cash Investments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom and (ii)
the Fair Market Value of all securities issued to the Company or a Subsidiary of
the Company in connection therewith, in each case net of (A) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP as a consequence of such Asset Disposition,
(B) all payments made on any Indebtedness which is secured by any property or
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such property or assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (C) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition and (D) the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition; provided, that, in the event
that any consideration for such Asset Disposition (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Cash Proceeds only at
such time as it is released to the Company or any Restricted Subsidiary from
escrow; provided, further, that any non-cash consideration received in
connection with such Asset Disposition, which is subsequently converted to cash,
shall be deemed to be Net Cash Proceeds at such time and shall thereafter be
applied in accordance with "-- Limitation on Sales of Assets and Restricted
Subsidiary Stock". The term "Net Cash Proceeds" from an issuance or sale of
Capital Stock will mean the cash proceeds of such issuance or sale, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officers' Certificate" will mean a certificate signed by two officers of
the Company at least one of whom shall be the principal executive officer,
principal accounting officer or principal financial officer of the Company.
"Opinion of Counsel" will mean a written opinion, in form acceptable to the
Trustee, from legal counsel who is acceptable to the Trustee. The counsel may be
an employee of or counsel to the Company or the Trustee.
"Ordinary Course of Business" will mean, with respect to sales of Inventory
or services performed, all sales of Inventory or services performed by the
Company or any U.S. Restricted Subsidiary other than (i) "bulk transfers" as
defined in Section 6-102 of the Uniform Commercial Code and (ii) such sales and
services after the time there shall have occurred an Event of Default.
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"Permitted Investment" will mean an Investment by the Company or any
Restricted Subsidiary in (i) (A) a Restricted Subsidiary, (B) any Person which
will become a Wholly Owned Subsidiary as a result of such Investment or (C) all
or substantially all the business or assets of any Person; (ii) Temporary Cash
Investments; (iii) receivables owing to the Company or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms provided that
nothing in this paragraph shall limit in any way the ability of the Company or
any Restricted Subsidiary to settle, compromise or otherwise deal with such
receivables in the ordinary course of business; (iv) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (v) loans or advances, in an aggregate
principal amount of $5 million outstanding from time to time, to employees of
the Company or such Restricted Subsidiary made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary, as the case may be; (vi) stock, obligations or securities received
in settlement of Indebtedness created in the ordinary course of business and
owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments; (vii) joint ventures, whether in the form of cash or through a
contribution of assets (the nature of which, if other than cash, to be
determined in good faith by the Board of Directors of the Company, whose
determination shall be evidenced by a resolution of such Board delivered to the
Trustee) in an amount not to exceed $10 million at any one time; and (viii) any
other property, asset or Person if made pursuant to any written agreement of the
Company or a Restricted Subsidiary in effect on the Issue Date.
"Permitted Liens" will mean: (i) pledges or deposits by the Company or any
Restricted Subsidiary under workmen's compensation laws, unemployment insurance
laws, other types of social security benefits or similar legislation, or good
faith deposits in connection with bids, tenders or contracts (other than for the
payment of Indebtedness) or leases to which the Company or any Restricted
Subsidiary is a party, or deposits to secure public or statutory obligations or
deposits of cash or United States government bonds to secure surety or appeal
bonds to which the Company or any Restricted Subsidiary is a party, or deposits
as security for contested taxes or import duties or for the payment of rent, in
each case incurred by the Company or any Restricted Subsidiary in the ordinary
course of business consistent with past practice; (ii) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due from the Company or any Restricted Subsidiary or being contested in
good faith by appropriate proceedings by the Company or any Restricted
Subsidiary, as the case may be, or other Liens arising out of judgments or
awards against the Company or any Restricted Subsidiary with respect to which
the Company or such Restricted Subsidiary, as the case may be, shall then be
prosecuting an appeal or other proceedings for review; (iii) Liens for property
taxes or other taxes, assessments or governmental charges of the Company or any
Restricted Subsidiary not yet due or payable or subject to penalties for
nonpayment or which are being contested by the Company or such Restricted
Subsidiary, as the case may be, in good faith by appropriate proceedings; (iv)
Liens in favor of issuers of standby letters of credit, performance bonds and
surety bonds issued pursuant to clause (ix)(B) under "-- Limitation on
Indebtedness" or clause (iv)(B) under "-- Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock"; (v) survey exceptions, encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar purposes
or zoning or other restrictions as to the use of real property of the Company or
any Restricted Subsidiary incidental to the ordinary course of conduct of the
business of the Company or such Restricted Subsidiary or as to the ownership of
properties of the Company or any Restricted Subsidiary, which, in either case,
were not incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties or materially
impair their use in the operation of the business of the Company or any
Restricted Subsidiary; (vi) Liens to secure Indebtedness permitted under clause
(i) under "-- Limitation on Indebtedness"; (vii) Liens remaining Outstanding
immediately after the Issue Date as set forth on Schedule 1.01 to the Indenture
(and not otherwise permitted by clause (vi) or (xiii)); (viii) Liens on
property, assets or shares of stock of any Restricted Subsidiary at the time
such Restricted Subsidiary became a Subsidiary of the Company; provided,
however, that (A) if any such Lien shall have been Incurred in anticipation of
such transaction,
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<PAGE> 69
such property, assets or shares of stock subject to such Lien shall have a Fair
Market Value at the date of the acquisition thereof not in excess of the lesser
of (1) the aggregate purchase price paid or owed by the Company in connection
with the acquisition of such Restricted Subsidiary and (2) the Fair Market Value
of all property and assets of such Restricted Subsidiary and (B) any such Lien
shall not extend to any other property owned by the Company or any Restricted
Subsidiary; (ix) Liens on property or assets at the time the Company or any
Restricted Subsidiary acquired such property or assets, including any
acquisition by means of a merger or consolidation with or into the Company or
such Restricted Subsidiary; provided, however, that (A) if any such Lien shall
have been Incurred in anticipation of such transaction, such property or assets
subject to such Lien shall have a Fair Market Value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed by the Company or such Restricted Subsidiary in connection
with the acquisition thereof and of any other property and assets acquired
simultaneously therewith and (2) the Fair Market Value of all such property and
assets acquired by the Company or such Restricted Subsidiary and (B) any such
Lien shall not extend to any other property or assets owned by the Company or
any Restricted Subsidiary; (x) Liens securing Indebtedness or other obligations
of a Restricted Subsidiary owing to the Company or a Wholly Owned Subsidiary;
(xi) Liens to secure any extension, renewal, refinancing, replacement or
refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (vii), (viii) and (ix); provided, however, that any such
Lien will be limited to all or part of the same property or assets that secured
the original Lien (plus improvements on such property) and the aggregate
principal amount of Indebtedness that is secured by such Lien will not be
increased to an amount greater than the sum of (A) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness described
under clauses (vii), (viii) and (ix) at the time the original Lien became a
Permitted Lien under the Indenture and (B) an amount necessary to pay any
premiums, fees and other expenses Incurred by the Company in connection with
such refinancing, refunding, extension, renewal or replacement; (xii) Liens on
property or assets of the Company securing Hedging Obligations so long as the
related Indebtedness is, and is permitted to be under clause (v) under
"-- Limitation on Indebtedness", secured by a Lien on the same property securing
the relevant Hedging Obligation; (xiii) Liens securing Indebtedness incurred
under (A) in the case of the Company, the Revolving Credit Facility or any
revolving credit facility; provided, that such Indebtedness was incurred in
compliance with clause (iv) under "-- Limitation on Indebtedness" and such Liens
relate only to the Accounts Receivable, Inventory and proceeds thereof of the
Company and (B) in the case of any Foreign Restricted Subsidiary, any foreign
currency revolving credit facility; provided, that such Indebtedness was
incurred in compliance with clause (ii) under "-- Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock" and such Liens relate only to the
Accounts Receivable, Inventory and proceeds thereof of such Foreign Restricted
Subsidiary; and (xiv) Liens on property or assets of the Company or any
Restricted Subsidiary securing Indebtedness (1) under Purchase Money
Indebtedness or Capital Lease Obligations permitted under, in the case of the
Company, clause (viii) under "-- Limitation on Indebtedness" and, in the case of
such Restricted Subsidiary, clause (iii) under "-- Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock" or (2) under Sale/Leaseback
Transactions permitted under "-- Limitation on Sale/Leaseback Transactions";
provided, that (A) the amount of Indebtedness Incurred in any specific case does
not, at the time such Indebtedness is Incurred, exceed the lesser of the cost or
Fair Market Value of the property or asset acquired or constructed in connection
with such Purchase Money Indebtedness or Capital Lease Obligation or subject to
such Sale/Leaseback Transaction, as the case may be, (B) such Lien shall attach
to such property or asset upon acquisition of such property or asset and or upon
commencement of such Sale/Leaseback Transaction, as the case may be, and (C) no
property or asset of the Company or any Restricted Subsidiary (other than the
property or asset acquired or contracted in connection with such Purchase Money
Indebtedness or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be) are subject to any Lien securing such
Indebtedness.
"Person" will mean any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
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"Preferred Stock", as applied to the Capital Stock of any corporation, will
mean Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"pro forma" will mean, with respect to any calculation made or required to
be made as described above, a calculation in accordance with Article 11 of
Regulation S-X promulgated under the Securities Act (to the extent applicable)
as interpreted in good faith by the Board of Directors of the Company after
consultation with the independent certified public accountants of the Company,
or otherwise a calculation made in good faith by such Board after consultation
with such independent certified public accountants, as the case may be.
"Purchase Money Indebtedness" will mean, with respect to any Person, all
obligations of such Person (i) consisting of the deferred purchase price of any
property or assets, conditional sale obligations, obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business) and other purchase money obligations, in each case
where the maturity of such obligation does not exceed the anticipated useful
life of the property or asset being financed and (ii) Incurred to finance the
acquisition or construction of such property or asset.
"Redeemable Stock" will mean, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including, without limitation,
upon the happening of any event) (i) matures or is mandatorily redeemable, in
whole or in part, pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness (other than Preferred Stock) or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part.
"Refinancing Indebtedness" will mean Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," "refinancing" and "refinanced"
shall have a correlative meaning) any Indebtedness (including Indebtedness of
the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of (A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced and (B) any premiums, fees and other expenses paid by the
Company or the Restricted Subsidiary, as the case may be, in connection with
such refinancing; provided, further, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; provided,
further, that the Refinancing Indebtedness is at least as subordinated to the
Notes as the Indebtedness being refinanced and the covenants relating to such
Indebtedness are no more restrictive in the aggregate than those of the
Indebtedness being refinanced.
"Replacement Collateral" will mean, at any relevant date in connection with
an Asset Disposition, property or assets used in, or Capital Stock of any Person
related to, the Company's business, other than the Collateral.
"Restricted Subsidiary" will mean, as of the date of determination, any
Subsidiary of the Company, other than an Unrestricted Subsidiary.
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<PAGE> 71
"Revolving Credit Facility" will mean the revolving credit facility an
aggregate principal amount of up to $70 million created pursuant to the
Revolving Credit Agreement dated as of , 1995, between the Company and
, as agent on behalf of the banks named therein.
"Sale/Leaseback Transaction" will mean any arrangement relating to property
or assets now owned or hereafter acquired whereby pursuant to a direct or
indirect arrangement the Company or any Restricted Subsidiary transfers such
property to a Person and the Company or such Restricted Subsidiary leases it
from such Person.
"Senior Indebtedness" will mean all indebtedness of the Company, including
interest thereon, whether outstanding on the Issue Date or thereafter issued,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the Notes; provided, however, that Senior Indebtedness will
not include (i) any liability for Federal, state, local or other taxes owed or
owing by the Company, (ii) any Trade Payables, (iii) any Indebtedness, Guarantee
or obligation of the Company which is subordinate or junior in any respect to
any other Indebtedness, Guarantee or obligation of the Company, including any
Subordinated Obligations, (iv) any obligations with respect to any Capital
Stock, (v) any Indebtedness Outstanding or Incurred in violation of the
Indenture or (vi) any obligations of the Company to any Affiliate of the
Company. For purposes of "-- Limitation on Sales of Assets and Restricted
Subsidiary Stock", the amount of consideration received by the Company or any
Restricted Subsidiary for the assumption of Senior Indebtedness by any purchaser
of the Company's property, assets or shares shall be equal to the face value or
the accreted value of such Senior Indebtedness.
"Stated Maturity" will mean, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" will mean any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person will mean any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
"Temporary Cash Investments" will mean any of the following: (i)
investments in U.S. Government Obligations maturing within 90 days of the date
of acquisition thereof; (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 90 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any State thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $500 million (or the Dollar
Equivalent thereof) and whose long-term indebtedness is rated "A" or higher
according to Moody's (or such equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i)
entered into with a bank meeting the qualifications described in clause (ii);
and (iv) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P.
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<PAGE> 72
"Trust Monies" will mean all cash or Temporary Cash Investments received by
the Trustee in accordance with the terms of the Indenture and the other
Collateral Documents: (i) upon the release of property from the Lien of the
Indenture and the other Collateral Documents, including all moneys received in
respect of the principal of all purchase money, governmental and other
obligations; (ii) as compensation for, or proceeds of sale of, any part of the
Collateral taken by eminent domain or purchased by, or sold pursuant to an order
of, a governmental authority or otherwise disposed of; (iii) as proceeds of
insurance upon any part of the Collateral (other than any liability insurance
proceeds payable to the Company or the Trustee for any loss, liability or
expense Incurred by it); (iv) pursuant to certain provisions of the Mortgages;
or (v) for application under the Indenture as provided in the Indenture or any
other Collateral Documents, or whose disposition is not elsewhere specifically
provided for in the Indenture or the other Collateral Documents.
"Unrestricted Subsidiary" will mean (i) each Subsidiary of the Company that
the Company has designated, or is deemed to have designated, pursuant to the
provisions described under "-- Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and that has not been redesignated a Restricted
Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" will mean direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"U.S. Restricted Subsidiaries" will mean, collectively, (i) the following
Subsidiaries of the Company to the extent such Subsidiaries are Restricted
Subsidiaries: Stromberg DatagraphiX International Corp., Florida AAC
Corporation, Computer Services Corporation, Kalvar Microfilm, Inc., Anacomp
California and Xidex Development Company; and (ii) any other Restricted
Subsidiary that is not a Foreign Restricted Subsidiary.
"Voting Stock" of a corporation will mean all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly Owned Subsidiary" will mean a Restricted Subsidiary of the Company,
all the Capital Stock of which (other than directors' qualifying shares) is
owned by the Company or another Wholly Owned Subsidiary.
DESCRIPTION OF OTHER INDEBTEDNESS
DESCRIPTION OF REVOLVING CREDIT FACILITY
As part of the Refinancing the Company will be entering into the Revolving
Credit Facility in an aggregate principal amount of up to $70 million. The
Revolving Credit Facility will have such customary terms and provisions as are
negotiated between the Company and the lenders under the Revolving Credit
Facility.
DESCRIPTION OF 15% SUBORDINATED NOTES
General
The 15% Subordinated Notes due 2000 (the "Subordinated Notes") were issued
on October 29, 1990 in an aggregate principal amount of $215.9 million (with a
fully accreted value of $224.9 million). Interest on the 15% Subordinated Notes
is payable on May 1 and November 1 of each year until maturity. The 15%
Subordinated Notes bear interest at a rate of 15% per annum multiplied by the
fully accreted value thereof ($1000 per each $960 of stated principal amount).
The 15% Subordinated Notes represent debt incurred as part of the Company's
refinancing of the majority of its debt in October 1990. As of September 30,
1994, there was $219.4 million in aggregate principal amount of 15% Subordinated
Notes outstanding.
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<PAGE> 73
In connection with the Refinancing, the Company is soliciting the Consents
(the "Consent Solicitation") from holders of the 15% Subordinated Notes in order
to, among other things, modify or eliminate certain provisions of the
Subordinated Indenture necessary to permit the Refinancing. The Subordinated
Indenture requires that the Company receive the Consents from holders of 66 2/3%
of the outstanding principal amount of the 15% Subordinated Notes. In connection
with the Consent Solicitation, Anacomp will pay a fee equal to $10 for each
$1,000 principal amount of 15% Subordinated Notes for which a Consent has been
accepted by the Company. The Consent Solicitation will expire on February 20,
1995, unless extended by Anacomp pursuant to the terms of the Consent
Solicitation. Upon receipt of the required Consents on or prior to such
expiration date, the Company and State Street Bank and Trust Company, the
trustee for the 15% Subordinated Notes, will execute on such expiration date an
amendment and restatement of the Subordinated Indenture that effects the
amendments that are the subject of the Consents. Application of such amendment
and restatement of the Subordinated Indenture will be conditioned upon the
closing of the Refinancing.
The following is a summary of certain terms of the 15% Subordinated Notes
after giving effect to the amendment and restatement of the Indenture to be
effected pursuant to the Consents.
Ranking
Payment of principal of and interest and all other amounts on the 15%
Subordinated Notes is subordinated and subject to the prior payment in full of
the Notes and the Revolving Credit Facility.
Optional Redemption
The 15% Subordinated Notes may be redeemed at the option of the Company, in
whole or from time to time in part, at any time on or after November 1, 1995, at
the following redemption prices (expressed as percentages of fully accreted
value) during the twelve-month periods commencing on each November 1 in the
following years, in each case, together with accrued interest (without
duplicating interest included in fully accreted value): (i) 1995 -- 107.5%; (ii)
1996 -- 105.0%; (iii) 1997 -- 102.5%; and (iv) 1998 and thereafter -- 100.0%.
Anacomp is effecting the Refinancing in order to, among other things, provide
the Company with the flexibility to refinance the 15% Subordinated Notes if the
Company elects, subject to market conditions, to redeem the 15% Subordinated
Notes after they become callable in November 1995.
Mandatory Redemption
The Company must redeem $72 million in aggregate principal amount of 15%
Subordinated Notes on each of November 1, 1998 and November 1, 1999 at a
redemption price of 100% of the fully accreted value thereof, plus accrued
interest (without duplicating interest included in fully accreted value). The
Company may reduce any mandatory redemption obligation by the principal amount
of any cancelled, redeemed or repurchased 15% Subordinated Notes, other than
through operation of the mandatory redemption provision or pursuant to any offer
to purchase Subordinated Notes required to be made under the Subordinated
Indenture.
Mandatory Repurchase Offers
Subject to certain conditions and exceptions, the Subordinated Indenture
requires the Company to make offers to repurchase the 15% Subordinated Notes
under the following circumstances: (i) upon the failure by the Company to
maintain a minimum consolidated net worth; (ii) prior to the incurrence of
certain indebtedness by Anacomp; (iii) upon certain changes of control; (iv)
upon certain sales of assets; (v) upon the Company having excess cash, which is
determined by a certain financial formula; and (vi) upon adoption by the Company
of a plan of liquidation. Offers to repurchase pursuant to the circumstances
described in clause (i), (ii), (iii), (iv) or (vi) or payments pursuant thereto
could, under certain circumstances, conflict the covenants under the Indenture
for the Notes. For a discussion of the
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<PAGE> 74
risks associated with these conflicts between the Indenture and the Subordinated
Indenture, see "Risk Factors -- Conflicts Between the Indenture and the
Subordinated Indenture".
Restrictive Covenants
Subject to certain qualifications and exceptions, the Subordinated
Indenture limits among other things: the payment of dividends by the Company and
its subsidiaries; purchases, redemptions, other acquisitions or retirement of
capital stock of the Company and its subsidiaries; the making of loans or
advances to, guarantees on behalf of, and certain other transactions with,
certain affiliates by the Company or its subsidiaries; the incurrence of certain
indebtedness and the issuance of certain capital stock by the Company or its
subsidiaries; the making of material acquisitions; the incurrence of certain
liens; and the ability of the Company to consolidate with, merge with or into,
or transfer all or substantially all its assets to, another entity. Certain of
the covenants in the Subordinated Indenture are more restrictive on the
operations and activities of Anacomp than the covenants contained in the
Indenture for the Notes.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated the date hereof (the "Underwriting Agreement") between the Company and
Salomon Brothers Inc (the "Underwriter"), the Company has agreed to issue and
sell to the Underwriter, and the Underwriter has agreed to purchase from the
Company, $225 million in aggregate principal amount of Notes.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions set forth therein. The Underwriter will be
obligated to purchase all the Notes offered hereby if any Notes are purchased.
The Underwriter has advised the Company that the Underwriter proposes
initially to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of % of the principal amount of the Notes. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of % of such principal amount. After the initial public offering, the public
offering price and such concessions may be changed.
The Company does not intend to apply for listing the Notes on any
securities exchange or for quotation of the Notes through the Nasdaq National
Market. The Underwriter has indicated that it intends to make a market in the
Notes, subject to applicable laws and regulations. However, the Underwriter is
not obligated to do so, and any such market making may be discontinued at any
time, without notice, at the Underwriter's sole discretion. No assurance can be
given as to the development or liquidity of any trading market for the Notes.
See "Risk Factors -- Lack of Public Market".
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments the Underwriter may be
required to make in respect thereof.
Salomon Brothers Inc is acting as financial advisor to the Company in
connection with the Company's solicitation of Consents from the holders of the
15% Subordinated Notes.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by
Cadwalader, Wickersham & Taft, New York, New York. Certain legal matters will be
passed upon for the Underwriter by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as of
September 30, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1994, included in this Prospectus and the related
financial statement schedules included elsewhere in the Registration Statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto appearing herein or therein, and
are included herein and therein in reliance upon the authority of said firm as
experts in giving said reports.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets -- September 30, 1994 and 1993........................... F-3
Consolidated Statements of Operations -- Years Ended September 30, 1994, 1993
and 1992........................................................................... F-4
Consolidated Statements of Cash Flows -- Years Ended September 30, 1994, 1993
and 1992........................................................................... F-5
Consolidated Statements of Stockholders' Equity -- Years Ended September 30, 1994,
1993 and 1992...................................................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Anacomp, Inc.:
We have audited the accompanying consolidated balance sheets of Anacomp,
Inc. (an Indiana Corporation) and subsidiaries as of September 30, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1994. These financial statements and schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 Anacomp,
Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1994, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective October 1,
1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
December 7, 1994
F-2
<PAGE> 78
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 19,871 $ 24,922
Accounts and notes receivable, less allowances for doubtful
accounts of $3,550 and $4,245, respectively..................... 117,441 109,251
Current portion of long-term receivables........................... 8,021 7,489
Inventories........................................................ 63,375 69,192
Prepaid expenses and other......................................... 5,421 7,157
-------- --------
Total current assets....................................... 214,129 218,011
Property and equipment, at cost less accumulated depreciation and
amortization of $100,574 and $105,523, respectively................ 66,769 66,399
Long-term receivables, net of current portion........................ 16,383 17,619
Excess of purchase price over net assets of businesses acquired and
other intangibles, net............................................. 279,607 296,426
Deferred tax asset, net of valuation allowance of $57,000............ 29,000 --
Other assets......................................................... 52,751 45,093
-------- --------
$658,639 $643,548
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 45,222 $ 34,355
Accounts payable................................................... 82,790 67,246
Accrued compensation, benefits and withholdings.................... 16,573 16,452
Accrued income taxes............................................... 9,000 11,502
Accrued interest................................................... 19,701 20,089
Other accrued liabilities.......................................... 35,027 37,438
-------- --------
Total current liabilities.................................. 208,313 187,082
-------- --------
Long-term debt, net of current portion............................... 366,625 404,738
Other noncurrent liabilities......................................... 9,467 13,546
-------- --------
Total noncurrent liabilities............................... 376,092 418,284
-------- --------
Commitments and Contingencies (Note 11)
Redeemable preferred stock, $.01 par value, issued and outstanding
500,000 shares (aggregate preference value of $25,000)............. 24,478 24,383
-------- --------
Stockholders' Equity:
Common stock, $.01 par value; authorized 100,000,000 shares;
45,728,505 and 40,629,524 issued, respectively.................. 457 406
Capital in excess of par value of common stock..................... 181,843 163,209
Cumulative translation adjustment.................................. (269) (4,744)
Accumulated deficit................................................ (132,275) (145,072)
-------- --------
Total stockholders' equity................................. 49,756 13,799
-------- --------
$658,639 $643,548
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 79
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Services provided......................................... $223,511 $213,302 $220,544
Equipment and supply sales................................ 369,088 376,906 408,396
-------- -------- --------
592,599 590,208 628,940
-------- -------- --------
Operating costs and expenses:
Costs of services provided................................ 156,214 141,998 147,040
Costs of equipment and supplies sold...................... 264,269 262,754 281,268
Selling, general and administrative expenses.............. 92,539 96,822 100,330
-------- -------- --------
513,022 501,574 528,638
-------- -------- --------
Income from continuing operations before interest, other
income,
income taxes, extraordinary credit, and cumulative effect
of accounting change...................................... 79,577 88,634 100,302
-------- -------- --------
Interest income............................................. 3,144 3,042 3,081
Interest expense and fee amortization....................... (65,633) (66,526) (69,101)
Other income (expense)...................................... (192) (2,225) 985
-------- -------- --------
(62,681) (65,709) (65,035)
-------- -------- --------
Income from continuing operations before income taxes,
extraordinary credit and cumulative effect of accounting
change.................................................... 16,896 22,925 35,267
Provision for income taxes.................................. 9,100 9,900 15,400
-------- -------- --------
Income from continuing operations before extraordinary
credit and cumulative effect of accounting change......... 7,796 13,025 19,867
Loss from discontinued operations, net of income tax
benefits.................................................. (841) (1,334) (1,646)
Extraordinary credit -- Reduction of income taxes arising
from utilization of tax loss carryforwards................ -- 6,900 8,700
Cumulative effect on prior years of a change in accounting
for income taxes.......................................... 8,000 -- --
-------- -------- --------
Net income.................................................. 14,955 18,591 26,921
Preferred stock dividends and discount accretion............ 2,158 2,158 2,158
-------- -------- --------
Net income available to common stockholders....... $ 12,797 $ 16,433 $ 24,763
========= ========= =========
Earnings per common and common equivalent share:
Continuing operations (net of preferred stock dividends
and discount accretion)................................ $ .12 $ .26 $ .42
Discontinued operations................................... (.02) (.04) (.04)
Extraordinary credit...................................... -- .17 .21
Cumulative effect on prior years of a change in accounting
for income taxes....................................... .17 -- --
-------- -------- --------
Net income........................................ $ .27 $ .39 $ .59
========= ========= =========
Earnings per common share assuming full dilution:
Continuing operations (net of preferred stock dividends
and discount accretion)................................ $ .12 $ .26 $ .42
Discontinued operations................................... (.02) (.04) (.04)
Extraordinary credit...................................... -- .17 .20
Cumulative effect on prior years of a change in accounting
for income taxes....................................... .17 -- --
-------- -------- --------
Net income........................................ $ .27 $ .39 $ .58
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 80
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 14,955 $ 18,591 $ 26,921
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 40,649 38,208 39,847
Cumulative effect of a change in accounting for income
taxes................................................ (8,000) -- --
Loss (gain) on disposition of assets................... 776 (721) 979
Change in assets and liabilities net of effects from
acquisitions:
Decrease in accounts and long-term receivables....... 2,345 323 163
Decrease (increase) in inventories and prepaid
expenses.......................................... 15,254 1,308 (1,680)
Increase in other assets............................. (11,349) (5,329) (913)
Increase in accounts payable and accrued expenses.... 2,377 1,125 5,474
Decrease in other noncurrent liabilities............. (4,323) (7,613) (11,156)
-------- -------- --------
Net cash provided by operating activities......... 52,684 45,892 59,635
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets.............................. 7,805 15,956 7,794
Purchases of property, plant and equipment................ (18,868) (20,726) (18,755)
Proceeds from notes receivable............................ -- 1,343 6,027
Payments to acquire companies and customer rights......... (14,565) (1,114) (6,830)
-------- -------- --------
Net cash used in investing activities............. (25,628) (4,541) (11,764)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants....... 1,484 2,262 2,532
Proceeds from revolving line of credit and long-term
borrowings............................................. 39,000 39,799 51,951
Principal payments on long-term debt...................... (71,095) (77,958) (89,757)
Preferred dividends paid.................................. (2,062) (2,062) (2,062)
Payments related to the issuance of debt and equity....... -- (7,707) (507)
-------- -------- --------
Net cash used in financing activities............. (32,673) (45,666) (37,843)
-------- -------- --------
Effect of exchange rate changes on cash..................... 566 (644) 42
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (5,051) (4,959) 10,070
Cash and cash equivalents at beginning of year.............. 24,922 29,881 19,811
-------- -------- --------
Cash and cash equivalents at end of year.......... $ 19,871 $ 24,922 $ 29,881
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 81
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) during the year for:
Interest...................................................... $57,781 $59,552 $64,120
Income taxes.................................................. 2,007 3,468 (3,041)
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1994, 1993 and 1992 the Company acquired companies and rights to
provide future services. In conjunction with these acquisitions, the purchase
price consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1994 1993 1992
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid......................................................... $14,565 $1,114 $6,830
Credit memos issued............................................... 3,085 150 1,500
Notes payable issued.............................................. 4,290 3,170 1,272
Stock issued...................................................... 17,201 -- --
------- ------ ------
Total fair value of acquisitions........................ $39,141 $4,434 $9,602
======== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 82
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994, 1993 AND 1992
------------------------------------------------------
CAPITAL
IN
EXCESS OF
PAR VALUE CUMULATIVE
COMMON OF COMMON TRANSLATION
STOCK STOCK ADJUSTMENT DEFICIT TOTAL
------ --------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1991........... $387 $157,128 $ 3,736 $(186,268) $(25,017)
Common stock issued for purchases under
the Employee Stock Purchase Plan...... 3 991 -- -- 994
Restricted Stock Bonus Plan Right of
First Refusal......................... -- 55 -- -- 55
Exercise of stock options............... 7 1,476 -- -- 1,483
Preferred stock dividends............... -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock
discount.............................. -- -- -- (96) (96)
Translation adjustments for year........ -- -- 4,464 -- 4,464
Other................................... -- 1,548 -- -- 1,548
Net income for the year................. -- -- -- 26,921 26,921
------ --------- ---------- --------- --------
BALANCE AT SEPTEMBER 30, 1992........... 397 161,198 8,200 (161,505) 8,290
Common stock issued for purchases under
the Employee Stock Purchase Plan...... 4 1,253 -- -- 1,257
Exercise of stock options............... 5 997 -- -- 1,002
Preferred stock dividends............... -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock
discount.............................. -- -- -- (96) (96)
Translation adjustments for year........ -- -- (12,944) -- (12,944)
Other................................... -- (239 ) -- -- (239)
Net income for the year................. -- -- -- 18,591 18,591
------ --------- ---------- --------- --------
BALANCE AT SEPTEMBER 30, 1993........... 406 163,209 (4,744) (145,072) 13,799
Common stock issued for purchases under
the Employee Stock Purchase Plan...... 3 872 -- -- 875
Exercise of stock options............... 3 606 -- -- 609
Preferred stock dividends............... -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock
discount.............................. -- -- -- (96) (96)
Translation adjustments for year........ -- -- 4,475 -- 4,475
NBS stock issuance...................... 20 7,380 -- -- 7,400
Graham stock issuance................... 25 9,776 -- -- 9,801
Net income for the year................. -- -- -- 14,955 14,955
------ --------- ---------- --------- --------
BALANCE AT SEPTEMBER 30, 1994........... $457 $181,843 $ (269) $(132,275) $ 49,756
======= ========= ========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 83
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include the accounts of Anacomp, Inc.
(Anacomp or the Company) and its wholly-owned subsidiaries. Material
intercompany transactions have been eliminated. Certain amounts in the prior
year consolidated financial statements have been reclassified to conform to the
current presentation.
FOREIGN CURRENCY TRANSLATION
Substantially all assets and liabilities of Anacomp's international
operations are translated at the year-end exchange rates; income and expenses
are translated at the average exchange rates prevailing during the year.
Translation adjustments are accumulated in a separate section of stockholders'
equity. Foreign currency transaction gains and losses are included in net
income.
SEGMENT REPORTING
Anacomp operates in a single business segment -- providing equipment,
supplies and services for information management, including storage, processing
and retrieval.
REVENUE RECOGNITION
Sales of products and services are recorded based on shipment of products
or performance of services. Revenue from maintenance contracts is deferred and
recognized in earnings on a pro rata basis over the period of the agreement.
Revenues from the lease of equipment under sales-type leases are also recognized
as shipments are made. Accordingly, the present value of all payments due under
the lease contracts is recorded as revenue, cost of sales is charged with the
book value of the equipment plus installation costs, and future interest income
is deferred and recognized over the lease term.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined by methods approximating the first-in, first-out basis.
The cost of the inventories is distributed as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods............................................... $41,661 $38,289
Work in process.............................................. 5,903 7,105
Raw materials and supplies................................... 15,811 23,798
------- -------
$63,375 $69,192
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization
of property and equipment are generally provided under the straight-line method
for financial reporting purposes over the shorter of the estimated useful lives
or the lease terms. Tooling costs are amortized over the total estimated units
of production, not to exceed three years.
F-8
<PAGE> 84
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
The costs associated with research and development programs are expensed as
incurred, and amounted to $2,973,000 in 1994, $2,525,000 in 1993, and $1,849,000
in 1992.
Included in "Other assets" on the accompanying Consolidated Balance Sheets
are unamortized deferred software costs of $19,745,000 and $14,134,000 as of
September 30, 1994 and 1993, respectively. Deferred software costs are the
capitalized costs of software products to be sold with COM systems in future
periods. The unamortized costs are evaluated for impairment each year by
determining net realizable value. Such costs are amortized under the
straight-line method or over the estimated units of sale, not to exceed five
years. See Note 12 for the amortization expense recorded during the past three
years.
INTANGIBLES
Excess of purchase price over net assets of businesses acquired is
amortized primarily on the straight-line method over 40 years. Other intangibles
represent the purchase of the rights to provide microfilm or maintenance
services to certain customers and are being amortized on a straight-line basis
over 10 years. The unamortized costs are evaluated for impairment each year by
determining net realizable value. Balances are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess of purchase price over net assets of businesses
acquired................................................... $320,200 $342,663
Other intangibles............................................ 37,277 21,580
-------- --------
357,477 364,243
Less accumulated amortization................................ (77,870) (67,817)
-------- --------
$279,607 $296,426
========= =========
</TABLE>
At September 30, 1994, the aggregate amortization of intangibles by year
through fiscal year 1999 are: 1995, $12,954,000; 1996, $12,627,000; 1997,
$12,137,000; 1998, $11,586,000; and 1999, $10,998,000.
ACCRUED LEASE RESERVES
Other noncurrent liabilities include acquisition reserves established for
unfavorable facility lease commitments, vacant facilities and related future
lease costs. Total obligations recorded for these unfavorable lease commitments
and future lease and related costs at their estimated present value were
$12,460,000 and $19,402,000 at September 30, 1994 and 1993, respectively. The
current portion of these obligations was $3,427,000 and $6,081,000 as of
September 30, 1994 and 1993, respectively, and is included in "Other accrued
liabilities." The accretion recorded related to these obligations, net of tax
effects, is included in "Loss from discontinued operations" in the Consolidated
Statements of Operations.
SALE/LEASEBACK TRANSACTIONS
Anacomp entered into sale/leaseback transactions of $11,870,000 in 1994 and
$9,858,000 in 1993 relating to COM systems installed in the data service
centers. Part of the proceeds were treated as fixed asset sales and the
remainder as sales of equipment. Revenues of $5,620,000 and $4,739,000 were
recorded respectively. All profits were deferred and are being recognized over
the applicable leaseback
F-9
<PAGE> 85
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
periods. In October 1994, Anacomp entered into additional sale/leaseback
transactions of $19,320,000 relating to COM systems installed in the data
service centers.
INCOME TAXES
In general, Anacomp's practice is to reinvest the earnings of its foreign
subsidiaries in those operations and to repatriate these earnings only when it
is advantageous to do so. It is expected that the amount of U.S. federal tax
resulting from a repatriation will not be significant. Accordingly, deferred tax
is not being recorded related to undistributed foreign earnings.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). FAS 109 mandates the liability method for computing deferred income taxes
and requires that the benefit of certain loss carryforwards be estimated and
recorded as an asset unless it is "more likely than not" that the benefit will
not be realized. Another principal difference is that changes in tax rates and
laws will be reflected in income from continuing operations in the period such
changes are enacted.
Anacomp adopted FAS 109 in the first quarter of fiscal 1994. Under FAS 109,
the Company has recorded a significant deferred tax asset to reflect the benefit
of loss carryforwards that could not be recognized under prior accounting rules.
The recording of this asset reduced goodwill and increased income as discussed
in more detail in Note 10.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Anacomp considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. These temporary
investments, primarily repurchase agreements and other overnight investments,
are recorded at cost, which approximates market, and totalled $8,000,000,
$14,000,000, and $8,000,000 at September 30, 1994, 1993 and 1992, respectively.
NOTE 2 -- FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of fair value
information for certain financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair values. The carrying
amounts and fair values of the Company's other financial instruments at
September 30, 1994, and 1993, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-Term Debt:
Revolving Loan.......................... $ 23,000 $ 23,000 $ 18,000 $ 18,000
Multicurrency Revolving Loan............ 20,665 20,665 21,468 21,468
Term Loans.............................. 40,261 40,261 59,087 59,087
Series A Senior Notes................... 3,548 3,548 12,537 12,537
Series B Senior Notes................... 67,500 74,410 75,000 85,840
15% Senior Subordinated Notes........... 219,384 249,357 218,490 260,884
13.875% Convertible Subordinated
Debentures........................... 20,922 23,232 20,723 23,232
9% Convertible Subordinated
Debentures........................... 10,479 10,479 10,479 10,479
Redeemable Preferred Stock................ 24,478 19,371 24,383 19,500
</TABLE>
F-10
<PAGE> 86
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of Long-Term Debt and Redeemable Preferred Stock
are based on quoted market values or discounted future cash flows using current
interest rates.
NOTE 3 -- ACQUISITIONS:
During the three years ended September 30, 1994, Anacomp made the
acquisitions set forth below, each of which has been accounted for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition. Pro forma results of operations have
not been presented because the effects of these acquisitions were not
significant.
FISCAL 1994
During fiscal 1994, Anacomp acquired 16 data service centers or the related
customer base (all were incorporated with existing Anacomp service centers), a
computer tape products company and the customer base of a micrographics supplies
business. Total consideration for these acquisitions was $39,141,000 of which
approximately $24,173,000 has been assigned to excess of purchase price over net
assets of businesses acquired and other intangible assets. In connection with
these acquisitions, Anacomp issued $17,201,000 of its common stock and increased
debt and accrued liabilities by $4,290,000.
NATIONAL BUSINESS SYSTEMS
One of the acquisitions included above was the purchase of the COM services
customer base of 14 data service centers operated by National Business Systems
(NBS). The acquisition was effective on January 3, 1994, and the acquisition
cost consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash paid to NBS shareholders................................... $ 7,400
Common stock issued to NBS shareholders......................... 7,400
Acquisition costs incurred...................................... 416
--------------
$ 15,216
============
</TABLE>
Anacomp issued 1,973,000 common shares to the NBS shareholders using $3.75
per share. As part of the acquisition agreement, Anacomp agreed to provide stock
price protection at the end of two years on those shares so designated by the
NBS shareholders (1,128,000 of the shares issued are subject to this
protection).
On January 3, 1996, Anacomp will recalculate the share price based on the
average closing price of Anacomp stock for the 30 consecutive trading days
ending on December 29, 1995. The revised price will be used to adjust the number
of issued shares which are subject to the price protection. However, the revised
price to be used for the revaluation will not be higher than 150% or lower than
50% of the original $3.75 per share price.
If the per share price reached the 150% maximum, NBS shareholders would
return 376,000 shares to Anacomp. If the per share price reached the 50%
minimum, Anacomp would issue 1,128,000 additional shares to the NBS
shareholders. The adjustment in the number of shares issued in connection with
the NBS acquisition will not affect the recorded purchase price. Contingently
issuable shares under the arrangement are measured at each reporting period
based on the market price of the Company's stock at the close of the period
being reported on and are considered in the computation of earnings per share.
F-11
<PAGE> 87
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRAHAM MAGNETICS
Another of the acquisitions included above was the purchase of Graham
Acquisition Corporation (Graham), a computer tape products company. The
acquisition was effective on May 4, 1994, and the acquisition cost consisted of
the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Common stock issued to Graham shareholders...................... $ 8,515
Common stock issued for a note payable.......................... 1,286
Issuance of note payable to a creditor.......................... 4,240
Cash paid to retire bank debt................................... 5,540
Acquisition costs incurred...................................... 689
--------------
$ 20,270
============
</TABLE>
Anacomp issued 2,129,000 common shares to the Graham shareholders based on
an agreed upon per share price. However, to determine the acquisition cost, the
shares were valued at the market price on the date of closing.
The contingent consideration of $7,600,000 is payable in Anacomp common
stock and will be based upon defined future earnings through September 1997. The
contingent consideration will be computed based upon an agreed upon formula
using a minimum stock price of $2.00 per share and will be issuable beginning in
January 1995. The contingent consideration is not included in the acquisition
cost total above but is recorded when the future earnings requirements have been
met. The contingent consideration amount for fiscal 1994 is estimated to be
approximately $144,000.
Anacomp also issued 360,000 common shares to a Graham creditor at $3.57 per
share to reduce the note payable to $4,240,000. The note is unsecured and bears
interest at 10%. Principal payments of $345,000 plus accrued interest are
payable quarterly beginning July 15, 1994. The note holder may at any time
require Anacomp to prepay any amount of the note by issuing common stock. The
shares of common stock to be issued will equal the prepayment amount divided by
$3.57. The current outstanding note balance subject to prepayment was $3,895,000
at September 30, 1994.
Anacomp has reserved 3,800,000 shares of authorized common stock for the
contingent acquisition consideration and 1,091,000 shares of authorized common
stock for the contingent prepayment of the note.
FISCAL 1993
During fiscal 1993, Anacomp acquired four micrographics service centers
(all four were merged with existing Anacomp service centers) and certain assets
of a microfilm reader maintenance services business for a total consideration of
$4,434,000, of which approximately $1,904,000 has been assigned to excess of
purchase price over net assets of businesses acquired and other intangible
assets.
FISCAL 1992
During fiscal 1992, Anacomp acquired four micrographics service centers and
one microforms service center (all five were merged with existing Anacomp
service centers) and certain selected assets of a computer output microfilm
maintenance services business, for a total consideration of $9,602,000, of which
approximately $6,356,000 has been assigned to excess of purchase price over net
assets of businesses acquired and other intangible assets.
F-12
<PAGE> 88
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- SKC AGREEMENT:
In March 1992, Anacomp entered into a ten-year supply agreement (the Supply
Agreement) with SKC America, Inc., a New Jersey corporation (SKCA), and SKC
Limited (SKCL), an affiliated corporation of SKCA organized pursuant to the laws
of the Republic of Korea. SKCA and SKCL are collectively referred to as SKC.
Pursuant to the Supply Agreement, Anacomp purchases substantially all of its
requirements for magnetic-base polyester and coated duplicate microfilm from
SKC.
SKC is providing Anacomp with a $25 million trade credit arrangement which
expires December 31, 2001. The trade credit arrangement may be terminated prior
to the expiration in the event Anacomp restructures or refinances substantially
all of its subordinated debt or in the event Anacomp breaches the Supply
Agreement. The trade credit arrangement bears interest at 2.5% over the prime
rate of The First National Bank of Boston (7.75% as of September 30, 1994).
In October 1993, the Supply Agreement was extended to December 2003 and
amended to include finished microfilm products manufactured by SKC exclusively
for Anacomp. Concurrent with the modification of the Supply Agreement, SKC
purchased Anacomp's Sunnyvale, California, duplicate microfilm manufacturing
operation for $900,000, payable over five years. At September 30, 1994, $720,000
is due from SKC. Costs of $3,392,000 associated with the Supply Agreement have
been deferred and are being amortized over the life of the Supply Agreement.
NOTE 5 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
ESTIMATED USEFUL ---------------------
LIFE IN YEARS 1994 1993
---------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings.......................... 10-40 $ 7,590 $ 8,206
Office furniture............................ 3-12 12,553 11,647
Manufacturing equipment and tooling......... 2-10 28,901 34,048
Field support spare parts................... 4-7 25,555 27,921
Leasehold improvements...................... Term of Lease 12,826 15,957
Equipment leased to others.................. 2-4 1,824 2,797
Processing equipment........................ 3-12 78,094 71,346
--------- ---------
167,343 171,922
Less accumulated depreciation and
amortization.............................. (100,574) (105,523)
--------- ---------
$ 66,769 $ 66,399
========== ==========
</TABLE>
F-13
<PAGE> 89
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- LONG-TERM RECEIVABLES:
Long-term receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Lease contracts receivable................................... $21,160 $21,634
Other lease receivables...................................... -- 204
Notes receivable from asset sales............................ 1,015 856
Other........................................................ 2,229 2,414
------- -------
24,404 25,108
Less current portion......................................... (8,021) (7,489)
------- -------
$16,383 $17,619
======== ========
</TABLE>
Other long-term receivables include $1,116,000 and $1,243,000 at September
30, 1994 and 1993, respectively, due from officers.
Lease contracts receivable result from customer leases of products under
agreements which qualify as sales-type leases. Annual future lease payments
under sales-type leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
(IN THOUSANDS)
<S> <C>
1995.......................................................... $ 9,003
1996.......................................................... 6,354
1997.......................................................... 5,211
1998.......................................................... 2,618
1999.......................................................... 1,541
---------------
24,727
Less deferred interest........................................ (3,567)
---------------
$21,160
============
</TABLE>
F-14
<PAGE> 90
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving Loan at 7.81% and 5.94%, respectively.............. $ 23,000 $ 18,000
Multicurrency Revolving Loan at 7.67% and 8.40%,
respectively............................................... 20,665 21,468
Term Loans at 7.56% and 6.06%, respectively.................. 40,261 59,087
Series A Senior Notes at 7.56% and 6.06%, respectively....... 3,548 12,537
Series B Senior Notes at 12.25%.............................. 67,500 75,000
15% Senior Subordinated Notes (net of unamortized discount of
$5,516 and $6,410, respectively)........................... 219,384 218,490
13.875% Convertible Subordinated Debentures due January 15,
2002 (net of unamortized discount of $2,309 and $2,508,
respectively).............................................. 20,922 20,723
9% Convertible Subordinated Debentures due January 15,
1996....................................................... 10,479 10,479
Installment note payable at 10% due July 15, 1997............ 3,895 --
Other........................................................ 2,193 3,309
-------- --------
411,847 439,093
Less current portion......................................... (45,222) (34,355)
-------- --------
$366,625 $404,738
========= =========
</TABLE>
On March 26, 1993, the Company completed amendments to its Senior Credit
Agreements and its 15% Senior Note Indenture. The provisions of these amendments
include the elimination of the requirement for the Company to make Additional
Amortization Payments as defined, allowance for the Company to use up to 50% of
its annual Excess Cash Flow to repurchase subordinated debt and the creation of
a Multicurrency Revolving Loan due in October 1995. The amendments also reduced
the existing Revolving Loan from $50 million to $43 million at March 26, 1993
with a further reduction to $40 million on September 30, 1994 and provide for a
final due date of October 1995. Additionally, the amendments provided for the
Company to retain specified sale proceeds in connection with the sale/ leaseback
of certain fixed assets and rescheduled the remaining amortization payments due
on the Term Loan in a manner favorable to the Company.
The Revolving Loan carries an interest rate of 275 basis points over the
one- , two-, three- or six-month reserve adjusted London Interbank Offered Rate
(LIBOR), selected at the Company's option.
The Multicurrency Revolving Loan is available to the Company and certain of
its foreign subsidiaries in U.S. dollars, British pounds, French francs, German
marks, Italian lira and Swedish krona in an equivalent amount of $30 million,
and carries an interest rate of 275 basis points over the one-, two-, three- or
six-month reserve adjusted London Interbank Offered Rate (LIBOR) of the borrowed
currency, selected at the Company's option.
The Term Loans and Series A Senior Notes carry an interest rate of 275
basis points over the three-month LIBOR and have scheduled installment payments
of $10.3 million in October 1994; $12.5 million in April 1995; $12.5 million in
October 1995; and $8.5 million in April 1996.
The Series B Senior Notes carry an interest rate of 12.25% and require
semi-annual installment payments commencing April 26, 1994, in amounts
increasing from 10% to 16.67% of the original principal amount.
F-15
<PAGE> 91
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to scheduled payments, the Company is required to make annual
prepayments of the Revolving Loan, the Term Loans and Series A Senior and Series
B Senior Notes (the Senior Debt) in amounts between 50% and 75% of the Company's
Excess Cash Flow, as defined, depending on the amount of Excess Cash Flow used
to repurchase subordinated debt per the provisions of the March 1993 Senior Debt
Agreement amendments. Also, subject to certain exceptions, 100% of proceeds from
the sale of assets must be applied to repayment of the Senior Debt.
The 15% Senior Subordinated Notes (the 15% Notes) were issued in 224,900
units of $1,000 and 30.351 detachable warrants to purchase Anacomp Common Stock
at $1.873 per share. The 15% Notes are callable given 30 days notice beginning
November 1995, at 107.5% of the fully accreted value, and declining to 100% of
the fully accreted value by November 1998. Mandatory sinking fund payments of
$72,000,000 are due November 1998, and November 1999. After the Term Loans and
the Series A Senior Notes and Series B Senior Notes are fully repaid and cash
collateralization of any remaining Revolving Credit Facility Commitment occurs,
additional prepayments equal to 75% of Excess Cash Flow, as defined, are also
required.
The Master Agreement, which covers the Term Loans, the Revolving Credit
Commitment, and the Series A Senior Notes and Series B Senior Notes, gives the
Senior Creditors a security interest in all of the assets of Anacomp; contains
various limitations on advances and investments made by the Company; prohibits
or restricts, without prior approval of the Senior Creditors, mergers,
acquisitions, change of control, certain types of lease transactions, payment of
dividends on Anacomp Common Stock, and voluntary payment in cash of any
principal amount of Anacomp's subordinated debt; and contains certain other
restrictive covenants related to net worth, cash flow, fixed charges, debt
incurrence, capital expenditures and the current ratio. Subsequent to September
30, 1994, Anacomp completed an amendment to the Master Agreement lowering the
Interest Coverage Ratio covenant for September 30, 1994, and all of fiscal year
1995. Based on information currently available, the Company is uncertain as to
whether it will be able to satisfy certain of the restrictive covenants in place
as of September 30, 1995. The Company believes that in connection with the
replacement of the revolving credit facilities which expire in October 1995,
these restrictive covenants will be modified or eliminated such that the Company
expects to be in compliance with its covenants under the debt agreements in
place at that time. The Master Agreement also provides for the availability of
letters of credit in an amount up to $15,000,000. As of September 30, 1994,
letters of credit for approximately $9,000,000 have been issued which reduce the
amount of available revolver.
In conjunction with entering into the SKC Supply Agreement discussed in
Note 4, Anacomp sought and received from its senior lenders certain amendments
to its senior loan documents including certain financial covenant adjustments.
The 15% Notes are subordinated to the payment in full of the principal and
interest on all Senior indebtedness. The 15% Notes rank pari passu to the
remaining 12.25% Notes and 8.25% Senior Subordinated Notes (if and when issued)
discussed in Note 8. Additionally, they are senior to the outstanding 9%
Convertible Subordinated Debentures due 1996 and the 13.875% Convertible
Subordinated Debentures due 2002.
The 15% Note Indenture contains covenants relating to net worth, and
limitations on restricted payments, liens, transactions with affiliates,
incurrence of additional debt, asset sales, acquisitions, and change of control.
The 15% Note holders will be granted a security interest in all of Anacomp's
assets upon the repayment of all Senior Secured Indebtedness.
The 13.875% Convertible Subordinated Debentures require mandatory sinking
fund payments of $3,750,000 annually commencing January 15, 1999, unless
sufficient debentures have been converted or repurchased by Anacomp. The
debentures are convertible into 1,327,542 shares of Anacomp
F-16
<PAGE> 92
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock at a conversion price of $17.50 per common share, and allow
optional redemption at a price of 100% at any time. Anacomp International, N.V.,
a wholly-owned Netherlands Antilles subsidiary, has issued the 9% Convertible
Subordinated Debentures due January 15, 1996, guaranteed by Anacomp. The 9%
debentures are convertible into 663,227 shares of Anacomp Common Stock at a
conversion price of $15.80 per common share. In the event of certain changes
affecting United States or Netherlands Antilles taxation, the interest rate will
be increased for any taxes required to be withheld or, at Anacomp's option, all
debentures outstanding may be redeemed at 100% of the principal amount plus
accrued interest.
The maturities of long-term debt in each of the next five years and
thereafter will be as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------
(IN THOUSANDS)
<S> <C>
1995.......................................................... $ 45,222
1996.......................................................... 87,505
1997.......................................................... 22,510
1998.......................................................... 11,294
1999.......................................................... 74,561
2000 and thereafter........................................... 170,755
--------------
$411,847
============
</TABLE>
NOTE 8 -- REDEEMABLE PREFERRED STOCK:
Anacomp issued in a private placement in 1987, 500,000 shares of 8.25%
Cumulative Convertible Redeemable Exchangeable Preferred Stock (the Preferred
Shares). Each Preferred Share has a preference value of $50 and is convertible
into Anacomp common stock at a conversion price of $7.50. The redeemable
preferred stock was recorded at fair value on the date of issuance less issue
costs. The excess of the preference value over the carrying value is being
accreted by periodic charges to retained earnings over the life of the issue.
The Preferred Shares may be redeemed by Anacomp at prices declining from
105.78% to 100% of preference value, or earlier if the price of Anacomp common
stock remains at 160% of the conversion price for 20 of 30 consecutive trading
days. On March 15, 2000 and 2001, Anacomp must redeem at the preference value
125,000 shares each year unless a sufficient number of shares has already been
redeemed or converted. All remaining outstanding shares must be redeemed by
March 1, 2002.
At any dividend payment date after March 15, 1990, Anacomp may exchange the
Preferred Shares for an equal face amount of 8.25% Senior Subordinated Notes due
March 1, 2002 (the Exchange Debentures). Except for certain shareholder rights,
the Exchange Debentures will carry terms similar to the Preferred Shares. There
were no such exchanges as of September 30, 1994.
NOTE 9 -- CAPITAL STOCK:
SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder Rights Plan which was adopted by the Board of
Directors on February 4, 1990. The Rights Plan provides that each share of the
Company's common stock has associated with it a Common Stock Purchase Right.
Each right entitles the registered holder to purchase from the Company one-tenth
of a share of Anacomp common stock, par value $.01 per share, at a cash exercise
price of $3.20 subject to adjustment.
F-17
<PAGE> 93
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rights will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the outstanding shares of common stock of
Anacomp, or announces a tender or exchange offer upon consummation of which,
such person or group would beneficially own 30% or more of the Company's common
stock. If any person acquires 15% of Anacomp's common stock, the rights would
entitle stockholders (other than the 15% acquiror) to purchase at $32 (as such
price may be adjusted) a number of shares of Anacomp's common stock which would
have a market value of $64 (as such amount may be adjusted). In the event that
Anacomp is acquired in a merger or other business combination, the rights would
entitle the stockholders (other than the acquiror) to purchase securities of the
surviving company at a similar discount.
Anacomp can redeem the rights at $.001 per right at any time until the
tenth day following the announcement that a 15% ownership position has been
acquired. Under certain circumstances set forth in the Rights Plan, the decision
to redeem shall require the concurrence of a majority of the Continuing
Directors (as such term is defined in the Rights Plan). The rights expire
February 26, 2000.
PREFERRED STOCK
Anacomp has authorized 1,000,000 shares of preferred stock, of which
500,000 shares of redeemable preferred stock were issued and outstanding at
September 30, 1994 and 1993 (see Note 8).
STOCK OPTION PLANS
Anacomp's stock option plans provide that the exercise price of the options
be determined by the Board of Directors (the Board), and in no case be less than
100% of fair market value at the time of grant for qualified options, or less
than the par value of the stock for non-qualified options. An option may be
exercised subject to such restrictions as the Board may impose at the time the
option is granted. In any event, each option shall terminate not later than 10
years after the date on which it is granted, except for certain non-qualified
options which shall terminate not later than 20 years after the date on which
granted.
Shares available for grant under the plans were 725,827 and 895,145 at
September 30, 1994 and 1993, respectively. Options outstanding, of which
3,310,464 are exercisable as of September 30, 1994, are as follows:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE
--------- -------------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1992...................... 3,680,709 $1.000 - $7.875
Granted.............................................. 1,308,834 2.750 - 9.000
Cancelled............................................ (72,839) 2.000 - 7.875
Expired.............................................. (38,701) 2.000 - 7.875
Exercised............................................ (463,475) 2.000 - 3.500
--------- -------------------
Outstanding at September 30, 1993...................... 4,414,528 1.000 - 9.000
Granted.............................................. 205,381 2.750 - 4.000
Cancelled............................................ (81,908) 1.000 - 7.875
Expired.............................................. (23,096) 2.000 - 7.875
Exercised............................................ (306,646) 1.000 - 3.375
--------- -------------------
Outstanding at September 30, 1994...................... 4,208,259 $1.000 - $9.000
========= ===================
</TABLE>
F-18
<PAGE> 94
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS
In October 1990, Anacomp issued 6,825,940 warrants to holders of the 15%
Senior Subordinated Notes. Each warrant entitles the holder to purchase one
common share at a price of $1.873 and is exercisable through the date of
expiration, November 11, 2000. Anacomp filed a shelf registration statement with
respect to the warrants which became effective on February 25, 1991.
RESTRICTED STOCK BONUS PLAN
In December 1984, Anacomp adopted a Restricted Stock Bonus Plan (the Plan)
allowing for the issuance of up to 2,800,000 shares of Anacomp common stock to
certain employees as determined by the Compensation Committee of the Board. The
purposes of the Plan are to assist Anacomp in retaining key employees, to
provide additional motivation for those employees to continue their best efforts
on behalf of Anacomp and to conserve cash. At September 30, 1994, 1,246,819
shares were issued and outstanding under the Plan. All issued and outstanding
shares related to the plan were awarded from 1985 through 1988. All vesting in
the shares was completed by September 30, 1988. No shares have been issued since
1988. Anacomp retained a right of first refusal to repurchase these shares at
market value on the date of sale less 80% of market value on the date of grant.
At the time the shares were granted, they were recorded at 20% of the market
value at the date of grant. This cost was amortized as compensation expense over
the various vesting periods involved. When the stock is offered to the Company
for resale in the marketplace, the Company will record the difference between
the proceeds from the sale of the shares and the amount paid to the employee as
paid in capital.
OTHER ITEMS
Under an Employee Stock Purchase Plan, Anacomp may offer to sell common
stock to its employees. Purchases of these shares are made by employee
participants periodically at 85% of the market price on the date of offer or
exercise, whichever is lower.
At September 30, 1994, approximately 23,900,000 shares of Anacomp common
stock are reserved for exercise of stock options, conversion of convertible
subordinated debentures, purchases by stock purchase plan participants,
conversion of preferred stock, exercise of warrants, Graham acquisition
agreement requirements and other corporate purposes.
NOTE 10 -- INCOME TAXES:
The components of income from continuing operations before income taxes and
extraordinary credits were:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States....................................... $ 8,684 $13,195 $18,594
Foreign............................................. 8,212 9,730 16,673
------- ------- -------
$16,896 $22,925 $35,267
======== ======== ========
</TABLE>
F-19
<PAGE> 95
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense after utilization of net operating
loss carryforwards, the adjustment of the tax reserves and discontinued
operations are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal............................................. $ 200 $ 6,900 $ 7,200
Foreign............................................. 3,300 4,800 6,400
State............................................... 800 1,900 1,800
------- ------- -------
4,300 13,600 15,400
Tax reserve adjustment.............................. (1,200) (3,700) --
Deferred............................................ 6,000 -- --
------- ------- -------
Continuing operations............................... 9,100 9,900 15,400
Discontinued operations............................. (700) (1,100) (1,200)
Extraordinary credit, reduction of income taxes
arising from carryforward of prior year's
operating losses.................................. -- (6,900) (8,700)
------- ------- -------
$ 8,400 $ 1,900 $ 5,500
======== ======== ========
</TABLE>
The following is a reconciliation of the United States federal statutory
rate to the rate used for the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1994 1993 1992
---- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. statutory rate........................................ 35.0% 34.8% 34.0%
Tax reserve adjustment..................................... (7.1)% (16.2)% --
Nontaxable foreign exchange gains.......................... -- -- (3.1)%
Refunds from state tax audits (net of federal income
tax)..................................................... -- -- (2.2)%
State and foreign income taxes (net of federal income tax
benefit)................................................. 5.9% 6.0% 4.7%
Other foreign taxes (difference between foreign and
U.S. rates).............................................. 2.7% 4.4% 3.1%
Nondeductible amortization and write-off of intangible
assets................................................... 18.8% 13.0% 8.3%
Other...................................................... (1.4)% 1.2% (1.1)%
---- ----- ----
53.9% 43.2% 43.7%
==== ===== ====
</TABLE>
The Company adopted FAS 109 in the first quarter of fiscal 1994 and
recorded a deferred tax asset of $95 million representing the federal and state
tax savings from net operating loss carryforwards (NOLs) and tax credits. The
Company also recorded a valuation allowance of $60 million reducing the deferred
tax asset to a net $35 million. Recognition of the deferred tax asset reduced
goodwill by $27 million and provided a cumulative effect increase to income of
$8 million. During 1994, the net deferred tax asset was reduced to $29 million,
reflecting usage of the asset to reduce income taxes payable by $6 million.
Future utilization, if any, of NOLs and tax credits for which a valuation
allowance was provided, will further reduce goodwill up to $37 million, increase
accrued income taxes up to $13 million and increase capital in excess of par
value up to $7 million.
F-20
<PAGE> 96
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities at September 30, 1994
and October 1, 1993 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
NET DEFERRED TAX ASSET 1994 1993
---------------------------------------------------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Tax effects of future tax deductible differences related
to:
Inventory reserves...................................... $ 2,600 $ 2,900
Depreciation............................................ 1,600 1,400
Building reserves....................................... 5,000 7,400
EPA reserve............................................. 2,300 3,400
Sale/leaseback of assets................................ 900 1,800
Other net deductible differences........................ 4,100 4,300
Tax effects of future taxable differences related to:
Leases.................................................. (4,500) (4,600)
Capitalized software.................................... (6,000) (4,600)
------------- ----------
Net tax effects of future differences..................... 6,000 12,000
------------- ----------
Tax effects of carryforward benefits:
Federal net operating loss carryforwards................ 73,000 80,000
Federal general business tax credits.................... 3,000 3,000
Foreign tax credits..................................... 4,000 --
------------- ----------
Tax effects of carryforwards.............................. 80,000 83,000
------------- ----------
Tax effects of future differences and carryforwards....... 86,000 95,000
Less valuation allowance.................................. (57,000) (60,000)
------------- ----------
Net deferred tax asset.................................... $ 29,000 $ 35,000
=========== =========
</TABLE>
At September 30, 1994, the Company has NOLs of approximately $200 million
available to offset future taxable income. This amount will increase to $217
million as certain timing differences reverse in future periods. The Company
also has tax credit carryforwards of $3 million available to reduce future tax
liabilities, including $1 million of preacquisition tax credits. The NOLs expire
commencing in 1995 ($2 million) with remaining amounts in various periods
through 2007. The tax credit carryforwards expire substantially in 1997.
During 1994 and 1993, the Company settled various income tax matters,
including issues associated with the 1988 Xidex acquisition. Settlement of these
issues and other considerations resulted in a favorable adjustment to federal
and foreign tax reserves of $1.2 million and $3.7 million, respectively. The
adjustments are reflected as a credit to the income tax expense from continuing
operations.
In 1993 and 1992 the provisions for income taxes include amounts which are
offset by the utilization of federal and foreign NOLs. The tax benefits from
utilization of NOLs is reported as an extraordinary credit in the Consolidated
Statements of Operations. The net tax provisions result from foreign and state
income taxes which cannot be reduced by NOLs from prior years.
In addition to the cumulative effect adjustment on the statement of
operations, the adoption of FAS 109 reduced goodwill amortization expense by
$773,000 during 1994. Accordingly, income from continuing operations and net
income increased by these same amounts. Earnings per common and common
equivalent share increased by $.02.
F-21
<PAGE> 97
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If FAS 109 had been adopted beginning October 1, 1991, the following pro
forma results would have been reported for the periods ended (in thousands
except per share amounts):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
(PRO FORMA) (PRO FORMA) (PRO FORMA)
Income from continuing operations................ $ 7,754 $13,756 $20,598
Net income....................................... 6,913 12,422 42,552
Earnings per common and common equivalent
share.......................................... .10 .24 .97
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES:
Anacomp has commitments under long-term operating leases, principally for
building space and data service center equipment. Lease terms generally cover
periods from five to twelve years. The following summarizes the future minimum
lease payments under all non-cancellable operating lease obligations, including
the unfavorable lease commitments and vacant facilities discussed in Note 1,
which extend beyond one year:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------
(IN THOUSANDS)
<S> <C>
1995.................................................................. $ 28,097
1996.................................................................. 23,693
1997.................................................................. 15,360
1998.................................................................. 11,357
1999.................................................................. 5,768
2000 and thereafter................................................... 31,846
--------------
116,121
Less liabilities recorded as of September 30, 1994 related to
unfavorable lease commitments and future lease costs for vacant
facilities.......................................................... (12,330)
--------------
$103,791
============
</TABLE>
The total of future minimum rentals to be received under noncancellable
subleases related to the above leases is $8,740,000. No material losses in
excess of the liabilities recorded are expected in the future.
In October 1992, Anacomp and Xerox Corp. announced a joint effort to
develop a Xerox Compatibility Feature (XCF) that will enable the XFP 2000 to
process and image Xerox high speed printing data streams. This effort will
result in the XFP 2000 being able to output virtually all Xerox print data
streams, including those containing fonts, forms, logos, signatures and other
images on microfiche. At September 30, 1994, $350,000 remains to be paid related
to services to be performed.
Anacomp also executed a software license agreement with Xerox to use the
XCF. The agreement obligates Anacomp to pay Xerox $1,277,000 as a prepayment for
100 software license fees. The payment is due upon final acceptance of the XCF
scheduled for January 1995.
In November 1993, Anacomp and Pennant Systems, a division of IBM, announced
a joint effort to develop software which will allow Anacomp's XFP 2000 to
process and image IBM Advanced Function Presentation (AFP) formatted data. This
program will result in the XFP 2000 being able to interpret AFP data streams,
including, as with the Xerox program, those containing fonts, logos, signatures
and other images on microfiche.
F-22
<PAGE> 98
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As consideration for the development of the AFP, Anacomp agreed to pay
Pennant Systems a development fee of $6,500,000 payable quarterly from January
1994, through April 1995. At September 30, 1994, $5,250,000 remains to be paid:
$2.5 million has been accrued; and $2.75 million relates to services to be
performed.
Anacomp also must pay Pennant Systems royalty payments for the licensed
system installations over the next six years. The minimum royalty payments for
years one through three is $1,500,000 per year and $1,000,000 per year for years
four through six. In addition, Anacomp must pay Pennant Systems for ongoing
system support which begins in December 1995 and continues for 10 years. The
minimum system support payments over the 10-year period are $5,671,000.
During 1994, the Company sold $5.9 million of lease receivables. Under the
terms of the sales, the purchasers have recourse to the Company should the
receivables prove to be uncollectible. The amount of the recourse at September
30, 1994 is $3.4 million.
Anacomp also is involved in various claims and lawsuits incidental to its
business and believes that the outcome of any of those matters will not have a
material adverse effect on its consolidated financial position or results of
operations.
NOTE 12 -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
FROM CONTINUING OPERATIONS:
Maintenance and repairs............................. $12,759 $11,765 $12,227
Depreciation and amortization:
Property and equipment........................... 17,524 17,149 20,531
Deferred software costs.......................... 3,673 2,873 1,619
Intangible assets................................ 13,418 12,984 12,419
Rent and lease expense.............................. 19,371 19,312 18,825
</TABLE>
NOTE 13 -- OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred profit on sale/leaseback transactions................ $ 9,165 $ 4,890
EPA reserve................................................... 6,420 9,530
Accrued lease reserve......................................... 3,427 6,081
Other......................................................... 16,015 16,937
------- -------
$35,027 $37,438
======== ========
</TABLE>
Xidex was designated by the United States Environmental Protection Agency
(EPA) as a potentially responsible party for investigatory and cleanup costs
incurred by state and federal authorities involving locations included on a list
of EPA's priority sites for investigation and remedial action under the federal
Comprehensive Environmental Response, Compensation, and Liability Act. The EPA
reserve noted above relates to its estimated liability for cleanup costs for the
aforementioned location and other sites. No material losses are expected in
excess of the liabilities recorded above.
F-23
<PAGE> 99
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- EARNINGS PER SHARE:
The computation of earnings per share is based upon the weighted average
number of common shares outstanding during the period plus (in periods in which
they have a dilutive effect) the effect of common shares contingently issuable,
primarily from stock options, exercise of warrants and acquisitions. Fully
diluted earnings per share also reflect additional dilution related to stock
options, due to the use of the market price at the end of the period, when
higher than the average price for the period.
The weighted average number of common and common equivalent shares used to
compute earnings per share is:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
For earnings per common and common equivalent
share....................................... 46,691,337 42,749,933 41,712,865
For earnings per share assuming full
dilution.................................... 46,890,599 42,964,380 42,771,365
</TABLE>
NOTE 15 -- INTERNATIONAL OPERATIONS:
Anacomp's international operations are conducted principally through
subsidiaries, a substantial portion of whose operations are located in Western
Europe. Information as to U.S. and international operations for the years ended
September 30, 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
-------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994
Customer sales........................ $421,339 $ 171,260 $ -- $592,599
Inter-geographic...................... 23,726 -- (23,726) --
-------- ------------- ----------- ------------
Total sales........................... $445,065 $ 171,260 $ (23,726) $592,599
========= ========== ========= ==========
Operating income...................... $ 60,794 $ 18,783 $ -- $ 79,577
========= ========== ========= ==========
Identifiable assets................... $551,147 $ 107,492 $ -- $658,639
========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
-------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1993
Customer sales........................ $414,726 $ 175,482 $ -- $590,208
Inter-geographic...................... 26,101 -- (26,101) --
-------- ------------- ----------- ------------
Total sales........................... $440,827 $ 175,482 $ (26,101) $590,208
========= ========== ========= ==========
Operating income...................... $ 66,883 $ 21,751 $ -- $ 88,634
========= ========== ========= ==========
Identifiable assets................... $539,328 $ 104,220 $ -- $643,548
========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
-------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1992
Customer sales........................ $433,951 $ 194,989 $ -- $628,940
Inter-geographic...................... 35,806 -- (35,806) --
-------- ------------- ----------- ------------
Total sales........................... $469,757 $ 194,989 $ (35,806) $628,940
========= ========== ========= ==========
Operating income...................... $ 71,312 $ 28,990 $ -- $100,302
========= ========== ========= ==========
Identifiable assets................... $569,132 $ 112,429 $ -- $681,561
========= ========== ========= ==========
</TABLE>
F-24
<PAGE> 100
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1994
Revenues................................ $138,783 $146,263 $145,123 $162,430
Gross profit............................ 42,491 41,857 40,656 47,112
Income from continuing operations....... 2,140 1,071 2,260 2,325
Loss from discontinued operations....... (239) (214) (200) (188)
Cumulative effect on prior years of a
change in accounting for income
taxes................................. 8,000 -- -- --
-------- -------- -------- --------
Net income.................... $ 9,901 $ 857 $ 2,060 $ 2,137
========= ========= ========= =========
Earnings per common share (primary):
Before discontinued operations,
extraordinary credit and cumulative
effect of accounting change........ $ .04 $ .01 $ .04 $ .04
Net income.................... .21 .01 .03 .03
Earnings per common share (fully
diluted):
Before discontinued operations,
extraordinary credit and cumulative
effect of accounting change........ $ .04 $ .01 $ .04 $ .04
Net income.................... .21 .01 .03 .03
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1993
Revenues................................ $141,152 $144,284 $140,409 $164,363
Gross profit............................ 42,039 44,689 43,686 55,042
Income from continuing operations....... 1,674 1,850 2,447 7,054
Loss from discontinued operations....... (362) (349) (338) (285)
Extraordinary credit-reduction of income
taxes arising from utilization of tax
loss carryforwards.................... 700 900 1,100 4,200
-------- -------- -------- --------
Net income.................... $ 2,012 $ 2,401 $ 3,209 $ 10,969
========= ========= ========= =========
Earnings per common share (primary):
Before discontinued operations and
extraordinary credit............... $ .03 $ .03 $ .04 $ .16
Net income.................... .04 .04 .06 .25
Earnings per common share (fully
diluted):
Before discontinued operations and
extraordinary credit............... $ .03 $ .03 $ .04 $ .16
Net income.................... .04 .04 .06 .25
</TABLE>
F-25
<PAGE> 101
NO DEALER, SALESMAN 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 OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION 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 ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
Prospectus Summary..................... 3
Risk Factors........................... 9
The Refinancing........................ 15
Use of Proceeds........................ 16
Capitalization......................... 17
Selected Consolidated Operating and
Financial Data....................... 18
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................ 19
Data Storage and Management Industry... 23
Business............................... 25
Management............................. 36
Description of the Notes............... 39
Description of Other Indebtedness...... 71
Underwriting........................... 74
Legal Matters.......................... 74
Experts................................ 74
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
$225,000,000
ANACOMP, INC.
% SENIOR SECURED
NOTES DUE 2002
- ----------------------------------------------------------
SALOMON BROTHERS INC
- ------------------------------------------------------------------
PROSPECTUS
DATED , 1995
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the registrant in connection with this offering
(other than the underwriting discount and commission) are estimated as follows:
<TABLE>
<S> <C>
Registration Fee under the Securities Act of 1933......................... $77,587
NASD Filing Fee........................................................... 23,000
Printing Expenses......................................................... *
Accounting Fees and Expenses.............................................. *
Legal Fees and Expenses................................................... *
Blue Sky Fee and Expenses................................................. *
Miscellaneous Expenses.................................................... *
-------
Total........................................................... $ *
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 37 of the Indiana Business Corporation Law (the "Corporation Law")
and the Restated Articles of Incorporation of the Company provide for or permit
indemnification of directors and officers of the Company under certain
circumstances. The indemnification provided is applicable to claims, actions,
suits or proceedings whether arising from actions or omissions to act in the
director's or officer's official capacity and as to action in any other capacity
while holding such office.
Article VIII, Section 5, of the Company's Restated Articles of
Incorporation provides that directors are immune from liability for any action
taken or failure to take any action to the fullest extent permitted by the
Corporation Law and by general principles of corporate law. The Corporation Law
requires that such action or failure to take action must constitute willful
misconduct or recklessness for a director to be held personally liable.
ITEM 16. EXHIBITS
The following instruments and documents are included as exhibits to this
Registration Statement and are filed herewith unless otherwise indicated.
Exhibits incorporated by reference are so indicated by parenthetical
information.
<TABLE>
<C> <C> <S>
*1.1 -- Form of Underwriting Agreement dated , 1995, between the Company, as
issuer, and Salomon Brothers Inc, as underwriter.
*4.1 -- Form of Indenture dated as of , 1995, between the Company, as issuer, and
, as trustee, with respect to the securities being registered.
*4.2 -- Form of Security and Pledge Agreement dated as of , 1995, between the Company
and , as trustee.
*5.1 -- Opinion of Cadwalader, Wickersham & Taft as to the legality of the securities
being registered.
12.1 -- Statement re computation of ratios of earnings to fixed charges.
*23.1 -- Consent of Cadwalader, Wickersham & Taft (contained in the opinion filed as
Exhibit 5.1 hereof).
23.2 -- Consent of Arthur Andersen LLP
</TABLE>
II-1
<PAGE> 103
<TABLE>
<C> <C> <S>
24.1 -- Power of Attorney pursuant to which amendments to this Registration Statement may
be filed (included on the signature page contained in Part II hereof).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation designated to act as Trustee (bound separately).
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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
of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For purpose of determining any liability under the 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.
II-2
<PAGE> 104
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF INDIANAPOLIS, STATE OF INDIANA, ON JANUARY 20, 1995.
ANACOMP, INC.
(Registrant)
By: /s/ LOUIS P. FERRERO
-----------------------------------
Louis P. Ferrero
Chief Executive Officer,
and Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis P. Ferrero, Jack R. O'Donnell and George C.
Gaskin, and each or any one of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, 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 substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------ ---------------------
<C> <S> <C>
/s/ LOUIS P. FERRERO Chief Executive Officer, January 20, 1995
- --------------------------------------------- and Chairman of the
Louis P. Ferrero Board
/s/ JACK R. O'DONNELL Executive Vice January 20, 1995
- --------------------------------------------- President, Treasurer
Jack R. O'Donnell and Chief Financial
Officer
/s/ DONALD L. VILES Vice President and January 20, 1995
- --------------------------------------------- Controller
Donald L. Viles
/s/ J. MARK WOODS President, Chief January 20, 1995
- --------------------------------------------- Operating Officer and
J. Mark Woods Director
/s/ CLARK A. JOHNSON Director January 20, 1995
- ---------------------------------------------
Clark A. Johnson
/s/ RICHARD E. NEAL Director January 20, 1995
- ---------------------------------------------
Richard E. Neal
</TABLE>
II-3
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------ ---------------------
<C> <S> <C>
/s/ ROGER S. PALAMARA Director January 20, 1995
- ---------------------------------------------
Roger S. Palamara
/s/ PAUL G. ROLAND Director January 20, 1995
- ---------------------------------------------
Paul G. Roland
/s/ FREDERICK W. ZUCKERMAN Director January 20, 1995
- ---------------------------------------------
Frederick W. Zuckerman
</TABLE>
II-4
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement, dated , 1995, by and between the Company,
as issuer, and Salomon Brothers Inc, as underwriter
*4.1 Form of Indenture dated as of , 1995, between the Company, as issuer, and
, as trustee, with respect to the securities being registered
*4.2 Form of Security and Pledge Agreement dated as of , 1995, between the
Company and , as trustee
*5.1 Opinion of Cadwalader, Wickersham & Taft as to the legality of the securities being
registered
12.1 Statement re computation of ratios of earnings to fixed charges
*23.1 Consent of Cadwalader, Wickersham & Taft (contained in the opinion filed as Exhibit
5.1 hereof)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney pursuant to which amendments to this Registration Statement may
be filed (included on the signature page contained in Part II hereof)
*25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation designated to act as Trustee (bound separately)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
31, YEAR ENDED SEPTEMBER 30,
----------------- --------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income
taxes:......................... $ 4,540 $16,896 $22,925 $ 35,267 $ 33,511 $ 17,409
Add:
Portion of rents representative
of interest factor............. 1,670 6,457 6,437 6,275 5,581 6,367
Interest on Indebtedness
(Including amortization of debt
discount and debt expense)..... 16,610 65,633 66,526 69,101 76,949 81,080
------- ------- ------- ------- -------- -------- --------
Earnings......................... 22,820 88,986 95,888 110,643 116,041 104,856
======= ======= ======= ======= ======== ======== ========
Fixed Charges:
Portion of rents representative
of the interest factor......... $ 1,670 $ 6,457 $ 6,437 $ 6,275 $ 5,581 $ 6,367
Interest on Indebtednesses
(Including amortization of debt
discount and debt expense)..... 16,610 65,633 66,526 69,101 76,949 81,080
------- ------- ------- ------- -------- -------- --------
Fixed Charges.................... $18,280 $72,090 $72,963 $ 75,376 $ 82,530 $ 87,447
======= ======= ======= ======= ======== ======== ========
Ratio of Earnings to Fixed
Charges........................ 1.25x 1.23x 1.31x 1.47x 1.41x 1.20x
======= ======= ======= ======= ======== ======== ========
Preferred dividend requirement... $ 539 $ 2,158 $ 2,158 $ 2,158 $ 2,158 $ 2,158
======= ======= ======= ======= ======== ======== ========
Gross up to pre-tax basis........ $ 901 $ 3,604 $ 3,604 $ 3,604 $ 3,604 $ 3,604
======= ======= ======= ======= ======== ======== ========
Fixed Charges and Preferred
Dividend Requirement........... $19,181 $75,694 $75,567 $ 78,980 $ 86,134 $ 91,051
======= ======= ======= ======= ======== ======== ========
Ratio of Earnings to Fixed
Charges and Preferred
Dividends...................... 1.19x 1.18x 1.25x 1.40x 1.35x 1.15x
======= ======= ======= ======= ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated December 7, 1994, and to all references to our Firm included in or
made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
January 20, 1995.
