As filed with the Securities and Exchange Commission on September , 1996
Registration No. 333-9359
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
ANACOMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 3577 35-1144230
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
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.
2115 Monroe Drive N.E.
Atlanta, Georgia 30324
(404) 876-3361
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Michael C. Ryan, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6000
--------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
--------------------
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Registered to be Registered Offering Price per Aggregate Offering Registration Fee
Security Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value, reserved
for issuance upon exercise of rights............... 3,636,364 shares $6.875 $25,000,003 $8,620 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Rights............................................. 3,636,364 rights -- -- -- (2)
====================================================================================================================================
<FN>
(1) Previously paid.
(2) Pursuant to Rule 457(g) under the Securities Act, no separate registration
fee is required with respect to the Rights.
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
</FN>
</TABLE>
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
S-1 Item Number and Caption Location or Heading in Prospectus
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.................................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus... Inside Front Cover Page; Outside Back Cover Page
3. Summary of Information, Risk Factors and Ratio of
Earnings to Fixed Charges................................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price........................... Outside Front Cover Page; Determination of
Offering Price; The Financial Advisor
6. Dilution.................................................. Not Applicable
7. Selling Security Holders.................................. Not Applicable
8. Plan of Distribution...................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered................ Outside Front Cover Page; The Rights Offering;
Description of Capital Stock
10. Interests of Named Experts and Counsel.................... Not Applicable
11. Information with Respect to the Registrant................ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Price Range of Common Stock;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Pro Forma
Unaudited Financial Information; Management's
Discussion and Analysis of Results of
Operations and Financial Condition; The
Company; Description of Certain Indebtedness;
Description of Capital Stock; Management;
Security Ownership of Certain Beneficial Owners
and Management; Certain Relationships and
Related Transactions; Legal Matters; Index to
Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
ANACOMP, INC.
Common Stock
Offered Pursuant to Transferable Rights
3,636,364 Shares
Anacomp, Inc., an Indiana corporation (the "Company"), is distributing
transferable subscription rights ("Rights") to holders of record at the close of
business on September 18, 1996 (the "Record Date") of its shares of common
stock, par value $.01 per share (the "Common Stock"). The Rights entitle
stockholders to subscribe for and purchase an aggregate of 3,636,364 shares of
Common Stock (the "Rights Offering") at a cash price of $6.875 per share (the
"Subscription Price"). Holders of Rights ("Rights Holders") will be able to
exercise Rights until 5:00 p.m., New York City time, on October 21, 1996, unless
the period for the exercise of Rights is extended or terminated by the Board of
Directors of the Company in its sole discretion (such time and date, the
"Expiration Date"). See "The Rights Offering."
Stockholders of the Company on the Record Date will receive .36 Rights to
purchase shares of Common Stock for each share of Common Stock held on the
Record Date. Rights Holders are entitled to purchase, at the Subscription Price,
one share of Common Stock for each whole Right held (the "Basic Subscription
Privilege"). An aggregate of 3,636,364 Rights will be distributed pursuant to
the Rights Offering. In lieu of fractional Rights, the aggregate number of
Rights issued by the Company to a Rights Holder will be rounded up to the next
whole number. Each Right also entitles any Rights Holder exercising the Basic
Subscription Privilege in full to subscribe at the Subscription Price for up to
two additional shares of Common Stock for each share of Common Stock purchased
by the Rights Holder pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"), to the extent shares are not otherwise subscribed
for pursuant to the exercise of the Basic Subscription Privilege. If an
insufficient number of shares of Common Stock are available to satisfy fully all
subscriptions pursuant to the Oversubscription Privilege, then the available
shares will be prorated among those who subscribe pursuant to the
Oversubscription Privilege. See "The Rights Offering -- Subscription Privileges
- -- Oversubscription Privilege." The Rights will be evidenced by transferable
certificates.
The Common Stock is traded in the Nasdaq National Market under the symbol
"ANCO." On September 11, 1996, the last full trading day prior to the public
announcement of the Rights Offering proposal, the last sale reported for the
Common Stock on the Nasdaq National Market was $8.25. On September 16, 1996, the
last sale reported for the Common Stock on the Nasdaq National Market was $8.75.
The Company will not attempt to register the Rights on an exchange, and there
can be no assurance that any market for the Rights will develop.
After the Expiration Date, the Rights will no longer be exercisable and
will have no value. Accordingly, Rights Holders are strongly urged either to
exercise or to sell their Rights.
See "Risk Factors" beginning on page 10 for a discussion of certain
considerations relevant to an investment decision.
----------------------
<PAGE>
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>
=====================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company (1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock...................... $6.875 None $6.875
- ---------------------------------------------------------------------------------------------------------------------
Total.......................................... $25,000,003 None $25,000,003
=====================================================================================================================
<FN>
(1) Before deducting expenses payable by the Company estimated at an aggregate of approximately
$400,000.
</FN>
</TABLE>
September , 1996
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (collectively with any
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities 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
securities 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 facilities of the Commission at the addresses set forth below. The
Registration Statement also can be reviewed through the Commission's Electronic
Data Gathering, Analysis and Retrieval System which is publicly available
through the Commission's Web Site (http://www.sec.gov.).
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 Citicorp 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. Certain of
such reports, proxy statements and other information also can be reviewed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
System.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including notes thereto) appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the "Company" means Anacomp, Inc. and its
subsidiaries. References to a fiscal year refer in each case to the twelve-month
period ended September 30.
The Company
The Company is the world's leading full-service provider of micrographics
systems, services and supplies, with over 15,000 customers in more than 65
countries, as well as the world's largest provider of Computer Output Microfilm
(COM) solutions for image and information management. Micrographics is the
conversion of information stored in digital form or on paper to microfilm or
microfiche, and COM converts textual and graphical digital information at high
speed directly from a computer or magnetic tape to microfilm or microfiche. The
Company is also a leading provider of half-inch magnetic tape products for large
computing systems.
The Company offers a full range of micrographics services and supplies,
including (i) micrographics processing services to customers on an outsourcing
basis through its 45 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. It is a major manufacturer and distributor of computer
tape products used by data processing operations, including open reel tape, 3480
tape cartridges and 3490E tape cartridges. The Company is also a pioneer in
providing outsource services in its centers for the processing and storage of
information for subsequent retrieval on compact recordable disc (CD-R) media.
In the fiscal year ended September 30, 1995, the Company's revenues were
$591.2 million and operating income (income before special and restructuring
charges, interest, other income and income taxes) was $41.4 million.
The principal executive offices of the Company are located at 11550 North
Meridian Street, Suite 600, Carmel, Indiana 46032, telephone number (317)
844-9666.
Recent Reorganization
On June 4, 1996, the Company emerged from bankruptcy proceedings under its
Third Amended Joint Plan of Reorganization ("Plan of Reorganization"). On such
date, the Company canceled its existing secured debt and subordinated debt,
including 15% Senior Subordinated Notes, 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, and its equity
securities, including common stock, common stock purchase rights, preferred
stock and warrants, and distributed to its creditors approximately $22.0 million
in cash, $112.2 million principal amount of its 11 5/8% Senior Secured Notes due
1999 (the "Senior Secured Notes"), $160.0 million principal amount of its 13%
Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes"), 10.0
million shares of new common stock, par value $.01 per share, and warrants to
purchase 362,694 shares of common stock at a price of $12.23 per share for a
period of five years from June 4, 1996.
The Company currently is engaged in efforts, through its financial advisor,
Donaldson, Lufkin & Jenrette Securities Corporation (the "Financial Advisor"),
to refinance its Senior Secured Notes with other senior secured financing with a
more favorable rate of interest and amortization term and to solicit consents by
the Company from the holders of the Senior Subordinated Notes to proposed
amendments to the Senior Subordinated Indenture intended to facilitate the
refinancing of the Senior Secured Notes. If the Company is successful in
refinancing the Senior Secured Notes on terms acceptable to it, the Company
anticipates significant savings in the amount of cash flow required each year
for payment of interest and principal under such senior indebtedness. There can
be no assurance, however, that the Company will be able to consummate any such
refinancing or to obtain the requisite consents. The consent solicitation also
is expected to solicit the consent of the holders of the Senior Subordinated
Notes to exempt from the definition of a change of control (as defined in the
indenture for the Senior Subordinated Notes) acquisitions by certain "permitted
holders." Such permitted holders would include Magten Asset Management Corp. on
behalf of its investment advisory client accounts and one or more of the other
current stockholders of the Company.
The Rights Offering
Rights........................Each record holder (a "Rights Holder") of Common
Stock at the close of business on September 18,
1996 (the "Record Date") will receive .36
transferable subscription rights ("Rights") for
each share of Common Stock held on the Record
Date. The number of Rights issued by the Company
to a Rights Holder will be rounded up to the
nearest whole number. Each Right will entitle the
Rights Holder to purchase from the Company one
share of Common Stock for a cash price of $6.875
(the "Subscription Price") on the terms and
subject to the conditions of the offering. The
distribution of Rights and sale of shares of
Common Stock upon the exercise of Rights are
referred to as the "Rights Offering." An aggregate
of approximately 3,636,364 Rights will be
distributed pursuant to the Rights Offering. After
October 21, 1996 (the "Expiration Date"), the
Rights will no longer be exercisable and will have
no value. Rights Holders are strongly urged either
to exercise or to sell their Rights prior to the
Expiration Date.
Record Date...................September 18, 1996.
Expiration Date...............October 21, 1996, 5:00 p.m., New York City time,
unless terminated or extended by the Board of
Directors of the Company, in its sole discretion.
Basic Subscription Privilege..Rights Holders are entitled to purchase, at the
Subscription Price, one share of Common Stock for
each whole Right held (the "Basic Subscription
Privilege"). See "The Rights Offering --
Subscription Privileges -- Basic Subscription
Privilege."
Oversubscription Privilege....Each Rights Holder who elects to exercise the
Basic Subscription Privilege in full also may
subscribe at the Subscription Price for up to two
additional shares of Common Stock (the "Excess
Shares") for each share of Common Stock purchased
by the Rights Holder pursuant to the Basic
Subscription Privilege (the "Oversubscription
Privilege"), to the extent shares have not been
purchased pursuant to the Basic Subscription
Privilege, subject to proration and reduction by
the Company under certain circumstances.
There can be no assurance that there will be
Excess Shares sufficient to satisfy all exercises
of the Oversubscription Privilege. If an
insufficient number of Excess Shares is available
to satisfy fully all exercises of the
Oversubscription Privilege, then the Excess Shares
will be prorated among Rights Holders who exercise
their Oversubscription Privilege based upon the
respective numbers of shares of Common Stock for
which each such Rights Holder subscribes pursuant
to the Basic Subscription Privilege. See "The
Rights Offering -- Subscription Privileges --
Oversubscription Privilege."
Subscription Price............$6.875, in cash, for each share of Common Stock.
See "Determination of Offering Price."
Procedure for Exercising
Rights........................The Basic Subscription Privilege may be exercised
and the Oversubscription Privilege may be
subscribed for by properly completing the
Subscription Certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the
Guaranteed Delivery Procedures (as defined
below)), with payment of the Subscription Price
for each share of Common Stock purchased pursuant
to the Basic Subscription Privilege and subscribed
for pursuant to the Oversubscription Privilege, to
the Subscription Agent (as defined below) for
receipt by the Subscription Agent on or prior to
the Expiration Date. If the mail is used to
forward Subscription Certificates, it is
recommended that insured, registered mail be used.
If the aggregate Subscription Price paid by an
exercising Rights Holder is insufficient to
purchase the number of shares of Common Stock that
such holder indicates on the Subscription
Certificate are being purchased or subscribed for,
or if no number of shares of Common Stock to be
purchased or subscribed for is specified, then the
Rights Holder will be deemed to have exercised the
Basic Subscription Privilege to purchase shares of
Common Stock to the full extent of the payment
tendered. If the aggregate Subscription Price paid
by an exercising Rights Holder exceeds the amount
necessary to purchase the number of shares of
Common Stock for which the Rights Holder has
indicated on the Subscription Certificate an
intention to purchase, then the Rights Holder will
be deemed to have subscribed pursuant to the
Oversubscription Privilege to the full extent of
the excess payment tendered. If any Rights Holder
is allocated a fewer number of shares than such
Rights Holder subscribed for pursuant to the
Oversubscription Privilege, then the excess funds
paid by that holder will be returned with
interest. See "The Rights Offering -- Exercise of
Rights."
No Revocation.................Once a Rights Holder has exercised the Basic
Subscription Privilege or subscribed for the
Oversubscription Privilege, such exercise or
subscription may not be revoked by such Rights
Holder. See "The Rights Offering -- No
Revocation."
Shares of Common Stock
Outstanding After the
Rights Offering...............Assuming the Rights Offering is fully subscribed
for, the Company will have approximately
13,737,000 shares outstanding after the Rights
Offering, based on 10,100,250 shares outstanding
immediately prior to the consummation of the
Rights Offering.
Transferability of Rights.....The Rights are freely transferable.
Amendments and Termination....The Rights Offering may be extended, and its terms
and conditions amended by the Company, at the
Company's option. If the Company amends the terms
of the Rights Offering, a new definitive
Prospectus will be distributed to all Rights
Holders who had previously exercised Rights and to
all Rights Holders of record on the date of such
amendment, together with a form on which each
exercising Rights Holder can consent to the
amended terms. Any Rights Holder who had
previously exercised any Rights, or who exercises
Rights within four (4) business days after the
mailing of the new definitive Prospectus, and who
does not so consent within ten (10) business days
after the mailing of the definitive Prospectus and
form of consent, will be deemed to have canceled
such exercise and the Company will refund as soon
as practicable the full amount of the Subscription
Price paid by such Rights Holder, with interest.
Any completed Subscription Certificate received by
the Subscription Agent five (5) or more business
days after the date of the amendment will be
deemed to constitute the consent of the Rights
Holder who completed such Subscription Certificate
to the amended terms.
The Company may terminate the Rights Offering at
any time prior to delivery of the shares of Common
Stock. See "The Rights Offering -- Amendments and
Termination."
Persons Holding Shares, or
Wishing to Exercise Rights,
Through Others................Persons holding shares of Common Stock, and
receiving the Rights distributable with respect to
such shares, through a broker, dealer, commercial
bank, trust company or other nominee, as well as
persons holding certificates of Common Stock
personally who would prefer to have such
institutions effect transactions relating to the
Rights on their behalf, should contact the
appropriate institution or nominee and request it
to effect the transactions for them. See "The
Rights Offering -- Exercise of Rights."
Issuance of Common Stock......Certificates representing shares of Common Stock
purchased pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege will
be delivered to subscribers as soon as practicable
after the Expiration Date and after all prorations
have been effected. See "The Rights Offering --
Subscription Privileges."
Use of Proceeds...............The net proceeds available to the Company from the
Rights Offering will be approximately $24.6
million. The Company plans to use such net
proceeds to finance prospective acquisitions of
assets, businesses and technologies. See "Use of
Proceeds."
Subscription Agent............ChaseMellon Shareholder Services, L.L.C.
Information Agent.............Morrow & Co., Inc.
Nasdaq National Market
Symbol for Common Stock.......ANCO
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the five fiscal years ended September 30,
1995, which were derived, except as otherwise noted, from the consolidated
financial statements of the Company audited by Arthur Andersen LLP; and selected
unaudited consolidated historical operating and financial data for the
nine-month period ended June 30, 1995, the eight-month period ended May 31, 1996
and the one-month period ended June 30, 1996, derived from unaudited interim
condensed 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. Although the Plan of Reorganization was consummated
on June 4, 1996, the effective date of the consummation of the Plan of
Reorganization for financial reporting purposes is considered to be the close of
business on May 31, 1996. The Company has accounted for the restructuring using
the principles of "fresh start" reporting as required by AICPA Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. Pursuant to such principles, in general, the Company's assets
and liabilities were revalued. Therefore, due to the restructuring and
implementation of "fresh start" reporting, the consolidated financial statements
for the newly-reorganized company (period starting May 31, 1996) are not
comparable to those of the predecessor company.
The following table also includes certain pro forma unaudited financial
data that reflect adjustments necessary to give effect to the transactions in
connection with the consummation of the Plan of Reorganization and the Rights
Offering for the nine months ended June 30, 1996 as if they occurred on October
1, 1995. The pro forma unaudited financial data do not purport to represent the
Company's results of operations or financial condition had the Company's
restructuring 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.
The following should be read in conjunction with, and is qualified in its
entirety by reference to, "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Results of Operations and Financial Condition," the
Company's historical Consolidated Financial Statements and notes thereto and the
"Pro Forma Unaudited Financial Information" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------- -------------------
Year Ended September 30, (unaudited)
------------------------ -----------
Nine Eight
Months Months One Month
ended ended ended
June 30, May 31, June 30, Pro Forma
1991 1992 1993 1994 1995 1995 (1) 1996 1996 (c)
---- ---- ---- ---- ---- ------- ---- ---- ---------
(Dollars in thousands, except ratios and per share
amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues.................. $635,361 $628,940 $590,208 $592,599 $591,189 $452,234 $334,598 $36,786 $369,881
Cost of sales and services 423,956 428,308 404,752 420,483 440,667 305,123 229,167 24,891 252,900
Selling, general and
administrative......... 105,861 100,330 96,822 92,539 109,127 105,162 63,826 5,702 62,924
Amortization of
Reorganization Asset.. -- -- -- -- -- -- -- 6,416 57,744
Special and restructuring
charges (a)............ -- -- -- -- 169,584 130,000 -- -- --
Operating income (loss)... 105,544 100,302 88,634 79,577 (128,189) (88,051) 41,605 (223) (3,687)
Interest expense.......... 79,655 71,947 68,960 67,174 70,938 52,310 26,760 2,920 30,805
Reorganization items...... -- -- -- -- -- -- 92,839(f) -- --
Income (loss) before
extraordinary credit
and cumulative effect
of accounting change... 18,105 18,221 11,691 6,955 (238,326) (146,212) 112,528 (4,372) (37,077)
Net income (loss)......... 29,205 26,921 18,591 14,955(b)(238,326) (146,212) 164,970(g) (4,372) (37,077)
Income (loss) per share
(primary) before
extraordinary item and
cumulative effect of
accounting change (net
of preferred stock
dividends and discount (k) (k) (k) (k) (k) (k) (k) (.44) (2.70)
accretion).............
Weighted average shares
outstanding............ (k) (k) (k) (k) (k) (k) (k) 10,000,000 13,737,000
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------- -------------------
Year Ended September 30, (unaudited)
------------------------ -----------
Nine
Months Eight
ended Months One Month
June 30, ended May ended June Pro Forma
1991 1992 1993 1994 1995 1995 31, 1996 30, 1996 (c)
---- ---- ---- ---- ---- ---- -------- -------- ---
(Dollars in thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
RATIOS AND OTHER
FINANCIAL DATA
Depreciation and
amortization..... $ 31,551 $ 34,569 $ 33,006 $ 34,615 $ 35,998 $25,919 $17,523 $7,292 $69,873
EBITDA (d).......... 137,095 134,871 121,640 114,192 77,393 67,868 59,128 7,069 66,186
Capital expenditures 13,916 18,755 20,726 18,868 14,372 10,420 3,599 519 4,118
Ratio of EBITDA to
interest expense 1.72x 1.87x 1.76x 1.70x 1.09x 1.30x 2.21x 2.42x 2.15x
Ratio of total debt
to EBITDA........ 3.75x 3.54x 3.61x 3.61x 5.04x -- -- -- --
Ratio of earnings
to fixed
charges (e)...... 1.36x 1.41x 1.27x 1.21x (e) (e) (e) (e) (e)
</TABLE>
As of June 30, 1996
-------------------
(unaudited)
Actual Pro Forma (c)
--------------- -------------
BALANCE SHEET DATA
Cash..................................... $46,822 $71,422
Property, plant, and equipment - net..... 24,327 24,327
Reorganization value in excess of
identifiable assets (h)............... 262,744 262,744
Total assets............................. 461,181 485,781
Total current liabilities (i)............ 121,374 121,374
Total debt (j)........................... 262,118 262,118
Stockholders' equity..................... 75,718 100,318
- ----------
(a) This item includes special charges of $136.9 million (of which $130.0
million was recorded in the nine month period ended June 30, 1995) which
represents a write-off of goodwill of $108.0 million and $28.9 million of
charges associated with software costs which are not recoverable, as well
as restructuring charges of $32.7 million.
(b) The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal 1994. The adoption resulted in
a one-time increase to net income of $8.0 million reflecting the cumulative
effect on prior years of this accounting change. Prior to 1993, the Company
recognized tax benefits resulting from NOLs as an extraordinary item in the
consolidated Statement of Operations.
(c) The pro forma operating data and selected financial ratios and other
financial data give effect to the transactions in connection with the
consummation of the Plan of Reorganization as if they occurred on October
1, 1995. See "Capitalization." The pro forma balance sheet data give effect
to the Rights Offering (assuming the sale of 3,637,000 shares and net
proceeds of $24.6 million after deducting estimated fees and expenses
associated with the Rights Offering), as if they were sold on June 30,
1996. The weighted shares outstanding include adjustments for shares to be
issued in connection with the Rights Offering and shares issued as a result
of the restricted stock awarded to certain employees subsequent to June 30,
1996.
(d) EBITDA represents earnings before interest income and expense, financial
restructuring costs, reorganization items, other income, income taxes,
depreciation and amortization. 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. This item
also excludes special and restructuring charges of approximately $169.6
million incurred in fiscal 1995.
(e) 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, accretion of the original issue discount and the portion of
rental expense under operating leases that has been deemed by the Company
to be representative of an interest factor, all on a pre-tax basis. For the
year ended September 30, 1995, the nine months ended June 30, 1995, the one
month ended June 30, 1996, and the pro forma nine months ended June 30,
1996, income before income taxes was inadequate to cover fixed charges. The
amount of coverage deficiency was $203.3 million, $143.4 million, $3.1
million and $32.1 million, respectively. For the eight months ended May 31,
1996 this ratio is not meaningful due to the gains recorded associated with
the adoption of fresh start accounting and discharge of indebtedness.
(f) This item includes income and expenses resulting from the Plan of
Reorganization and adoption of fresh-start accounting, including a
write-off of deferred debt issue costs and discounts of $17.6 million,
adjustments of assets and liabilities to fair market value of $124.9
million, financial restructuring costs of $14.9 million and interest earned
on accumulated cash of $431,000.
(g) This item includes an extraordinary gain resulting from the discharge of
indebtedness of $52.4 million, net of taxes.
(h) For "fresh start" reporting purposes, any portion of the Company's
reorganization value not attributable to specific identifiable assets is
reported as "Reorganization value in excess of identifiable assets." This
asset is being amortized over a 3.5 year life beginning May 31, 1996.
(i) Total current liabilities exclude current portion of long-term debt.
(j) Total debt does not include accrued but unpaid interest.
(k) Due to implementation of the restructuring and fresh start accounting, per
share data for the predecessor company have been excluded as they are not
comparable.
(l) Certain amounts in the nine months ended June 30, 1995 interim condensed
consolidated financial statements have been reclassified to conform to the
fiscal 1996 presentation.
<PAGE>
RISK FACTORS
Prospective investors should carefully review the information set forth
below, together with the information and financial data set forth elsewhere in
this Prospectus, before making an investment decision.
Adverse Effect of Growth of Alternate Technologies. Revenues for the
Company's micrographic services and products, including micrographics service
revenues, COM system revenues, maintenance service revenues and micrographics
equipment and supplies revenues, have been adversely affected for each of the
past four fiscal years (see "Risk Factors -- Recent Declines in Revenues") and
could in the future be substantially adversely affected by, among other things,
the increasing use of digital technology. Micrographics revenues represented 78%
of the Company's fiscal 1995 revenues and approximately 77% of revenues for the
first nine months of fiscal 1996, and are expected to remain the Company's
primary source of revenues for the foreseeable future.
The effect of digital and other technologies on the demand for
micrographics depends, in part, on the extent of technological advances and cost
decreases in such technologies. The recent trend of technological advances and
attendant price declines in digital systems and products is expected to
continue. As a result, in certain instances, 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 based on digital technologies has resulted and will continue to result
in many Company customers changing their use of micrographics from data storage
and retrieval to primarily archival use. The Company believes this is at least
part of the reason for the declines in the past three fiscal years in both sales
and prices of the Company's duplicate film, readers and reader/printers. The
Company'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. The Company's operating income as a
percentage of revenue was 11.1% in the first nine months of fiscal 1996 compared
to 7% in fiscal 1995, 13.4% in fiscal 1994 and 15% in 1993.
Therefore, the Company has been and expects to continue to be impacted
adversely by the decline in the market for COM services, the high fixed costs
and declining market for COM systems and the attendant reduction in equipment
and supplies. The Company's revenues for maintenance of COM systems have
declined in part because of efficiencies associated with the Company's XFP 2000
systems but are expected to decline in the event of lesser use and fewer sales
of COM systems. The growth of alternate technologies has created consolidation
in the micrographics industry. To the extent consolidation in the micrographics
industry has the effect of causing major providers of micrographics services and
products to cease providing such services and products, the negative trends in
the industry, such as competition from alternate technologies described above,
may accelerate.
Declines in Revenues and Profits. 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 five fiscal years. Revenues for
fiscal 1995 decreased $32.2 million from 1994 and revenues decreased $80.9
million for the first nine months of fiscal 1996 when compared to the same
period for the previous year. The $80.9 million decrease is primarily due to the
sale, discontinuance and downsizing of certain product lines, as well as lower
Computer Output to Microfilm (COM) services and systems revenues. Fiscal 1994
revenues decreased $29.1 million from 1993, and 1993 revenues decreased $42.6
million compared to the prior year, excluding, in each case, acquisitions made
by the Company during such fiscal year. For further discussion by product line
of recent trends in revenues and operating margins, see "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
The Company has used acquisitions in the past to try to offset declining
micrographics services revenues and to increase market share. The Company is
expected to depend, in part, on acquisitions to try to increase market share,
and there can be no assurance that the Company will be able to effect any such
further acquisitions. Acquisitions generally have been of companies in markets
in which the Company already competes. The Company's substantial leverage limits
the amount of cash flow available for investment. The indenture for the Senior
Secured Notes and the terms of the Company's other indebtedness restrict the
Company's ability to make acquisitions. See "Risk Factors -- Substantial
Leverage."
Variation from Reorganization Plan Projections. Fiscal 1996 revenue and
income are expected to be lower than fiscal 1996 revenue and income projected in
connection with the Company's reorganization because of, among other things, the
decline in COM services and systems revenues and the increase in competition for
such services and systems by alternate technologies, the introduction of new
products and services at a slower rate than expected, as well as the impact of
the Company's being in reorganization proceedings. The Company does not
generally publish its business plans and strategies or make external projections
of its anticipated financial positions or results of operations, and did so only
in the context of its reorganization proceedings. The Company does not intend to
update or otherwise revise any such financial projections to reflect
circumstances existing after the date the projections were included in the
disclosure statement in connection with the Company's reorganization or to
reflect the occurrence of unanticipated events, even in the event the
assumptions underlying the projections are shown to be in error or false or
misleading by reason of subsequent events. Any such financial projections should
not be relied on for any purpose.
Quarterly Earnings Fluctuations. Historically, the Company has operated
without a backlog for its COM systems. 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, the Company'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 20 to the
Company's audited consolidated financial statements appearing elsewhere in this
Prospectus.
Dependence of Values on Estimates of Future Performance. The Company's
financial statements for the eight months ended May 31, 1996 and the one month
ended June 30, 1996 and the pro forma unaudited financial statements have been
prepared in accordance with the requirements of AICPA Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"), referred to as "fresh-start" reporting. SOP 90-7 requires a
determination of the Company's reorganization value, which is the estimated fair
value of the reorganized entity as a going concern at the time it emerges from
bankruptcy. The Company's estimate of its reorganization value is based on a
number of assumptions, including the assumptions upon which the Company's
estimates of future operating results are based. The valuation necessarily
assumes that the Company will achieve the estimates of future operating results
in all material respects. If these results are not achieved, the resulting
values could be materially different. See "Pro Forma Unaudited Financial
Information."
Non-Comparability of Historical Financial Statements. The Company's
historical financial statements prior to the date the Plan of Reorganization was
consummated are not comparable to financial statements after such date as a
result of the application of "fresh-start" reporting, and, therefore, are not
indicative of the Company's future performance.
Availability and Price of Polyester and Certain Other Supplies. Polyester
is the basic raw material for the Company's duplicate film and magnetics
products. Large increases in the price of polyester are likely to affect the
Company's operating margins adversely as the maturity of the Company's markets
makes it difficult to effect price increases. Increased polyester prices also
could result in the loss of certain customers. Pursuant to the terms of a supply
agreement between the Company and SKC Limited and SKC America, Inc.
(collectively, "SKC"), the Company purchases all of its duplicate microfilm and
most of its base polyester products from SKC. The agreement contains provisions
relating to price which, if strictly followed, would be burdensome to the
Company. Accordingly, the Company has sought in the past to negotiate pricing
outside the terms of the agreement. The agreement provides that magnetics-based
polyester will be sold at negotiated fair market value. There can be no
assurances the Company will be successful in such negotiations in the future.
Certain third parties are the sole suppliers of some of the Company's raw
materials and products. In addition to SKC, as described above, Kodak supplies
to the Company on an exclusive basis a proprietary, patented film canister used
in the Company's XFP 2000 COM recorder and supplies to the Company substantially
all of the Company's requirements for original microfilm for earlier-generation
COM recorders. Any disruption in the supply relationship between the Company and
such suppliers 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 any such disruption, there can be no
assurance that the Company could develop alternative sources at acceptable
prices and within reasonable times. For a further description of the Company's
raw material needs and supply relationships, see "The Company -- Raw Materials
and Suppliers."
New Products. The Company is attempting to introduce new information
storage and delivery products, certain of which will incorporate digital
technologies. The Company historically has not been successful in introducing
new micrographics products and services, and the Company has limited experience
in the manufacture, sale or marketing of these new products and services,
especially those incorporating new digital technologies. However, the Company is
relying on such new products and services to generate significant cash flows in
the future.
These products and services currently are being introduced 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
the Company's products and services will achieve market acceptance. 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 assurance that this will be successfully
achieved. The Company intends to hire limited numbers of new sales personnel to
help sell certain of its digital products and services, but needs to rely on its
existing sales force to grow the business after its introduction. In addition,
it is unclear the extent to which the Company will be able to maintain
technological support for such new products. 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 32% of revenues for fiscal 1995 and
approximately 35% of revenues for the first nine months of fiscal 1996. The
Company 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. However, the Company's international operations have
focused largely on sales of COM systems and related equipment and supplies, and
it is unclear the extent to which the Company will be able to introduce related
COM services and other products and services. Also, 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.
Unfavorable fluctuations in currency exchange rates also may have an adverse
impact on the Company's revenues and operating results. The Company does not
currently enter into hedging arrangements, although it may do so in the future.
Substantial Leverage. The Company has significant debt service obligations.
The ability of the Company to meet its debt service and other obligations will
depend upon its future performance and is subject to financial, economic and
other factors, some of which are beyond its control.
In the event that internally generated funds are not sufficient to fund the
Company's capital expenditures and its debt service obligations, the Company
would be required to raise additional funds through the sale of equity
securities, the refinancing of all or part of its indebtedness or the sale of
assets. Each of these alternatives is dependent upon financial, business and
other general economic facts affecting the Company, many of which are beyond the
control of the Company, and there can be no assurance that any such alternatives
would be available to the Company, if at all, on satisfactory terms. While the
Company believes that cash flow generated by operations will provide adequate
sources of long-term liquidity, a significant drop in operating cash flow
resulting from economic conditions, competition or other uncertainties beyond
the Company's control could increase the need for refinancing or new capital.
The indenture governing the Senior Secured Notes (the "Senior Secured
Indenture") and the indenture governing the Senior Subordinated Notes (the
"Senior Subordinated Indenture") impose restrictions on the operations and
activities of the Company. The most significant restrictions relate to debt
incurrence, investments, sales of assets and cash distributions by the Company.
The failure to comply with any of these restrictions could result in an event of
default under the Senior Secured Indenture or Senior Subordinated Indenture.
Certain Anti-Takeover Provisions. The Company's Amended and Restated
Articles of Incorporation and By-laws contain certain provisions that may
discourage persons from attempting to acquire control of the Company. Such
provisions, as well as the provisions of Chapter 43 of the Indiana Business
Corporation Law (to which the Company is subject), could impede a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. In certain circumstances, the fact
that corporate devices are in place that will inhibit or discourage takeover
attempts could reduce the market value of the Common Stock. Magten Asset
Management Corp. on behalf of its investment advisory client accounts ("Magten")
and the other two stockholders listed under "Security Ownership of Certain
Beneficial Owners and Management," which may be deemed to own beneficially
28.6%, 14.4% and 14.0%, respectively, of the Common Stock, are not subject to
the proscriptions of Chapter 43 of the Indiana Business Corporation Law. See
"Description of Capital Stock -- Certain Anti-Takeover Matters."
Magten has indicated that it presently intends to, but has no obligation
to, exercise the Rights it receives through the Basic Subscription Privilege and
Oversubscription Privilege. If no holder of Rights other than Magten exercises
its Rights, and if Magten fully exercises the Basic Subscription Privilege and
Oversubscription Privilege, then approximately 85.8% of the Rights distributed
by the Company will be exercised, and Magten's deemed beneficial ownership in
the Company would increase to 45.5%. See "The Rights Offering -- The Rights."
Dilution. Rights Holders who do not exercise their Basic Subscription
Privilege will, and Rights Holders who do not exercise their Oversubscription
Privilege in full may, suffer dilution in their voting rights and their
proportional interest in any future net earnings of the Company.
Market Considerations. There can be no assurance that the market price of
the Common Stock will not decline during the subscription period or that,
following the issuance of the Rights and the sale of the shares of Common Stock
upon exercise of Rights, a subscribing Rights Holder will be able to sell shares
purchased in the Rights Offering at a price equal to or greater than the
Subscription Price. The election of a Rights Holder to exercise Rights in the
Rights Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Rights Holders may not be able to sell the shares of Common Stock
that they have purchased in the Rights Offering. Certificates representing
shares of Common Stock purchased pursuant to the Basic Subscription Privilege or
the Oversubscription Privilege will be delivered as soon as practicable after
all prorations and adjustments contemplated by the terms of the Rights Offering
have been effected.
There is currently no public market for the Rights, and the Company does
not intend to apply for listing of the Rights on any securities exchange. It is
anticipated that the Rights will trade on the over-the-counter market, although
there can be no assurance that any market for the Rights will develop or as to
the ability of Rights Holders to sell their Rights prior to the Expiration Date.
Dividend Restrictions and Trading Market Risks. The Company does not
anticipate paying dividends on the Common Stock in the foreseeable future. See
"Dividend Policy." Further, the Company will be restricted under the Senior
Secured Indenture and the Senior Subordinated Indenture in its ability to pay
dividends. In addition, ownership of a substantial number of shares of Common
Stock may be concentrated in a relatively small number of holders. Sales of or
offers to sell a substantial number of shares of Common Stock, or the perception
by investors, investment professionals and securities analysts of the
possibility of such sales, could adversely affect the market for and price of
the Common Stock.
<PAGE>
THE RIGHTS OFFERING
The Rights
The Company is distributing transferable subscription rights ("Rights") to
the record holders ("Rights Holders") of its outstanding Common Stock as of the
close of business on September 18, 1996 (the "Record Date"). The Company will
distribute, at no cost to the record holders, .36 Rights for each share of
Common Stock held on the Record Date. An aggregate of approximately 3,636,364
Rights will be distributed pursuant to the "Rights Offering". Rights will be
evidenced by transferable subscription certificates ("Subscription
Certificates"), which are being distributed to each Rights Holder
contemporaneously with the delivery of this Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed to each holder of Common Stock will be rounded up
to the nearest whole number. No Subscription Certificate (as defined below) may
be divided in such a way as to permit the holders of Common Stock to receive a
greater number of Rights than the number to which such Subscription Certificate
entitles its holder, except that a depository, bank, trust company, and
securities broker or dealer holding shares of Common Stock on the Record Date
for more than one beneficial owner may, upon proper showing to the Subscription
Agent (defined below), exchange its Subscription Certificate to obtain a
Subscription Certificate for the number of Rights to which all such beneficial
owners in the aggregate would have been entitled had each been a holder on the
Record Date. The Company reserves the right to refuse to issue any such
Subscription Certificate if such issuance would be inconsistent with the
principle that each beneficial owner's holdings will be rounded up to the
nearest whole Right.
Because the number of Rights distributed to each stockholder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the record holders of such shares might receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
record holders of their shares and who do not obtain (or cause the record owner
of their shares of Common Stock to obtain) a separate Subscription Certificate
with respect to the shares beneficially owned by them, including shares held in
an investment advisory or similar account. To the extent that record holders of
Common Stock or beneficial owners of Common Stock who obtain a separate
Subscription Certificate receive more Rights, they will be able to subscribe for
more shares pursuant to the Basic Subscription Privilege and Oversubscription
Privilege described below.
The Company will implement a mechanism whereby a stockholder may limit its
beneficial ownership of Common Stock to a certain percentage interest,
notwithstanding the exercise of the Basic Subscription Privilege and, if
applicable, Oversubscription Privilege described below. In such event, the
Company will limit the stockholder's exercise of Rights to an amount that would
not cause such stockholder's percentage interest to increase beyond such
percentage interest.
Magten, which may be deemed to own beneficially on behalf of its investment
advisory client accounts 28.6% of the Common Stock, presently intends to, but
has no obligation to, exercise the Rights it receives through the Basic
Subscription Privilege and Oversubscription Privilege. If no holder of Rights
other than Magten exercises its Rights, and if Magten fully exercises the Basic
Subscription Privilege and Oversubscription Privilege, then approximately 85.8%
of the Rights distributed by the Company will be exercised, and Magten's deemed
beneficial ownership in the Company would increase to 45.5%.
Expiration Date
The Rights will expire at 5:00 p.m., New York City time, on October 21,
1996 ("Expiration Date"). After the Expiration Date, unexercised Rights will be
null and void. The Company will not be obligated to honor any purported exercise
of Rights received by the Subscription Agent after the Expiration Date,
regardless of when the documents relating to such exercise were sent, except
pursuant to the "Guaranteed Delivery Procedures" described below.
Subscription Privileges
Basic Subscription Privilege
Stockholders of the Company will receive .36 Rights to purchase shares of
Common Stock at the Subscription Price for each share of Common Stock held on
the Record Date (the "Basic Subscription Privilege"). Each Right entitles the
holder to purchase at the Subscription Price one share of Common Stock. Each
Rights Holder is entitled to subscribe for all, or any portion of, the shares of
Common Stock subject to Rights.
Oversubscription Privilege
Each Right also entitles any Rights Holder exercising the Basic
Subscription Privilege in full to subscribe for up to two additional shares of
Common Stock for each share of Common Stock purchased pursuant to the Basic
Subscription Privilege (the "Oversubscription Privilege"), to the extent all
shares have not been purchased pursuant to the Basic Subscription Privilege.
Only Rights Holders who exercise all of the Rights pursuant to the Basic
Subscription Privilege will be entitled to exercise the Oversubscription
Privilege.
Shares of Common Stock will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any shares of Common Stock
are not subscribed for through the Basic Subscription Privilege. If the shares
of Common Stock not subscribed for through the Basic Subscription Privilege (the
"Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among the Rights Holders
exercising the Oversubscription Privilege in proportion to the number of shares
of Common Stock a Rights Holder exercising the Oversubscription Privilege has
subscribed for pursuant to the Basic Subscription Privilege.
Banks, brokers and other nominee Rights Holders who exercise the Basic
Subscription Privilege and subscribe pursuant to the Oversubscription Privilege
on behalf of beneficial owners of Rights will be required to certify to the
Subscription Agent and the Company, in connection with the subscription pursuant
to the Oversubscription Privilege, as to the aggregate number of Rights that
have been exercised and the number of shares of Common Stock that are being
subscribed for pursuant to the Oversubscription Privilege by each beneficial
owner of Rights on whose behalf such nominee holder is acting.
Subscription Price
The Subscription Price is $6.875 per share of Common Stock. See
"Determination of Offering Price."
Exercise of Rights
Rights may be exercised by delivering to ChaseMellon Shareholder Services,
L.L.C. (the "Subscription Agent") at the addresses specified below, on or prior
to the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any signatures guaranteed as required,
together with payment in full of the Subscription Price for each share of Common
Stock purchased pursuant to the Basic Subscription Privilege and subscribed for
pursuant to the Oversubscription Privilege. Payment may be made only (a) by
check or bank draft drawn upon a U.S. bank or postal, telegraphic or express
money order payable to ChaseMellon Shareholder Services, L.L.C., as Subscription
Agent, or (b) by wire transfer of funds to the account maintained by the
Subscription Agent for the purpose of accepting subscriptions set forth below.
The Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) clearance of any uncertified check, (ii) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a U.S. bank
or of any postal, telegraphic or express money order or (iii) receipt of
collected funds in the Subscription Agent's account designated above. If paying
by uncertified personal check, please note that the funds paid thereby may take
at least five business days to clear. Accordingly, Rights Holders who wish to
pay the Subscription Price by means of uncertified personal check are urged to
make payment sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such date and are urged to consider payment by
means of certified or cashier's check or money order. All funds received in
payment of the Subscription Price will be held by the Subscription Agent and
invested at the direction of the Company in short-term certificates of deposit,
short-term obligations of the United States or any state or any agency of the
United States or money market mutual funds investing in such instruments.
Subscription Certificates and payment of the Subscription Price or, if
applicable, Notices of Guaranteed Delivery or DTC Participant Oversubscription
Subscription Forms (each, as defined below) should be delivered to the
Subscription Agent at the following addresses for the Subscription Agent set
forth below.
If a Rights Holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full to the Subscription
Price for each share of Common Stock being purchased pursuant to the
Basic Subscription Privilege and subscribed for pursuant to the
Oversubscription Privilege to be received (in the manner set forth
above) by the Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the
Expiration Date, a guarantee notice (a "Notice of Guaranteed
Delivery"), substantially in the form provided with the "Instructions
as to Use of Anacomp, Inc. Subscription Certificates" (the
"Instructions") distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., from a commercial
bank or trust company having an office or correspondent in the United
States, or from a financial institution acceptable to the Subscription
Agent (each an "Acceptable Institution"), stating the name of the
exercising Rights Holder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rights Holder, the number of shares of Common Stock being
purchased pursuant to the Basic Subscription Privilege and the number
of shares of Common Stock, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such
Rights within five trading days on the Nasdaq National Market following
the date of the Notice of Guaranteed Delivery; and
(iii) the proper guarantees completed Subscription Certificate
evidencing the Rights being exercised, with any required guaranties, is
received by the Subscription Agent within five trading days on the
Nasdaq National Market following the date of the Notice of Guaranteed
Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth above, or may be transmitted to
the Subscription Agent by facsimile transmission at the facsimile
number set forth below. Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Subscription
Agent or the Information Agent, whose address and telephone number is
set forth below.
If an exercising Rights Holder does not indicate the number of Rights being
exercised, or does not forward full payment of the aggregate Subscription Price
for the number of Rights that the Rights Holder indicates are being exercised,
then the Rights Holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of Rights that may be exercised for
the aggregate Subscription Price payment delivered by the Rights Holder, and to
the extent that the aggregate Subscription Price payment delivered by the Rights
Holder exceeds the product of (a) the Subscription Price and (b) the number of
Rights evidenced by the Subscription Certificates delivered by the Rights Holder
(such excess being the "Subscription Excess"), the Rights Holder will be deemed
to have subscribed pursuant to the Oversubscription Privilege to purchase, to
the extent available, that number of whole Excess Shares equal to the quotient
of (i) the Subscription Excess and (ii) the Subscription Price, for up to two
additional shares of Common Stock for each share of Common Stock such Rights
Holder would be entitled to purchase pursuant to the Basic Subscription
Privilege.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such remaining Shares. If a Rights Holder
subscribing pursuant to the Oversubscription Privilege is allocated less than
all of the shares of Common Stock which such holder wished to subscribe for
pursuant to the Oversubscription Privilege, the excess funds paid by such holder
in respect of the Subscription Price for shares not issued will be returned
promptly after the Expiration Date by mail or wire transfer, depending on the
method by which the Subscription Price was paid, with interest at the rate
earned on such funds.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the holder of such Rights or (ii) is submitted for the account
of an Acceptable Institution, signatures on such Subscription Certificate must
be guaranteed by a participant in the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the New York Stock Exchange
Inc. Medallion Signature Program.
Persons who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Right
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owners'
instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY
ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights or subscriptions pursuant to the Oversubscription
Privilege will be determined by the Company, whose determinations will be final
and binding. The Company in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right or
subscription pursuant to the Oversubscription Privilege. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or subscribing pursuant to the Oversubscription Privilege or
requests for additional copies of this Prospectus, the Instructions or the
Notice of Guaranteed Delivery should be directed to the Information Agent,
Morrow & Co., Inc., at its addresses set forth under "Information Agent."
No Revocation
ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND/OR
SUBSCRIBED PURSUANT TO THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE OR
SUBSCRIPTION MAY NOT BE REVOKED BY SUCH RIGHTS HOLDER.
Method of Transferring Rights
Rights may be purchased or sold through usual investment channels,
including banks and brokers.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferees (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights Holder or, if the Rights Holder so
instructs, to an additional transferee.
Holders of Common Stock wishing to transfer all or a portion of their
Rights (but not fractional Rights) should allow a sufficient amount of time
prior to the Expiration Date for (i) the transfer instructions to be received
and processed by the Subscription Agent, (ii) a new Subscription Certificate to
be issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained Rights, if
any, and (iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither the Company nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent, all commissions,
fees and other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or exercise of Rights will be for
the account of the transferor of the Rights, and none of such commissions, fees
or expenses will be paid by the Company or the Subscription Agent.
Procedures for DTC Participants
The Company anticipates that the exercise of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected through the
facilities of The Depository Trust Company ("DTC"). Rights exercised through DTC
are referred to as "DTC Exercised Rights." The holder of a DTC Exercised Right
may subscribe pursuant to the Oversubscription Privilege in respect of such DTC
Exercised Right by properly executing and delivering to the Subscription Agent,
at or prior to 5:00 p.m., New York City time on the Expiration Date, a DTC
Participant Oversubscription Subscription Form, together with payment of the
appropriate Subscription Price for the number of shares of Common Stock
subscribed for pursuant to the Oversubscription Privilege. Copies of the DTC
Participant Oversubscription Subscription Form may be obtained from the
Information Agent at the address set forth below.
Amendments and Termination
The Company reserves the right to extend the Expiration Date and to amend
the terms and conditions of the Rights Offering. If the Company amends the terms
of the Rights Offering, the Registration Statement of which this Prospectus
forms a part will be amended, and a new definitive Prospectus will be
distributed to all Rights Holders who have previously exercised Rights and to
holders of record of unexercised Rights on the date the Company amends such
terms. In addition, all Rights Holders who have previously exercised Rights, or
who exercise Rights within four (4) business days after the mailing of the new
definitive Prospectus, will be provided with a form of Consent to Amended Rights
Offering Terms, on which such Rights Holders can confirm their exercise of
Rights and their subscriptions under the terms of the Rights Offering as amended
by the Company; any Rights Holder who has previously exercised any Rights, or
who exercises Rights within four (4) business days after the mailing of the new
definitive Prospectus, and who does not return such Consent within ten (10)
business days after the mailing of such Consent by the Company will be deemed to
have canceled such Rights Holder's exercise of Rights, and the full amount of
the Subscription Price theretofore paid by such Rights Holder will be returned
promptly after the Expiration Date by mail or wire transfer, depending on the
method by which the Subscription Price was paid, with interest at the rate
earned on such funds. Any completed Subscription Certificate received by the
Subscription Agent five (5) or more business days after the date of the
amendment will be deemed to constitute the consent of the Rights Holder who
completed such Subscription Certificate to the amended terms.
The Company reserves the right at any time prior to delivery of the shares
of Common Stock purchased in the Rights Offering to terminate the Rights
Offering. Such termination would be effected by the Company by giving oral or
written notice of such termination to the Subscription Agent and making a public
announcement thereof. If the Rights Offering is so terminated, the Subscription
Price will be returned promptly after the Expiration Date by mail or wire
transfer, depending on the method by which the Subscription Price was paid, with
interest at the rate earned on such funds. Neither the Company nor any selling
Rights Holder will have any obligation to a purchaser of Rights, whether such
purchase was made through the Subscription Agent or otherwise, in the event the
Rights Offering is terminated.
Shares Not Purchased in Rights Offering
Any shares of Common Stock remaining after exercise of the Basic
Subscription Privilege and the Oversubscription Privilege will be retained by
the Company and will not be offered to the public.
Subscription Agent
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as
Subscription Agent for the Rights Offering. The Subscription Agent's addresses,
which are the addresses to which the Subscription Certificates and payment of
the Subscription Price should be delivered, as well as the address to which a
Notice of Guaranteed Delivery or DTC Participant Oversubscription Form must be
delivered, and numbers are:
Address if by mail:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 837
Midtown Station
New York, N.Y. 10018
Address if by hand or overnight courier:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
120 Broadway
13th Floor
New York, N.Y. 10271
Address for payments by wire:
The Chase Manhattan Bank
New York, N.Y. 10001
ABA: 021 000 021
Credit Acct. #323-213057
ChaseMellon Shareholder Services, L.L.C. (Anacomp Rights)
Attn.: Evelyn O'Connor
(201) 296-4515
Facsimile Number
Facsimile (For Eligible Institutions Only) (201) 329-8936
For Confirming Fax Only: (201) 296-4209
The Company will pay the fees and expenses of the Subscription Agent and
has also agreed to indemnify the Subscription Agent from certain liability which
it may incur in connection with the Rights Offering.
Information Agent
The Company has appointed Morrow & Co., Inc. as Information Agent for the
Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions, the Notice of Guaranteed Delivery or the DTC
Participant Oversubscription Subscription Form may be directed to the
Information Agent at the address and numbers below:
Address
Morrow & Co., Inc.
909 Third Avenue
New York, N.Y. 10022
Facsimile Number
(212) 754-8300
Telephone Number
(800) 662-5200 or (212) 754-8000
The Company will pay the fees and expenses of the Information Agent and
also has agreed to indemnify the Information Agent from certain liabilities
which it may incur in connection with the Rights Offering.
No Board or Financial Advisor Recommendation
An investment in the Common Stock must be made pursuant to each Rights
Holder's or prospective investor's evaluation of the investor's best interests.
Accordingly, neither the Board of Directors of the Company nor the Financial
Advisor makes any recommendation to any Rights Holder or prospective investor
regarding the exercise of Rights.
Certain Federal Income Tax Considerations
The following summary describes certain U.S. federal income tax
considerations relevant to beneficial owners of Common Stock upon the issuance
of Rights, and to Rights Holders upon the exercise, disposition or lapse of
Rights. This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly with
retroactive effect. This summary is addressed only to Rights Holders that hold
Rights and any Common Stock as capital assets and does not discuss state, local
or foreign tax consequences of the Rights Offering. This summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular investor or to certain types of investors subject to special
treatment under the federal income tax laws, including banks, dealers in
securities, life insurance companies, tax-exempt organizations, foreign
taxpayers, and investors that hold their Common Stock or Rights as part of a
"straddle" for federal income tax purposes or as part of an integrated
investment.
BENEFICIAL OWNERS OF COMMON STOCK AND RIGHTS HOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE RIGHTS OFFERING.
Issuance of Rights
Beneficial owners of Common Stock will not recognize taxable income, for
federal income tax purposes, in connection with the distribution of Rights.
Basis and Holding Period of Rights
Except as provided below, the basis of Rights received by a beneficial
owner of Common Stock will be zero. If, however, either (i) the fair market
value of the Rights on the date the Rights are issued is 15% or more of the fair
market value (on the date of issuance) of the Common Stock with respect to which
the Rights are received, or (ii) the beneficial owner elects, in its federal
income tax return for the taxable year in which the Rights are received, to
allocate part of the basis of such Common Stock to the Rights, then upon
exercise or sale of the Rights, the Rights Holder's basis in such Common Stock
will be allocated between such Common Stock and the Rights in proportion to the
fair market values of each on the date the Rights are issued, except that, in
either case, no allocation of basis will be made to the Rights if the Rights are
not exercised or sold (e.g., the Rights expire unexercised). The holding period
of a Rights Holder with respect to Rights received as a distribution on such
Rights Holder's Common Stock will include the Rights Holder's holding period for
the Common Stock with respect to which the Rights were distributed. In the case
of a purchaser of Rights, the tax basis of the purchased Rights will be equal to
the purchase price paid therefor, and the holding period for such Rights will
begin on the day following the date of the purchase.
Sale of Rights
Upon a sale or other taxable disposition of Rights, Rights Holders will
recognize capital gain or loss equal to the difference between the amount
realized on the sale or other disposition and the Rights Holder's basis in such
Rights. Any such gain or loss will be long-term capital gain or loss if Rights
are treated as held (under the holding period rules described above in "Basis
and Holding Period of Rights") for more than one year at the time of such sale
or other disposition.
Lapse of Rights
Upon the lapse of any Rights received by Rights Holders, such Rights
Holders will not recognize any gain or loss and, as indicated above, no
allocation of basis in such Rights Holders' Common Stock will be made to the
Rights. A purchaser of Rights will be entitled to a capital loss equal to its
tax basis in the Rights upon a lapse of the Rights.
Exercise of Rights; Basis and Holding Period of the Common Stock
Acquired through Exercise
Rights Holders will not recognize any gain or loss upon the exercise of
Rights. The basis of the Common Stock acquired upon exercise of Rights will be
equal to the sum of the Subscription Price therefor and the Rights Holder's
basis in the Rights exercised. The holding period for the Common Stock acquired
through exercise of Rights will begin on the date the Rights are exercised.
Limitations on Use of Company Tax Losses
For federal income tax purposes, as of the Effective Date, the Company
believes that it had approximately $154 million of net operating loss carryovers
("NOLs") from prior years. As a result of the Plan of Reorganization, the
Company experienced an "ownership change" (as defined below) under section 382
of the Internal Revenue Code of 1986, as amended (the "Code"). Consequently,
approximately $154 million of the Company's NOLs are subject to an annual
limitation on their utilization of approximately $4 million.
The ability of the Company to use its NOLs could be further adversely
affected by subsequent "ownership changes" with respect to it. Section 382 of
the Code generally provides that if a corporation undergoes an "ownership
change," the amount of taxable income that the corporation may offset after the
date of the ownership change (the "Change Date") with NOLs and certain built-in
losses existing on the Change Date will be subject to an annual limitation. In
general, this annual limitation is equal to the product of (i) the fair market
value of the corporation's equity on the Change Date (with certain adjustments
including an adjustment that excludes capital contributions made in the two
years preceding the Change Date), and (ii) a long-term tax exempt bond rate of
return published monthly by the Internal Revenue Service. The annual limitation
may be increased by certain unrealized gains attributable to periods before the
ownership change to the extent those gains are recognized in the five-year
period following the Change Date.
Generally, an "ownership change" occurs with respect to a corporation if
any shareholders who own or who have owned, directly or indirectly (and taking
into account certain aggregation and segregation rules), five percent or more of
the capital stock of the corporation ("5-percent shareholders") increase their
aggregate percentage ownership of such stock by more than 50 percentage points
over the lowest percentage of such stock owned by such shareholders at any time
in the preceding three years or, if an ownership change has occurred within such
three-year period, during the period starting on the day following the prior
ownership change. As noted above, the Company experienced an ownership change in
connection with the Plan of Reorganization.
The Company believes that the Rights Offering and the subsequent exercise
of Rights should not by themselves cause another ownership change. However,
depending on the Rights Holders that exercise Rights issued to them, the Rights
Offering may result in increases in the percentage ownership of one or more
5-percent shareholders of the Company by no more than 20 percentage points,
although the increase is likely to be less than that amount. Moreover,
transactions in Common Stock independent of the Rights Offering (whether before
or after the Rights Offering) and transactions in the equity interests in
stockholders of the Company could result in additional increases in the
ownership of one or more 5-percent shareholders of the Company and could trigger
an ownership change. If another ownership change does occur, the Company could
be subject for periods after the Change Date to an additional limitation under
section 382 of the Code, which limitation may further reduce the ability of the
Company to use its NOL carryforwards and certain built-in losses, if any,
existing on the Change Date.
With respect to limitations under the Code's alternative minimum tax
system, only 90 percent of a corporation's annual alternative minimum taxable
income as computed for alternative minimum tax purposes may be offset by NOLs.
Therefore, the Company will be required to pay alternative minimum tax at a
minimum effective rate of 2 percent (10 percent of the 20 percent alternative
minimum tax rate) in any taxable year during which it has alternative minimum
taxable income and its regular tax is fully offset by NOLs.
USE OF PROCEEDS
The net proceeds to be received by the Company from the Rights Offering
depends on the number of Rights exercised. If all Rights are exercised, the
Company expects the net proceeds available to it from the Rights Offering to be
approximately $24.6 million.
The Company plans to use the net proceeds from the Rights Offering,
together with available cash, to finance prospective acquisitions of assets,
businesses and technologies, including through equity investments. Such
acquisitions will be intended primarily to augment the Company's core COM
services business with additional products and services that will offer to its
existing customers newer technologies and complementary outsource services.
Examples of these additional products and services include print and mail
outsource services, media storage and archival services, electronic information
storage and retrieval services ("information repository"), and electronic
("digital") data and image management software solutions. The Company's strategy
for maximizing its share of existing markets and developing new products and
services is discussed under "The Company" below. At the present time, however,
the Company has not determined the specific use for the proceeds of offering.
To the extent the net proceeds from the Rights Offering exceed the
Company's requirements to finance acquisitions contemplated by its current
business plan, the remaining proceeds will be used for general corporate
purposes.
PRICE RANGE OF COMMON STOCK
On September 16, 1996, the last sale reported for the Common Stock on the
Nasdaq National Market was $8.75 per share, and there were 64 holders of record
of the Common Stock. Since June 4, 1996, the date the Common Stock was issued
pursuant to the Plan of Reorganization, through September 16, 1996, the range of
prices for the Common Stock was from a high of $11.125 to a low of $7.75. From
June 4, 1996 through August 20, 1996, trades of the Company's shares of Common
Stock were reported on the Nasdaq Automated Quotation System and, commencing
August 21, 1996, the Company's shares of Common Stock began trading in the
Nasdaq National Market.
DETERMINATION OF OFFERING PRICE
The Subscription Price for the shares of Common Stock is $6.875 per share.
The Subscription Price was determined by the Company based on a number of
factors, including the advice provided by Donaldson, Lufkin & Jenrette
Securities Corporation, the Financial Advisor with respect to the size, pricing
and structure of the Rights Offering and the results of analyses performed by
the Financial Advisor to assist the Company in determining the appropriate and
desirable pricing terms for the Rights Offering, taking into account similar
transactions in similar circumstances, as well as additional factors considered
by the Company, such as the alternatives available to the Company for raising
capital, the market price of the Common Stock, the business prospects for the
Company and the general condition of the securities markets at the time of the
meeting of the Board of Directors at which the Rights Offering was approved. See
"The Financial Advisor." The Company believes that the Subscription Price
reflects the Company's objective of achieving the maximum net proceeds
obtainable from the Rights Offering while providing the holders of Common Stock
with an opportunity to make an additional investment in the Company, and thus
avoid the dilution of their proportionate ownership position in the Company.
There can be no assurance, however, that the market price of the Common
Stock will not decline during the subscription period to a level equal to or
below the Subscription Price, or that, following the issuance of the Rights and
of the Common Stock upon exercise of Rights, a subscribing Rights Holder will be
able to sell shares purchased in the Rights Offering at a price equal to or
greater than the Subscription Price.
DIVIDEND POLICY
The Company currently intends to retain all earnings for working capital to
support growth, to reduce outstanding indebtedness and for general corporate
purposes. The Company, therefore, does not anticipate paying any dividends in
the foreseeable future. Further, the Company is restricted under the Senior
Secured Indenture and the Senior Subordinated Indenture in its ability to pay
cash dividends.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996 on a historical basis and as adjusted to give effect
to the Rights Offering (assuming the sale of 3,637,000 shares and net proceeds
of $24,600,000 after deducting estimated fees and expenses associated with the
Rights Offering), as if they were sold on June 30, 1996. This table should be
read in conjunction with the Company's historical consolidated financial
statements and the related notes thereto, the Pro Forma Unaudited Financial
Information and related notes, and the other information contained in this
Prospectus, including the information set forth in "Business" and "Management's
Discussion and Analysis of Results of Operations and Financial Conditions."
As of June 30, 1996
(unaudited)
Historical As Adjusted
(Dollars in thousands)
Cash $46,822 $71,422
======= =======
Senior Debt:
11 5/8% Senior Secured Notes $112,190 $112,190
Capitalized Leases and Other 435 435
Subordinated Debt:
Installment Notes 3,056 3,056
13% Senior Subordinated Notes (a) 146,437 146,437
------- -------
Total Debt 262,118 262,118
Stockholders' equity 75,718 100,318
------ -------
Total Capitalization $337,836 $362,436
======== ========
- ---------------------------------
(a) In accordance with the terms of the 13% Senior Subordinated Notes,
interest payable under the 13% Senior Subordinated Notes on December
31, 1996 and June 30, 1997 will be satisfied by the issuance of
payment-in-kind ("PIK") notes rather than by a cash payment. The PIK
notes will increase the outstanding principal amount of the 13% Senior
Subordinated Notes by the amount of interest due on the notes on the
related payment date.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the five fiscal years ended September 30,
1995, which were derived, except as otherwise noted, from the consolidated
financial statements of the Company audited by Arthur Andersen LLP; and selected
unaudited consolidated historical operating and financial data for the
nine-month period ended June 30, 1995, the eight-month period ended May 31, 1996
and the one-month period ended June 30, 1996, derived from unaudited interim
condensed 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. Although the Plan of Reorganization was consummated
on June 4, 1996, the effective date of the consummation of the Plan of
Reorganization for financial reporting purposes is considered to be the close of
business on May 31, 1996. The Company has accounted for the restructuring using
the principles of "fresh start" reporting as required by AICPA Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. Pursuant to such principles, in general, the Company's assets
and liabilities were revalued. Therefore, due to the restructuring and
implementation of "fresh start" reporting, the consolidated financial statements
for the newly-reorganized company (period starting May 31, 1996) are not
comparable to those of the predecessor company.
The following table also includes certain pro forma unaudited financial
data that reflect adjustments necessary to give effect to the transactions in
connection with the consummation of the Plan of Reorganization and the Rights
Offering for the nine months ended June 30, 1996 as if they occurred on October
1, 1995. The pro forma unaudited financial data do not purport to represent the
Company's results of operations or financial condition had the Company's
reorganization 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.
The following table should be read in conjunction with, and is qualified in
its entirety by reference to, "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," the Company's historical Consolidated Financial Statements and notes
thereto and the "Pro Forma Unaudited Financial Information" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------- -------------------
Year Ended September 30, (unaudited)
------------------------ -----------
Nine
Months Eight
ended Months One Month
June 30, ended May ended June Pro
1991 1992 1993 1994 1995 1995 31, 1996 30, 1996 Forma (c)
---- ---- ---- ---- ---- ---- --- ---- -------- ---------
(Dollars in thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues.............. $635,361 $628,940 $590,208 $592,599 $591,189 $452,234 $334,598 $36,786 $369,881
Cost of sales and
services........... 423,956 428,308 404,752 420,483 440,667 305,123 229,167 24,891 252,900
Selling, general and
administrative..... 105,861 100,330 96,822 92,539 109,127 105,162 63,826 5,702 62,924
Amortization of
Reorganization
Asset.............. -- -- -- -- -- -- -- 6,416 57,744
Special and
restructuring
charges (a)........ -- -- -- -- 169,584 130,000 -- -- --
Operating income 105,544 100,302 88,634 79,577 (128,189) (88,051) 41,605 (223) (3,687)
(loss).............
Interest expense...... 79,655 71,947 68,960 67,174 70,938 52,310 26,760 2,920 30,805
Reorganization items.. -- -- -- -- -- -- 92,839(j) -- --
Income (loss) before
extraordinary
credit and
cumulative effect
of accounting
change............. 18,105 18,221 11,691 6,955 (238,326) (146,212) 112,528 (4,372) (37,077)
Net income (loss)..... 29,205 26,921 18,591 14,955(b) (238,326) (146,212) 164,970(k) (4,372) (37,077)
Income (loss) per
share (primary)
before
extraordinary item
and cumulative
effect of
accounting change
(net of preferred
stock dividends
and discount
accretion)......... (l) (l) (l) (l) (l) (l) (l) (.44) (2.70)
Weighted average
shares outstanding. (l) (l) (l) (l) (l) (l) (l) 10,000,000 13,737,000
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------- -------------------
Year Ended September 30, (unaudited)
------------------------ -----------
Nine
Months Eight
ended Months One Month
June 30, ended May ended June Pro Forma
1991 1992 1993 1994 1995 1995 31, 1996 30, 1996 (c)
---- ---- ---- ---- ---- ---- -------- -------- ---
(Dollars in thousands, except ratios and per share
amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
AND OTHER FINANCIAL DATA
Depreciation and
amortization............ $ 31,551 $ 34,569 $ 33,006 $ 34,615 $ 35,998 $25,919 $17,523 $7,292 $69,873
EBITDA (d)................. 137,095 134,871 121,640 114,192 77,393 67,868 59,128 7,069 66,186
Capital expenditures....... 13,916 18,755 20,726 18,868 14,372 10,420 3,599 519 4,118
Ratio of EBITDA to
interest expense........ 1.72x 1.87x 1.76x 1.70x 1.09x 1.30x 2.21x 2.42x 2.15x
Ratio of total debt to
EBITDA.................. 3.75x 3.54x 3.61x 3.61x 5.04x -- -- -- --
Ratio of earnings to fixed
charges (e)............. 1.36x 1.41x 1.27x 1.21x (e) (e) (e) (e) (e)
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------- -------------------
(unaudited)
As of September 30, As of June 30
------------------- -------------
Pro Forma
1991 1992 1993 1994 1995 1995 1996 (c)
---- ---- ---- ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
(Dollars in thousands)
Cash.................. $ 19,811 $ 29,881 $ 24,922 $ 19,871 $ 19,415 $6,210 $46,822 $71,422
Property, plant, and
equipment - net.... 70,609 67,872 66,399 66,769 44,983 54,498 24,327 24,327
Intangible assets (f). 318,575 310,333 296,426 279,607 160,315 163,634 -- --
Reorganization value
in excess of
identifiable
assets (g)......... -- -- -- -- -- -- 262,744 262,744
Total assets.......... 686,062 681,561 643,548 658,639 421,029 497,182 461,181 485,781
Total current 139,824 150,522 152,727 163,091 188,957 170,276 121,374 121,374
liabilities (h)....
Total debt (i)........ 514,749 477,303 439,093 411,847 389,900 390,454 262,118 262,118
Redeemable preferred
stock.............. 24,191 24,287 24,383 24,478 24,574 24,550 -- --
Shareholders' equity
(deficit).......... (25,017) 8,290 13,799 49,756 (188,243) (94,782) 75,718 100,318
</TABLE>
- ----------
(a) This item includes special charges of $136.9 million (of which $130.0
million was recorded in the nine month period ended June 30, 1995) which
represents a write-off of goodwill of $108.0 million and $28.9 million of
charges associated with software costs which are not recoverable, as well
as restructuring charges of $32.7 million.
(b) The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal 1994. The adoption resulted in
a one-time increase to net income of $8.0 million reflecting the cumulative
effect on prior years of this accounting change. Prior to 1993, the Company
recognized tax benefits resulting from NOLs as an extraordinary item in the
consolidated Statement of Operations.
(c) The pro forma operating data and selected financial ratios and other
financial data give effect to the transactions with the consummation of the
Plan of Reorganization and the Rights Offering as if they occurred on
October 1, 1995. The pro forma balance sheet data give effect to the Rights
Offering (assuming the sale of 3,637,000 shares and net proceeds of $24.6
million after deducting estimated fees and expenses associated with the
Rights Offering), as if they were sold on June 30, 1996. The weighted
average shares outstanding include adjustments for shares to be issued in
connection with the Rights Offering and shares issued as a result of the
restricted stock awarded to certain employees subsequent to June 30, 1996
(d) EBITDA represents earnings before interest income and expense, financial
restructuring costs, reorganization items, other income, income taxes,
depreciation and amortization. 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. This item
also excludes special and restructuring charges of approximately $169.6
million incurred in fiscal 1995.
(e) 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, accretion of the original issue discount and the portion of
rental expense under operating leases that has been deemed by the Company
to be representative of an interest factor, all on a pre-tax basis. For the
year ended September 30, 1995, the nine months ended June 30, 1995, the one
month ended June 30, 1996, and the pro forma nine months ended June 30,
1996, income before income taxes was inadequate to cover fixed charges. The
amount of coverage deficiency was $203.3 million, $143.4 million, $3.1
million and $32.1 million, respectively. For the eight months ended May 31,
1996 this ratio is not meaningful due to the gains recorded associated with
the adoption of fresh start accounting and discharge of indebtedness.
(f) Intangible assets represent primarily the excess of purchase price over net
assets of businesses acquired ("goodwill"). Goodwill is amortized on the
straight-line method over 15 to 40 years. Effective June 30, 1995, Anacomp
elected to modify its method of measuring goodwill impairment to a fair
value approach. This revised accounting policy resulted in a write-off of
$108.0 million of goodwill related to the micrographics business.
(g) For "fresh start" reporting purposes, any portion of the reorganization
value of the Company not attributable to specific identifiable assets is
reported as "Reorganization value in excess of identifiable assets." This
asset is being amortized over a 3.5 year life beginning on May 31, 1996.
(h) Total current liabilities exclude current portion of long-term debt.
(i) Total debt does not include accrued but unpaid interest.
(j) This item includes income and expenses resulting from the Plan of
Reorganization, including a write-off of deferred debt issue costs and
discounts of $17.6 million, adjustments of assets and liabilities to fair
market value of $124.9 million, financial restructuring costs of $14.9
million and interest earned on accumulated cash of $431,000.
(k) This item includes an extraordinary gain resulting from the discharge of
indebtedness of $52.4 million, net of taxes.
(l) Due to the implementation of the restructuring and fresh start accounting,
per share data for the predecessor company have been excluded as they are
not comparable.
(m) Certain amounts in the nine months ended June 30, 1995 interim condensed
consolidated financial statements have been reclassified to conform to the
fiscal 1996 presentation.
<PAGE>
PRO FORMA UNAUDITED FINANCIAL INFORMATION
The unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996
has been prepared giving effect to the consummation of the Rights Offering. The
unaudited Pro Forma Consolidated Statement of Operations for the nine months
ended June 30, 1996 has been prepared giving effect to the sale of the Image
Conversion Services (ICS) Division and the consummation of the Plan of
Reorganization, including the costs related thereto (collectively, the "Pro
Forma Adjustments"), in accordance with AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code
("SOP 90-7"). See Footnote 23 to the historical Consolidated Financial
Statements beginning on page F-28 of this registration statement for the
unaudited Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1995. The Company has accounted for the restructuring using the
principles of "fresh start" reporting as required by SOP 90-7. Pursuant to such
principles, in general, the Company's assets and liabilities were revalued. The
reorganization value of the Company ("Reorganization Value") plus liabilities
excluding debt is the value assigned to total assets. In accordance with SOP
90-7, specific identifiable assets and liabilities were adjusted to fair market
value. The portion of the Reorganization Value plus liabilities, excluding debt
not attributable to specific identifiable assets, is reported as Reorganization
Value in excess of identifiable assets and is being amortized over a three and a
half year period effective May 31, 1996. The Company is in the process of
obtaining an appraisal of certain assets to assist in determining their value.
The fair values have been estimated for purposes of preparing the financial
statements as of June 30, 1996, and will be adjusted based on the results of the
appraisal. Adjustments, if any, are not expected to have a material impact on
the recorded results. The fair value of long-term debt is based on the
negotiated fair values adjusted to present values using discount rates ranging
from 11 5/8% to 15%. The difference between the revalued assets and the revalued
liabilities has been recorded as stockholders' equity with retained earnings
restated to zero.
The unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996
was prepared as if the Pro Forma Adjustment had occurred on June 30, 1996. The
unaudited Pro Forma Consolidated Statement of Operations for the nine months
ended June 30, 1996 was prepared as if the Pro Forma Adjustments had occurred on
October 1, 1995. The unaudited Pro Forma Consolidated Statement of Operations
for the year ended September 30, 1995 was prepared as if the Pro Forma
Adjustments had occurred on October 1, 1994.
Other than the Pro Forma Adjustments to exclude the operating results
of the ICS Division, no changes in revenues and expenses have been made to
reflect the results of any modification to operations that might have been made
had the Plan of Reorganization been confirmed on the assumed effective dates of
the confirmation of the Plan of Reorganization for presenting pro forma results.
The Pro Forma Unaudited Consolidated Financial Information does not purport to
be indicative of the results which would have been obtained had such
transactions in fact been completed as of the date hereof and for the periods
presented or that may be obtained in the future.
<PAGE>
<TABLE>
<CAPTION>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
June 30, 1996 (unaudited)
-----------------------------------------------------------
Rights Offering
Pro Forma
Historical Adjustment Pro Forma
-------------- ----------------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $46,822 $24,600 (a) $71,422
Receivables, net of reserves.................. 67,510 -- 67,510
Inventories................................... 37,931 -- 37,931
Prepaid expenses and other.................... 4,912 -- 4,912
-------- ------- -------
Total current assets............................... 157,175 24,600 181,775
Property and equipment (net)....................... 24,327 -- 24,327
Long-term receivables.............................. 8,990 -- 8,990
Reorganization value in excess of identifiable assets 262,744 262,744
Other assets....................................... 7,945 -- 7,945
-------- ------- --------
$461,181 $24,600 $485,781
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............. $29,474 $ -- $29,474
Accounts payable.............................. 51,422 -- 51,422
Accrued compensation, benefits and withholdings 12,346 -- 12,346
Accrued income taxes.......................... 10,540 -- 10,540
Accrued interest.............................. 6,351 -- 6,351
Other liabilities............................. 40,715 -- 40,715
-------- ------- --------
Total current liabilities.......................... 150,848 -- 150,848
======== ======= ========
Long-term debt, net of current..................... 232,644 -- 232,644
Other noncurrent liabilities....................... 1,971 -- 1,971
-------- ------- --------
Total Noncurrent Liabilities....................... 234,615 -- 234,615
-------- ------- --------
Stockholders' equity:
Common stock....................................... 100 36 (a) 136
Capital in excess of par value..................... 79,666 24,564 (a) 104,230
Cumulative translation adjustment.................. 324 -- 324
Retained earnings (deficit)........................ (4,372) -- (4,372)
Total Stockholders' equity......................... -------- ------- --------
75,718 24,600 100,318
-------- ------- --------
$461,181 $24,600 $485,781
======== ======= ========
See Notes to the Pro Forma Consolidated Balance Sheet
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
As of June 30, 1996
(Unaudited, dollars in thousands, except per share amounts)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Balance Sheet.
(a) Reflects issuance of 3,637,000 shares of New Common Stock (par value
$.01 per share) with estimated proceeds of $24,600 under the terms of
the Rights Offering.
Capital in
Excess of
Common Stock Par Value Total
------------ --------- -----
$36 $24,564* $24,600
* Net of estimated fees and expenses of approximately $400 associated with
the Rights Offering.
<PAGE>
<TABLE>
<CAPTION>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
Predecessor Reorganized
Company Company
------- -------
Eight
Months One Month
ended May ended June 30, Pro Forma Nine Month
31, 1996 1996 Adjustments Pro Forma
---------- -------------- ----------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Services provided...................... $130,202 $14,351 $(1,402) (a) $143,151
Equipment and supplies................. 204,396 22,435 (101) (a) 226,730
------------- --------------- -------------- -------------
Total revenues......................... 334,598 36,786 (1,503) 369,881
------------- --------------- -------------- -------------
Operating costs and expenses:
Costs of services provided............. 72,641 7,757 (1,078) (a) 79,320
Costs of equipment and supplies sold... 156,526 17,134 (80) (a) 173,580
Selling, general and administrative.... 63,826 5,702 (332) (a) 62,924
(6,272) (f)
Amortization of reorganization asset... 0 6,416 51,328 (g) 57,744
------------- --------------- -------------- -------------
292,993 37,009 43,566 373,568
------------- --------------- -------------- -------------
Income before interest, other income,
reorganization items, income taxes and
extraordinary credit....................... 41,605 (223) (45,069) (3,687)
------------- --------------- -------------- -------------
Interest expense and fee amortization...... (26,760) (2,920) (1,125) (b) (30,805)
Other income (loss)........................ 8,544 71 (6,200) (a) 2,415
------------- --------------- -------------- -------------
(18,216) (2,849) (7,325) (28,390)
------------- --------------- -------------- -------------
Income (loss) before reorganization
items, income taxes and extraordinary
credit..................................... 23,389 (3,072) (52,394) (32,077)
Reorganization items....................... 92,839 0 (92,839) (c) 0
------------- --------------- -------------- -------------
Income (loss) before income taxes and (145,233)
extraordinary credit....................... 116,228 (3,072) (32,077)
Provision for income taxes................. 3,700 1,300 0 5,000
------------- --------------- -------------- -------------
Net income (loss) before extraordinary
credit..................................... 112,528 (4,372) (145,233) (37,077)
Extraordinary credit:
Gain on extinguishment of debt......... 52,442 0 (52,442) (h) 0
------------- --------------- -------------- -------------
Net income (loss).......................... 164,970 (4,372) (197,675) (37,077)
Preferred stock dividends and discount 0
accretion................................... 540 (540) (e) 0
------------ --------------- -------------- -------------
Net income (loss) available to common...... $164,430 $(4,372) $(197,135) $(37,077)
============= =============== ============== =============
Net loss available to common stockholders
per share................................... $ (2.70)
=============
Weighted average common shares outstanding..
13,737,000 (d)
=============
See Notes to Pro Forma Consolidated Statement of Operations
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the nine months ended June 30, 1996
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division during the nine-month period ended
June 30, 1996 at a net gain to the Company of $6,200. The Pro Forma
Adjustments represent the exclusion of the division's operating
activities, revenues and expenses, and the one-time gain during the
period.
(b) Net increase of interest expense as a result of the Restructuring has
been estimated as follows:
<TABLE>
<S> <C>
Interest expense on new debt:
11 5/8% Senior Secured Notes (Face Value $112,190).................... $9,783
13% Senior Subordinated Notes (Face Value $160,000)................... 15,597
Interest on other debt and trade credit arrangements.................. 3,707
Interest accretion on new debt discount............................... 1,718
-----
Subtotal........................................................ 30,805
Reversal of actual expense during the nine-month period
ended June 30, 1996............................................. (29,680)
--------
Pro forma adjustment.................................................. $(1,125)
========
</TABLE>
In accordance with SOP 90-7, all debt obligations have been adjusted to
estimated present value. The debt premium/discount is being amortized
over the term of the applicable debt obligation.
(c) Represents income of $92,839 during the nine-month period ended June
30, 1996 related to the Reorganization and adoption of fresh start
accounting, which is being excluded from the pro forma results for the
period.
(d) Pro forma loss per common share is computed based upon 13,737,000
average shares of New Common Stock assumed to be outstanding during the
nine-months ended June 30, 1996 as if the Effective Date under the Plan
of Reorganization and the Rights Offering had occurred on October 1,
1995. The average shares include adjustments for shares issued in
connection with the Rights Offering and shares issued as a result of
restricted stock awarded to certain employees subsequent to June 30,
1996.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) Represents the reversal of $6,272 of historical amortization related
to goodwill.
(g) In accordance with SOP 90-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value
of identifiable assets (which is assumed to be the historical book
value of those assets) has been reflected on the unaudited Pro Forma
Consolidated Balance Sheet as an intangible asset. The adjustment shown
on the unaudited Pro Forma Consolidated Statement of Operations
reflects the amortization of the intangible asset over a three and a
half year period.
<TABLE>
Amortization Nine-Month
Amount Period Amortization
------ ------ ------------
<S> <C> <C> <C>
New Intangible Assets............................ $269,460 3.5 Years $57,744
Historical Reorganization Asset
Amortization (one-month)......................... (6,416)
--------
$51,328
========
</TABLE>
(h) Reflects the elimination of the extraordinary gain recognized in
connection with the Plan of Reorganization and "fresh start" reporting
required by SOP 90-7. The extraordinary gain, net of taxes, resulting
from the Restructuring was as follows:
<TABLE>
<S> <C>
Historical carrying value of Old Securities................................ $379,256
Historical carrying value of related accrued interests..................... 48,500
Write-off of old deferred financing costs.................................. (600)
Market value of consideration exchanged for the old debt:
Plan Securities (Face Value $272,190)............................... (258,448)
New Common Stock (New shares issued 10,000,000)..................... (79,766)
Cash Paid on Senior Secured Notes on Effective Date................. (7,500)
--------
81,442
Tax provision.............................................................. (29,000)
--------
Extraordinary gain......................................................... $52,442
========
</TABLE>
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of adopting fresh start accounting. These estimates
should not be relied upon for, nor are they intended as estimates of, the market
prices of the Company's securities at any time in the future. The market prices
of the Company's securities will fluctuate with changes in interest rates,
market conditions, the condition and prospects, financial and otherwise, of the
Company and other factors which generally influence the price of securities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Recent Reorganization
On June 4, 1996, the Company emerged from bankruptcy proceedings under
its Third Amended Joint Plan of Reorganization ("Plan of Reorganization"). On
such date, the Company canceled its existing secured debt and subordinated debt,
including 15% Senior Subordinated Notes, 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, and its equity
securities, including common stock, common stock purchase rights, preferred
stock and warrants, and distributed to its creditors approximately $22.0 million
in cash, $112.2 million principal amount of its 11 5/8% Senior Secured Notes due
1999 (the "Senior Secured Notes"), $160.0 principal amount of its 13% Senior
Subordinated Notes due 2002 (the "Senior Subordinated Notes"), 10.0 million
shares of new common stock, par value $.01 per share, and warrants to purchase
362,694 shares of common stock at a price of $12.23 per share for a period of
five years from June 4, 1996. The Plan of Reorganization resulted in a reduction
of approximately $173.0 million in principal and accrued interest on the
Company's debt obligations and liquidation amount and accrued interest on its
preferred stock.
To facilitate a meaningful comparison of the Company's year-to-date
operating performance in fiscal years 1996 and 1995, the following discussion of
results of operations on a consolidated basis is presented on a traditional
comparative basis for all periods. Consequently, the current year's information
presented below does not comply with accounting requirements for companies upon
emergence from bankruptcy, which calls for separate reporting for the
newly-reorganized company and the predecessor company.
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Services provided $ 45,363 $ 55,126 $144,553 $165,962
Equipment and supplies 69,845 93,807 226,831 286,272
------- ------- ------- -------
Total Revenues 115,208 148,933 371,384 452,234
------- ------- ------- -------
Operating costs and expenses:
Costs of services provided 25,647 30,277 80,398 90,685
Costs of equipment and supplies sold 53,763 71,464 173,660 214,438
Selling, general and administrative 21,482 36,140 69,528 105,162
Reorganization amortization 6,416 -- 6,416 --
Special charges -- 130,000 -- 130,000
------- ------- ------- -------
107,308 267,881 330,002 540,285
------- ------- ------- -------
Income (loss) before interest, other income,
reorganization items, income taxes and
extraordinary credit 7,900 (118,948) 41,382 (88,051)
------- --------- ------- --------
Interest income 701 471 1,633 1,554
Interest expense and fee amortization (5,895) (18,310) (29,680) (52,310)
Other income (loss) 338 (642) 6,982 (4,605)
--------- -------- -------- -------- ------
(4,856) (18,481) (21,065) (55,361)
--------- -------- -------- --------
Income (loss) before reorganization items, income
taxes and extraordinary credit 3,044 (137,429) 20,317 (143,412)
-------- --------- -------- ----------
Reorganization Items 116,090 -- 92,839 --
-------- --------- -------- ----------
Income (loss) before income taxes and extraordinary
credit 119,134 (137,429) 113,156 (143,412)
Provision for income taxes 1,300 1,400 5,000 2,800
-------- --------- -------- ----------
Net income (loss) before extraordinary credit 117,834 (138,829) 108,156 (146,212)
Extraordinary credit:
Gain on discharge of indebtedness 52,442 -- 52,442 --
-------- --------- -------- ----------
Net income (loss) 170,276 (138,829) 160,598 (146,212)
Preferred stock dividends and discount accretion -- 540 540 1,619
-------- ---------- -------- ----------
Net income (loss) available to common stockholders $170,276 $(139,369) $160,058 $(147,831)
======== ========== ========= ==========
</TABLE>
<PAGE>
Forward Looking Statements
The following Management's Discussion and Analysis of Results of
Operations and Financial Condition contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions,
industry capacity, industry trends, competition, raw material costs and
availability, currency fluctuations, the loss of any significant customers,
changes in business strategy or development plans, availability, terms and
deployment of capital, changes in, or the failure or inability to comply with,
government regulation, and other factors referenced in this Prospectus. See
"Risk Factors."
Results of Operations -- Nine Months Ended June 30, 1996 Compared with Nine
Months Ended June 30, 1995
General
Net income available to common stockholders was $160.1 million for the
nine months ended June 30, 1996, compared to a loss of $147.8 million for the
comparable period of the prior year. Included in the year-to-date income for the
nine months ended June 30, 1996 was $92.8 million of reorganization income. The
current period also includes a $52.4 million extraordinary gain on the discharge
of indebtedness. Operating income (income before interest, other income,
reorganization items and income taxes) decreased $600,000 compared to the same
period of the prior year excluding special charges of $130.0 million in fiscal
1995. As a percentage of total revenues, operating income was 11% for fiscal
1996 and 9% for fiscal 1995. EBITDA was $66.2 million compared to $67.9 million
for the same period in the prior year.
Total revenues for the nine months ended June 30, 1996 decreased $80.8
million over the same period of the prior year. The decrease is primarily due to
the discontinuance or downsizing of certain product lines including ICS ($14.2
million), flexible diskette media ($16.8 million), reader and reader printer
products ($8.9 million) and source document film ($5.6 million).
Costs of services provided as a percent of services revenue were 56%
for the nine months ended June 30, 1996 and 55% for the nine months ended June
30, 1995. Costs of equipment and supplies sold as a percent of equipment and
supplies sales were 77% in the current period compared to 75% in the same period
of the prior year. The increase in costs of equipment and supplies sold is
primarily due to product mix and increased costs of raw materials.
Selling, general and administrative ("S,G&A") expenses were 19% of
revenue in the current period compared to 23% in the same period of the prior
year. The decrease in S,G&A reflects the cost reductions implemented late in
fiscal 1995 as part of the Company's Reorganization.
Interest expense and fee amortization was $30.0 million for the nine
months ended June 30, 1996 compared to $52.3 million in the prior period. The
decrease in interest expenses relates to the discontinuance of interest accrued
on the Company's subordinated debt subsequent to the bankruptcy proceedings.
Other income for the first nine months of fiscal 1996 includes a $6.2
million gain on the sale of the ICS Division in November 1995. This compares
favorably to a $630,000 loss on the sale of an idle facility and expenses of
$3.2 million relating to a failed refinancing in the first nine months of fiscal
1995.
Products and Services
Micrographics services revenues decreased $6.2 million in the first
nine months of fiscal 1996 compared to the same nine months of fiscal 1995
excluding the effect of the ICS sale. COM services volumes decreased 7%, and
average selling prices increased slightly. The decrease in volume is a
continuation of a trend that the Company has experienced over recent periods.
Operating margins as a percent of revenue decreased slightly as the reduction in
selling prices exceeded reductions in production costs.
Maintenance service revenues decreased $2.4 million, primarily due to
the effect of replacing older generation COM systems with the XFP which has a
capacity significantly greater than the previous generation systems. Gross
margins as a percent of revenue decreased slightly.
COM systems revenues for the first nine months of fiscal 1996 decreased
$14.2 million compared to the same period of the prior year. The Company sold or
leased 91 XFP 2000 COM systems to third-party users in the current period
compared to 115 systems in the same period of the prior year. The first nine
months of fiscal 1995 included $3.5 million of sales of equipment for Anacomp
data centers under sale and leaseback arrangements compared to zero in the
current period. Gross margins as a percent of revenue decreased slightly.
Micrographics supplies and equipment revenues for the first nine months
decreased $29.3 million compared to the same period of the prior year, primarily
as a result of the discontinuance and downsizing of product lines mentioned
above. Micrographics supplies and equipment gross margins as a percent of
revenue increased 4%.
Magnetics revenues decreased $16.4 million in the first nine months of
fiscal 1996 compared to the same nine months of fiscal 1995. The decrease is
attributable to the closure of the Omaha, Nebraska factory which produced
flexible diskette media, as well as reduced sales of open reel tape. Magnetics
gross margins as a percent of revenue decreased slightly period to period.
Results of Operations -- Fiscal 1995, 1994 and 1993
General
The Company incurred a loss of $238.3 million for the year ended
September 30, 1995 as compared to income of $15.0 million and $18.6 million for
the years ended September 30, 1994 and 1993, respectively. Included in the
fiscal 1995 loss were special charges of $136.9 million, representing a
write-off of goodwill of $108.0 million and $28.9 million of costs associated
with software investments (See notes 2 and 5 to the accompanying Consolidated
Financial Statements and discussion above). Also included in the loss was a
$29.0 million deferred tax provision and $32.7 million of restructuring charges
which included severance costs, inventory write-downs, excess facilities and
other reserves. Further contributing to the overall loss was a decrease in
operating income of $38.2 million compared to the prior year and $6.0 million of
expenses associated with the reorganization.
Operating income, i.e., income before special and restructuring
charges, interest, other income and income taxes, decreased $38.2 million in
fiscal 1995 compared to fiscal 1994 and $9.1 million in fiscal 1994 compared to
the previous fiscal year. Both declines were largely attributable to a change in
product mix as the relatively less profitable magnetics products represented a
greater portion of total sales, as well as reduced supplies and COM services
margins due to lower selling prices.
Total revenues for fiscal 1995 decreased $1.4 million from the prior
fiscal year. Revenues from sales of magnetics products increased $29.5 million
resulting from the acquisition of Graham Magnetics in May 1994. In addition, the
acquisition of the COM services customer base of 14 data service centers from
National Business Systems, Inc. ("NBS") on January 3, 1994 contributed
incremental revenues of approximately $2.7 million to the fiscal 1995 results.
Offsetting these contributions were decreases in micrographics supplies, COM
systems, maintenance services and other revenues.
The Company's fiscal 1994 revenues totaled $592.6 million compared to
$590.2 million in fiscal 1993. The Graham acquisition contributed $22.4 million
and NBS contributed $9.1 million to fiscal 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.
Selling, general and administrative expenses were 18.5% of revenues in
fiscal 1995 compared to 15.6% in fiscal 1994. The increase is due in part to the
acquisitions of Graham Magnetics and the NBS customer base and the impact of
amortization of the intangible assets recorded on those transactions. Also
contributing to the increase was a fiscal 1994 $4.7 million environmental
reserve adjustment resulting from the receipt of insurance proceeds related to
Environmental Protection Agency ("EPA") liabilities. In addition, the
sale-leaseback of data center equipment increased equipment rental costs by $2.5
million more than the reduction in depreciation costs compared to the prior
period.
Selling, general and administrative expenses were 16.4% of revenues in
1993. Selling, general and administrative costs in fiscal 1994 decreased $4.3
million compared to fiscal 1993 due in part to the receipt of insurance proceeds
related to the EPA liabilities described above.
Operating income before special and restructuring charges, interest,
other income, income taxes, extraordinary credit and cumulative effect of
accounting change as a percent of revenues were 7% in fiscal 1995, 13.4% in
fiscal 1994, and 15% in fiscal 1993. 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 and a reduction in supplies and COM
services margins due to the drop in selling prices.
1995 Special Charges
As mentioned above, included in the operating results for fiscal 1995
were special charges totaling $136.9 million including the write-off of a
portion of goodwill related to micrographics products.
In connection with the change in accounting discussed in Note l to the
accompanying Consolidated Financial Statements, the Company determined that
goodwill had been impaired and measured the impairment based on the fair value
approach discussed in Note 1. As required by generally accepted accounting
principles ("GAAP"), this accounting change, which amounted to a charge of
$108.0 million, was recorded as a change in estimate and was included in the
results of operations for the quarter ended June 30, 1995.
Over the three-year period ended September 30, 1995, the Company
invested and capitalized over $20.0 million related to the development of
software to provide advanced capabilities for the XFP 2000 related to the
processing of Xerox and IBM print streams. These software enhancements are
referred to as the Xerox Compatibility Feature ("XCF") and Advance Function
Presentation ("AFP") feature. XCF was introduced at the beginning of the second
quarter and AFP at the beginning of the fourth quarter of fiscal 1995. Initial
sales of the XCF product were significantly below expectations. Based upon that
experience, the Company updated its sales forecast for both products and
adjusted the carrying amount of the software investment to net realizable value.
That adjustment resulted in a software write-off of $20.3 million (included on
the balance sheet under the category other assets) and the establishment of a
$8.6 million reserve (of which $7.7 million was outstanding at September 30,
1995) for future payments to Pennant Systems for software license (included on
the balance sheet under the category accrued liabilities) and maintenance
obligations which are not recoverable based upon the revised sales forecasts.
New Operating Plan
Also included in the operating results for fiscal 1995 were
restructuring charges of $32.7 million resulting from the Company's new business
plan. The restructuring charges included severance costs of $5.9 million,
inventory write-downs of $9.1 million, excess facility reserves of $7.7 million
and other reserves of $10.0 million.
The Company's strategy for ongoing financial improvement is to
eliminate unprofitable product lines and outsource manufacturing for low-margin
products while continuing to offer similar products on an OEM or reseller basis.
The new business plan resulted in a determination to exit certain business or
product lines. Specifically, the Company: (i) sold its Image Conversion Services
Division ("ICS"); (ii) closed its Omaha, Nebraska factory which produces the
magnetic media for flexible diskettes; and (iii) discontinued the manufacture of
readers and reader/printers. In view of the Company's New Operating Plan, the
Company also announced a Company-wide reduction in work force. Costs relating to
the reduction in work force, the closing of the Omaha factory and the
discontinuance of manufacturing of readers and reader/printers appear in the
financial results for the year under "Restructuring Charges."
The market price of the magnetic media manufactured in the Company's
Omaha factory had been decreasing significantly. In addition, the Company's
primary customer continued to experience liquidity shortfalls which placed this
product line at increased business risk. As a result, the Company announced the
closure of this facility on July 28, 1995 and recorded a loss of approximately
$8.4 million in the fourth quarter including equipment and inventory
write-downs, severance and close down expenses.
During the fourth quarter, the Company reached agreement with Eye
Communication Systems, Inc. ("Eye Com") to manufacture the Company's general
requirements for readers and certain reader/printers. In addition, the Company
announced the discontinuation of those reader/printer models that will not be
manufactured by Eye Com. During the first few months of fiscal 1996, the Company
continued to build the discontinued models to utilize remaining inventories,
transferred inventory and tooling to Eye Com and generally exited the
manufacturing process for these products. The Company recorded a loss of $10.0
million in the fourth quarter resulting from the decision to discontinue
manufacturing reader and reader/printers reflecting equipment and inventory
write-downs, severance and close down expenses.
Results of Operations -- Products and Services
Micrographics Supplies and Equipment
Micrographics supplies and equipment revenues, which accounted for 32%
of the Company's revenues in fiscal 1995, decreased 7% compared to fiscal 1994.
Original film sales decreased 6% on lower unit volumes while duplicate film
sales increased 3%. The duplicate film increase was due primarily to the
reacquisition of First Image Management Company ("First Image") as a duplicate
film customer and the addition of Eastman Kodak Company's ("Kodak") European
duplicate film business. Retrieval products sales decreased 13% compared to
fiscal 1994 and are expected to decrease further as a result of the decision to
exit the manufacturing of these products discussed above.
Micrographics supplies revenues decreased 8% in fiscal 1994,
principally due to reduced demand for duplicate film, readers and
reader/printers. 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 readily affected by the declines in COM systems
sales.
Micrographics supplies and equipment operating margins as a percent of
revenue decreased 4% in fiscal 1995 as a result of lower average selling prices
and increased costs of production. Micrographics supplies and equipment
operating margins in fiscal 1994 were comparable to fiscal 1993. In fiscal 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 Services
Micrographics services revenues, which accounted for 22% of the
Company's revenues in fiscal 1995, were level compared to fiscal 1994, despite a
10% increase in volume, 3% of which was attributable to the acquisition of the
COM services customer base of 14 data service centers from NBS. COM service
revenues were adversely affected by a decline in average selling prices
reflecting a continuation of market price erosion which the Company expects to
continue for at least the near future.
Micrographics services revenues increased 5% in fiscal 1994 and
decreased 2% in fiscal 1993, on volume increases of 10% in fiscal 1994 and 13%
in fiscal 1993. The increase in fiscal 1994 volume was the result of the NBS
acquisition. Decreasing prices adversely affected the Company's micrographics
services business in fiscal 1994 and fiscal 1993.
Micrographics services operating margins as a percent of revenue
decreased 5% in fiscal 1995 and 2% in fiscal 1994 as reductions in average
selling prices exceeded reductions in production costs. In fiscal 1993,
reductions in operating costs kept margins steady despite intense price
competition.
Maintenance Services
Maintenance services revenues, which accounted for 15% of the Company's
revenues in fiscal 1995, are derived principally from COM recorders and
duplicators. Such revenues decreased 5% in fiscal 1995 when compared to fiscal
1994 primarily due to the effect of replacing older generation COM systems with
the XFP 2000 which has a capacity significantly greater than the previous
generation COM systems. In addition, reduced pricing and credits issued to a
major customer contributed to the decrease.
Maintenance revenues increased $3.1 million in fiscal 1994 and
decreased $4.8 million in fiscal 1993. The improvement in fiscal 1994 was
largely the result of the addition of a national data service center company to
the Company's customer base. Approximately one-half of the decline in fiscal
1993 was caused by currency fluctuations. The remaining decline was caused in
part by the improved capacity and efficiency of the XFP 2000. The Company's
maintenance revenues were 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 decreased
modestly in fiscal 1995 and fiscal 1994 after remaining level in fiscal 1993.
COM Systems
COM systems revenues, which accounted for 9% of the Company's revenues
in fiscal 1995, decreased $7.0 million with the sale or leasing of 153 XFP 2000
systems in fiscal 1995 compared to 165 systems in fiscal 1994. Also included in
COM systems revenues in fiscal 1995 was $3.5 million of sales of equipment for
use in Anacomp data centers under sale and leaseback arrangements compared to
$5.6 million in fiscal 1994.
COM systems revenues decreased 22% in fiscal 1994 because of the
decline in sales and operating leases of XFP 2000 COM systems from 274 systems
in fiscal 1993 to 165 systems in fiscal 1994. This decline was partly the result
of reduced original equipment manufacturer ("OEM") shipments (25 systems in
fiscal 1994 compared to 67 in fiscal 1993).
COM systems revenues increased slightly in fiscal 1993 after
consideration of currency effects.
COM systems operating margins improved in fiscal 1995 and fiscal 1994
despite reduced revenues as a result of higher average selling prices. Operating
margins in fiscal 1993 improved significantly both as a result of higher XFP
2000 volumes and the benefits from the facility consolidation that took place in
fiscal 1992.
Magnetics
Magnetics revenues, which accounted for 22% of the Company's revenues
in fiscal 1995, increased $29.5 million, or 23% compared to fiscal 1994. The
increase was due to the contribution from the acquisition of Graham Magnetics in
May 1994. The acquisition of Graham in May 1994 was the primary reason for a 36%
increase in fiscal 1994 magnetics revenues over fiscal 1993. Graham manufactured
certain magnetics products at its facility in Graham, Texas. The Company shifted
all its U.S. production of those products from its Omaha, Nebraska plant to the
Graham facility. The costs associated with this relocation were not significant.
The consolidation resulted in improved manufacturing efficiencies and overall
headcount reduction.
Magnetics revenues decreased $16.5 million in fiscal 1993. Almost half
of the decrease was due to the completion of one-time OEM arrangement, which
contributed $9.7 million in revenues in fiscal 1992 and only $1.1 million in
fiscal 1993. In addition, the Company experienced decreased demand of 3480 and
TK 50/52 cartridge tapes as well as open reel tape, as these products continued
to mature. The Company introduced the high-compression 3490E cartridge tape in
mid-1993, which contributed over $8.0 million of revenues in fiscal 1994.
The revenues added in fiscal 1995 and fiscal 1994 from the Graham
acquisition resulted in increased operating profits in those years. The reduced
revenues in fiscal 1993 resulted in a significant reduction in operating
profits.
Other revenues decreased $6.0 million in fiscal 1995 compared to fiscal
1994 due to reduced revenues from the Company's A-New product.
Results of Operations -- Other
Interest
Interest expense and fee amortization totaling $70.9 million in fiscal
1995 increased compared to 1994 due to $3.3 million of default interest and
interest on unpaid scheduled interest on the senior secured debt as well as the
Old Senior Subordinated Notes which was required by the terms of the various
debt agreements.
The reduction in interest expense in fiscal 1994 resulted from lower
debt levels, partly offset by the increase in short-term interest rates.
Interest expense in fiscal 1993 declined as a result of debt repayments as well
as reduced interest rates.
Income Taxes
The Company adopted Financial Accounting Standards No. 109, Accounting
for Income Taxes, in the first quarter of fiscal 1994. The adoption resulted in
a one-time increase to income of $8.0 million reflecting the cumulative effect
on prior years of this accounting change. In addition, the Company recorded a
deferred tax asset of $95.0 million representing the U.S. federal and state tax
savings from net operating loss carryforwards ("NOLs") and tax credits. The
Company also recorded a valuation allowance of $60.0 million, reducing the
deferred tax asset to $35.0 million. In determining the valuation allowance, the
Company assumed pre-tax income at present levels and considered the impact of
the reversal of temporary differences and the periods in which NOL carryforwards
benefits expire.
Included in the provision for income taxes in fiscal 1995 was a
deferred tax provision of $29.0 million. The deferred tax provision includes
U.S. tax on undistributed foreign earnings of $9.0 million and a write-off of
net deferred tax assets of $20.0 million. This write-off resulted from the
uncertainty regarding the reorganization and, accordingly, the uncertainty
regarding the ultimate benefit to be derived from the Company's tax loss
carryforwards. The remaining components of the provision for income taxes were
taxes of $4.8 million on earnings of the Company's foreign subsidiaries and a
tax reserve adjustment of $1.2 million.
Income taxes as a percentage of income from operations were 55% in
fiscal 1994 and 43% in fiscal 1993. In fiscal 1994 and fiscal 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.
The effective tax rate was 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 14 to the Company's audited consolidated
financial statements included elsewhere herein.
Liquidity and Capital Resources
The Company's cash balance as of June 30, 1996 was $39.7 million
compared to $19.4 million at September 30, 1995. The increase in the Company's
cash balance is due primarily to the non-payment of subordinated debt principal
and interest during the bankruptcy proceedings. On June 4, 1996, the effective
date of the Company's Plan of Reorganization, approximately $22.0 million of
cash was used to pay $7.5 million against the Senior Secured Notes, and to pay
certain professional fees, senior secured debt fees and other trade claims.
Anacomp's working capital at June 30, 1996, excluding the current
portion of long-term debt and accrued interest, amounted to $43.8 million
compared to $27.0 million at September 30, 1995. To facilitate comparison of
cash flow activity for fiscal 1996 to fiscal 1995, cash flows for the eight
months ended May 31, 1996 and for the one month ended June 30, 1996, as
disclosed in the accompanying Condensed Consolidated Statements of Cash Flows,
have been combined for the following discussion. Net cash provided by operating
activities increased to $38.2 million for the nine months ended June 30, 1996
compared to $5.2 million in the comparable prior period due, in part, to
significant reductions in receivables and inventories as well as the non-payment
of interest on subordinated debt prior to the reorganization. Net cash provided
by investing activities increased to $10.0 million in the current period,
compared to $4.2 million in the comparable prior period, primarily as a result
of reduced capital expenditures. Net cash used in financing activities in the
current period includes a $13.0 million repayment of debt with proceeds from the
sale of the ICS Division.
Prior to the Company's Chapter 11 filing, the Company was experiencing
a liquidity shortfall caused by continued declining revenues and a highly
leveraged balance sheet. Upon emergence from bankruptcy proceedings, the
Company's pre-petition liquidity problems were improved.
While the reorganization on the Effective Date significantly reduced
the Company's debt obligations, the Company remains highly leveraged. The
Company's management believes that the Company will have sufficient cash flow
from operations to pay interest on all of its outstanding debt as those payments
become due. However, the Company's ability to meet its debt service obligations
will depend on a number of factors, including its ability to achieve the results
of its business plan.
<PAGE>
THE COMPANY
General
The Company is the world's leading full-service provider of
micrographics systems, services and supplies, with over 15,000 customers in more
than 65 countries. The Company is also the world's largest provider of Computer
Output Microfilm (COM) solutions for image and information management.
"Micrographics" is the conversion of information stored in digital form or on
paper to microfilm or microfiche. COM converts textual and graphical digital
information at high speed directly from a computer or magnetic tape to microfilm
or microfiche. The Company offers a full range of micrographics services and
supplies, including (i) micrographics processing services to customers on an
outsourcing basis through its 45 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. The Company also offers a full
range of magnetic tape products and is also a leading manufacturer of half-inch
computer tape products.
The Company was incorporated in Indiana in 1968. By 1986, the Company
had become, through acquisitions and internal growth, the leading company in the
data service center segment of the micrographics industry.
In 1987, the Company acquired the stock of DatagraphiX, Inc., the
world's leading manufacturer of COM systems, from General Dynamics Corporation.
The acquisition of DatagraphiX, which developed the first COM system in 1954,
made the Company the world's leading provider of COM products and services by
adding COM systems and maintenance to the Company's product line.
In 1988, the Company acquired Xidex Corporation, the leading
manufacturer and distributor of duplicate microfilm (a consumable supply used in
the micrographics process) and microfilm readers and reader/printers. Xidex was
also a manufacturer and marketer of magnetic media, including computer tape
products.
In the early 1990's, the Company, recognizing the evolution of
technologies competing with COM, modified its strategic objective to becoming a
full-line provider of information and image management products and services.
Today, in addition to being the world's largest provider of COM solutions for
image and information management, the Company has now begun to offer new
electronic image management products and services. The Company is also a major
manufacturer and distributor of computer tape products used by data processing
operations, including open-reel tape, 3480 tape cartridges and 3490E tape
cartridges.
The Company recognizes that its core COM and magnetics markets are
declining. It also understands that its customers will require transformation to
new technologies and media, and its strategy is to maximize its share of the
existing markets and to offer new, complementary services and new products to
implement this transformation strategy.
The following description of the business of the Company contains
certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions, industry capacity, industry trends,
competition, raw material costs and availability, currency fluctuations, the
loss of any significant customers, changes in business strategy or development
plans, availability, terms and deployment of capital, changes in, or the failure
or inability to comply with, government regulation, and other factors referenced
in this Prospectus. See "Risk Factors."
<PAGE>
The Information and Image Management Industry
The Information and Image Management ("I & IM") industry consists of
companies whose products and services store information in a compacted format
and retrieve the stored information for use. The trend toward increased emphasis
on efficient management of information is driven by several factors. First,
companies understand that effective information management is a vital part of
their day-to-day operations, provides an important competitive advantage and
allows them to better serve their customers. Second, the increasing amounts of
data processing output and stored information have made cost-effective and
flexible information management more important. Finally, information itself is
coming to be viewed as a strategic corporate asset and managing this asset is
therefore crucial. The Company has implemented a strategy to incorporate both
analog and digital information management solutions that helps companies manage
their information throughout what is known as the "information life cycle."
The Information Delivery Life Cycle
Graphic showing information delivery
life cycle which describes which product
is used based on how often the
information is accessed.
<PAGE>
As indicated in the diagram above, all information moves through a
"life cycle" from origination to archival reference. As information "ages"
throughout this "life cycle," there are changes in frequency of access or
"delivery" to the user of that information that is dictated by the age of the
information, and which has a direct correlation to the media on which the
information is stored. Frequent access, which is typically immediately after
information is created and stored, demands very quick storage media--typically
magnetic disk (DASD). As the information begins to age, it is often migrated to
optical disk (OD) or compact recordable disc (CD), which can also offer quick
access to information (once the disk is "loaded" in a drive), but at a lower
cost and with greater storage capacity than magnetic disk. Once the information
ages further, the need to access it becomes infrequent, and it is often migrated
to magnetic tape for storage. This is an even lower cost media, but still can be
easily accessed again by the computer system, if required. Finally, once
information moves to an archival stage in its life cycle, in which the need to
access it is remote, it is often moved to microfilm and microfiche, which offers
very low storage costs as well as long-term retention features.
The major technologies used in the I & IM industry are: (a)
micrographics, which includes COM and source document micrographics, (b)
electronic data and image management, which uses magnetic and optical
technologies for both data and image storage and retrieval, (c) networking and
(d) electronic printing.
Micrographics
Micrographics is the conversion of information stored in digital form
or on paper to microfilm or microfiche. The Company's primary micrographics
business is the sale of COM services, systems and related maintenance and
supplies.
COM is the application of micrographics in which information output
from computers (primarily coded data) is directly converted at high speed from
magnetic form or on-line to microfilm. COM systems, also known as COM recorders,
create an image which is transferred to microfilm. During this process, the COM
recorder organizes the information and inserts indexing, output formatting,
titling and other retrieval aids tailored to specific customer applications.
COM recorders are electronic printing devices which record
computer-generated data and graphics onto microfilm or microfiche at high
speeds. 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. Since then, COM recorders have become a
standard method of outputting information from computers.
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. COM has
other important cost advantages as well. A COM recorder can print a 1,000 page
report on just one 4" by 6" microfiche. Mailing COM reports represents a
substantial cost savings over the shipment and handling of paper output. With
correct indexing, retrieval of information is easier and faster with COM than
with paper storage. COM is also an excellent archival media for long-term, cost
effective, reliable storage of information that is human readable (analog image)
in an unalterable form.
The Company offers a complete line of micrographics services and
products, including: (i) COM processing services provided to customers on an
outsourcing contract basis; (ii) COM systems for users who perform their own
data conversion to microfilm; (iii) maintenance services for COM and other
micrographics equipment; and (iv) consumable supplies used by micrographics
systems. The Company also sells certain computer tape and other magnetic media
products.
By providing a full range of services, the Company can customize its
offerings of products and services to meet the specific needs of any customer.
If a customer purchases a COM system from the Company, the Company has the
opportunity to provide follow-up service, including maintenance and supplies, as
well as to sell additional compatible software, hardware and professional
services. The Company's global presence also provides the Company with the
ability to offer superior delivery and service in most parts of the world.
Electronic Data and Image Management
Electronic data and image management is the application of various
technologies, including magnetic media and optical disks, to the storage and
retrieval of information and image data. Storage media include magnetic tape,
magnetic disks, writable/erasable magneto-optical disks, CD-R optical disks, and
CD-ROM optical disks. Information that is created during information processing
activities is directly written to the chosen media for storage and later
retrieval. Data and images that are in human-readable documents are scanned and
digitized in binary form and then recorded on the media of choice.
Electronic Storage and Image Management is the application of various
technologies, including Electronic Imaging, Computer Output to Laser Disk
(COLD), Workflow and Electronic Document Management to store, manage and deliver
information in a digital form. Electronic Imaging provides the ability to
capture images from paper or microfilm that have been converted to a digital
form using a scanning device, then to store and deliver these images in a
digital form electronically to users. COLD provides the ability to store and
deliver information (usually document and reports) created by computers in a
digital form. Workflow provides the ability to route information (usually
documents) through a defined work process in a business in a digital form,
without the need to utilize a paper version of the document in the work process.
Electronic Document Management provides the ability to manage various
information types (usually documents and reports) in a digital form in terms of
version levels, check-in/check-out for revisions, location/placement, and other
management functions.
The Company now offers its customers digital solutions in addition to
traditional micrographic (analog) solutions. In 1996, the Company launched its
ALVA CD services, in which a customer's information is indexed and then stored
on industry-standard compact disks for distribution back to the customer. Stored
on the disk, along with the client's information, is Windows-based viewer
software that allows customers to quickly find the information they need at
their desktop.
ALVA CD services are now available throughout the United States and have
recently been launched in Canada and in Europe. The Company has found that many
of its new ALVA users have chosen to continue purchasing micrographics services
from the Company, thereby enjoying the benefits of quick, desktop retrieval
(ALVA) as well as the advantages of secure, low-cost archival storage
(micrographics).
The Company is currently in the process of bringing to market its latest
digital solution, known as Concerto. Concerto is a suite of Company-developed
applications that provide COLD, imaging, workflow, and document management
solutions.
The Company, through its Image Conversion Services Division, provided data
and image conversion services where original source documents or other
human-readable forms and images are scanned, digitized and stored in binary form
on any of a variety of magnetic or optical storage media. This division was sold
in November of 1995.
Networking
Networking is the application of various technologies, including Wide Area
Networks (WAN), Local Area Networks (LAN), and the World Wide Web (Internet), to
the transfer of information between multiple computer systems and peripheral
devices (printers, COM recorders, measurement devices, etc.). The use of WAN and
LAN technologies continues to proliferate at a rapid pace in businesses
throughout the world. As a result of this high growth rate and rapid advancement
of the technologies, the cost of networking continues to decline. The decline in
costs, combined in the increased value of quick information transfer and access,
has had an impact on the overall micrographics industry. This impact is most
notable in the rapid decline in the duplicate film and retrieval devices offered
by the Company. As information can be delivered using low-cost, easy-to-use
networks, the need for distribution and retrieval of information from microfilm
has declined rapidly. This has significantly reduced the demand for these
micrographics products.
As the trends in network technologies continue to increase, especially in
the era of Intranet and Internet growth, the Company is developing plans which
include the potential use of these technologies in its output services
operations to improve its operating efficiencies and its competitiveness in
these areas, as well as to deliver "COM images" electronically using these
emerging technologies to its users.
Electronic Printing
Electronic Printing is the conversion of information stored in digital form
to paper using printing devices that are connected to computer systems or to
Networks. Electronic Printing is a very large industry with products that span
from very expensive, high-volume production printers used with mainframe
computers to very inexpensive, low-volume "personal printers" used with desktop
or portable PC's.
Recent Reorganization
By early 1995, revenues from the Company's core micrographics business had
been declining for the last several fiscal years. The Company, however, believed
that these declines would stabilize. In addition, the Company sought to increase
revenue through opportunities related to the consolidation of the micrographics
industry: the development of new micrographics and digital products and services
such as the DS 300, VELLOS, XSTAR, and XCF and AFP capabilities; and investment
in emerging digital technologies.
Based on this growth strategy, in March 1995, the Company attempted to
refinance certain of its existing indebtedness through a public offering of
$225.0 million of senior secured notes. The new notes would have deferred an
aggregate of $153.0 million in scheduled principal payments in fiscal years 1995
through 1998, resulting in increased liquidity and cash for product development.
The Company was unable to complete the refinancing and announced the withdrawal
of the proposed offering on April 6, 1995.
As a result of the withdrawn offering and weaker than anticipated
second quarter results, including disappointing sales performance for the
Company's new products, the Company did not have sufficient cash available to
make both its $20.0 million scheduled principal payment due in April, 1995 on
its secured debt and the $16.9 million scheduled interest payment due May, 1995
on its 15% Senior Subordinated Notes. The Company sought an agreement with its
senior secured lenders to reschedule its April, 1995 principal payment but was
unable to obtain such an agreement.
Starting in May, 1995, the Company engaged in continued efforts to
formulate a restructuring plan to satisfy its various investor constituencies.
Such efforts included the retention of various financial advisers to assist in
the restructuring process and the development by the Company of a new business
plan and strategy to address the Company's current financial situation and
disappointing recent financial performance.
After months of discussions and negotiations with representatives of the
Company's senior secured lenders and with unofficial committees representing the
15% Senior Subordinated Notes and the 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, the Company reached an
agreement in principle with an unofficial committee representing holders of the
15% Senior Subordinated Notes. On January 5, 1996, the Company filed a
prenegotiated plan of reorganization with the U.S. Bankruptcy Court in Delaware
under Chapter 11 of the Bankruptcy Code.
On March 28, 1996, the Company submitted a Plan of Reorganization and a
Disclosure Statement to the Bankruptcy Court. The Disclosure Statement was
approved by the Bankruptcy Court on such date and was transmitted to the
creditors and preferred stockholders of the Company for solicitation of ballots
for acceptance or rejection of the Plan of Reorganization. Ballots were cast by
May 8, 1996. The Plan of Reorganization, as amended, was confirmed by the
Bankruptcy Court on May 20, 1996, and on June 4, 1996 the Company emerged from
bankruptcy under its Plan of Reorganization.
On June 4, 1996, the Company canceled its existing secured debt and
subordinated debt, including 15% Senior Subordinated Notes, 13.875% Convertible
Subordinated Debentures and 9% Convertible Subordinated Debentures, and its
equity securities, including common stock, common stock purchase rights,
preferred stock and warrants, for cash, new debt securities and new equity
securities. On such date, (i) the Company's secured debt was exchanged for
$112.2 million principal amount of its 11 5/8% Senior Secured Notes due 1999
(the "Senior Secured Notes") and a cash payment, (ii) the Company's 15% Senior
Subordinated Notes and related accrued interest was exchanged for $160.0 million
principal amount of its 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), 9,250,000 shares of new common stock and a cash payment,
(iii) the Company's 13.875% and 9% Convertible Subordinated Debentures and
related accrued interest was exchanged for 750,000 shares of new common stock
and warrants to purchase 259,068 shares of common stock, (iv) the Company's
preferred stock and related accrued dividends were exchanged for warrants to
purchase 62,176 shares of common stock and (v) the Company's common stock was
exchanged for warrants to purchase 41,450 shares of common stock. Each of the
warrants is convertible into one share of common stock during the five year
period ending June 3, 2001 at an exercise price of $12.23 per share. The Company
simultaneously distributed to creditors (including holders of Senior Secured
Notes and Senior Subordinated Notes) approximately $22.0 million in cash. The
Plan of Reorganization resulted in a reduction of approximately $173.0 million
in principal and accrued interest on the Company's debt obligations and
liquidation amount and accrued interest on its preferred stock.
The Company currently is engaged in efforts, through the Financial
Advisor, to refinance its Senior Secured Notes with other senior secured
financing with a more favorable rate of interest and amortization term and to
solicit consents by the Company from the holders of the Senior Subordinated
Notes to proposed amendments to the Senior Subordinated Indenture intended to
facilitate the refinancing of the Senior Secured Notes. If the Company is
successful in refinancing the Senior Secured Notes on terms acceptable to it,
the Company anticipates significant savings in the amount of cash flow required
each year for payment of interest and principal under such senior indebtedness.
There can be no assurance, however, that the Company will be able to consummate
any such refinancing or to obtain the requisite consents. The consent
solicitation also is expected to solicit the consent of holders of the Senior
Subordinated Notes to exempt from the definition of a change of control (as
defined in the indenture for the Senior Subordinated Notes) acquisitions by
certain "permitted holders." Such permitted holders would include Magten Asset
Management Corp. on behalf of its investment advisory client accounts and one or
more of the other current stockholders of the Company.
Description of Business Units
Overview
In fiscal 1995, micrographics accounted for 78% of the Company's
revenues and magnetics generated 22%. The table below sets forth the Company's
revenues by product and service line for the periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1994 1995
------------------------ ------------------------- -----------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Micrographics:
Services $125,226 21% $132,042 22% $132,314 22%
COM Systems 75,900 13 58,831 10 51,829 9
Equipment and Supplies 223,120 38 204,511 35 190,571 32
Maintenance 86,777 15 89,911 15 85,732 15
Magnetics 72,703 12 98,816 17 128,353 22
Other 6,482 1 8,488 1 2,390 0
--------- --- -------- --- -------- -
Total $590,208 100% $592,599 100% $591,189 100%
======== === ======== === ======== ===
</TABLE>
With the appointment of P. Lang Lowrey III as President and Chief
Operating Officer on May 15, 1995, the Company undertook a three-month planning
process to reevaluate the Company's strategies in light of its current financial
situation and the micrographics industry's future. The stated objective of this
planning process was to transform the Company into a cash driven business
focused on its balance sheet and debt-to-equity ratio. As a result of this
thorough analysis of the Company and its markets, the Company adopted a new
business strategy which focused on (i) reducing costs by centralizing
administrative functions, merging data service centers and offices, and reducing
headcount; (ii) outsourcing or exiting low-margin, non-strategic businesses; and
(iii) investing in high-margin products and services that are complementary to
the Company's core micrographics business.
The continuing development of local area computer networks and similar
systems based on digital technologies 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. The Company'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 price
competition in certain of the Company's markets, particularly micrographics
services. The Company's operating income as a percent of revenue (excluding
restructuring and special charges) decreased to 7% in fiscal 1995 from 13.4% in
fiscal 1994 and 15% in 1993.
Products and Services
Micrographics Services and other Output Services
General. At present, COM services generate most of the Company's output
services revenues. The Company plans to generate additional revenue from a
multitude of additional complementary output services including (i) Compact
Disc-Recordable (CD-R) services, (ii) print and mail services, and (iii)
archival services offered through the Company's 45 service centers in the United
States. The Company's output 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
output service centers then convert the information on these tapes to 16mm
microfilm or to microfiche, which is a 4" x 6" microfiche card capable of
storing up to 1,000 pages of computer output. These services comprise the
Company's most profitable business line. The Company's objective is to maintain
this highly profitable business, while introducing complementary, higher-growth
services such as computer output to CD-R, print and mail, and media archiving.
The Company intends to market these new services as additional, not replacement,
services to its core micrographics output services. Pursuant to this strategy,
the Company envisions selling each image it processes up to four times:
- - Once to output the image to microfilm or microfiche for safe, long-term
storage;
- - Once to output the image to CD-R for short-term storage and frequent
retrieval;
- - Once to output the image to paper to be mailed directly to the clients'
customers; and
- - Once to store the image on media for a customer at an Anacomp site for
archival purposes.
The Company currently has an estimated 25-30% market share of the
approximately $350 million COM services business. COM services have been facing
increased pricing pressure due to market conditions. To combat declining prices,
the Company completed installation of the XFP 2000 COM systems in all of its
output centers in 1995, increasing the efficiency of COM production.
Additionally, the Company has upgraded some of these systems with
Anacomp-developed emulation software for IBM and Xerox laser print streams,
which expand the potential market for COM services and command higher average
prices than other COM output. The Company believes that these technological
improvements will partially offset the declining pricing trends in COM services.
The Company further plans to offer high-volume data transmission facilities to
its output service centers to its customers, thereby eliminating the need and
expense for transmission of information to the centers. This data transmission
facility will provide the Company with a competitive advantage over its
competitors, along with reduced operational costs in the output centers. In
addition to the data transmission facilities, the Company plans to further
automate the production process in its output centers to reduce operational
costs and to improve customer service. These improvements will make the
Company's service offerings more competitive and more cost effective.
The Company further plans to initiate COM services operations in its
Canadian and European operations in fiscal 1997. This will be the first time
that the Company has offered COM outsource services in these areas. However,
this allows the Company to offer outsource alternatives to its customers and to
derive new sources of revenue in these operations.
With the Company's ALVA CD services, the Company outputs the customer's
data from magnetic tape or computer file to a recordable compact disc (CD-R).
For some CD-R customers, the Company also records their data onto microfilm or
microfiche. The Company introduced this service at a selected number of its U.S.
output centers in fiscal 1995 and is expanding this service during 1996 in its
US operation and, for the first time, into its operations in Canada and Europe.
The Company plans to introduce print and mail services to its customers
in fiscal 1997. Print and mail services involves the output of customer data to
paper usually on pre-printed forms then mailing the printed information directly
to the customer's clients. The Company will also expand its media archival
services, which involves storing the customer's media at an Anacomp facility, to
its customers in 1996. Both of these services are compatible with the Company's
existing COM services business. Archival services present a profitable new
market for micrographics services since start-up costs will be held to a minimum
by using available space within current Anacomp facilities.
In addition, the Company offers External Facilities Management ("XFM")
services. In a typical XFM arrangement, the Company sells an XFP 2000 system to
a customer who then pays the Company to operate and manage the customer's COM
output. The Company charges the customer monthly fees based on the volume of COM
products produced and also receives additional income from supplies and
maintenance charges.
Customers and Distribution. The Company has a large customer base which
has proved to be loyal to the Company in the past. The Company'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"), Bankers Trust, Citicorp, Electronic Data Systems Co. ("EDS"), Fidelity
Investments, General Electric Capital Corporation and IBM (none of which
accounted for more than 5% of the Company's micrographic services revenues in
fiscal 1995). 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 the Company's
micrographics services customers are subject to contracts and most of such
contracts are renewed annually.
Competitors. Output service center industry competition is primarily
limited to service centers within a 50-mile radius of a customer because of the
emphasis on prompt turnaround. The Company and First Image (which has 66 output
service centers) are the two largest national output service center
organizations with approximately 30% and 40% of the market, respectively. The
remainder of the market is served by regional or local output service centers.
COM and other Output Systems
General. The Company is the world's leading manufacturer and
distributor of COM systems (a $50 million market worldwide), offering a complete
line of COM recorders, processors, duplicators and related software. The
Company's installed base of COM systems, approximately 55% of those in use
worldwide, is more than twice as large as its nearest competitor, 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 XFP 2000, which is manufactured by the Company, is the most
advanced COM recorder on the market and has enabled the Company to capture an
estimated 65% of all new COM systems sold or leased. The XFP 2000 is faster and
more reliable than previous COM recorders and, through its laser technology, has
the capability to generate precise reproductions of any image. The Company sold
or leased 153 new XFP 2000 systems in fiscal 1995 compared to 165 in 1994.
Pursuant to an OEM agreement entered into in 1990, Kodak is obligated to
purchase an additional 151 XFP 2000 systems by October 1997 or pay a cash
penalty to the Company. In fiscal 1996, the Company introduced an XFP 2000
("DragonCOM") for the Asian market which is capable of processing Chinese,
Korean, Taiwanese, Japanese and other ideographic languages utilizing the IBM
Advanced Function Presentation ("AFP") architecture. The Company is marketing
the DragonCOM to customers in Asia through an agreement with Kodak's
Asia-Pacific region, in which Kodak committed to purchase a minimum of 50
DragonCOM systems over the next four years. The Company began delivery of these
systems in fiscal 1996.
The Company also developed two software products that emulate IBM and
Xerox laser print streams. AFP software developed in conjunction with IBM
enables the XFP 2000 to process and image AFP formatted data streams used by IBM
high-speed mainframe laser printers. Xerox Compatibility Feature ("XCF")
software developed in partnership with Xerox enables the XFP 2000 to process the
same data stream used by Xerox high-speed, high-volume laser printers. The
Company believes these enhancement features will expand the potential market for
COM output both by the sale of upgrade kits and additional XFP 2000 systems.
The Company is actively working to market a new suite of electronic
("digital") data and image management software solutions, enhanced by Company
developed software applications. These software solutions will support computer
output, document images, document routing and management applications such as:
customer response systems, healthcare claims processing and management,
litigation support and management, insurance claims processing and management,
and many other applications involving storage, retrieval, routing and management
of documents and associated information electronically. In addition, the Company
seeks to establish strategic alliances with leading technology companies in
order to gain access to digital technologies and reduce development time and
expense. The Company's technological leadership in micrographics, large customer
base and worldwide distribution network will continue to make it an attractive
strategic alliance partner.
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, and
government agencies, and 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 State of Washington, The
Travelers Inc. and Westinghouse Electric Corporation. No customer accounted for
more than 5% of the Company's COM system sales in fiscal 1995. While the
majority of COM systems are sold outright, the Company does offer customers
lease and monthly usage options.
International sales accounted for 41% of the Company's fiscal 1995 sales of
COM system units. In foreign markets, the Company sells COM systems through
wholly owned operating subsidiaries and, in countries in which the Company 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.
Competitors. The Company's primary competitors in the sale of COM
systems are Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation
("MTC"). The Company manufactures, on a private label basis, the COM systems
sold by Kodak through an OEM agreement. This does not include the DragonCOM
agreement. In some instances, the Company 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. The Company sells
approximately 65% of all new COM systems sold worldwide. The Company'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 due to software conversion and operator training costs.
Micrographics Equipment and Supplies
General. The Company sells the most comprehensive line of micrographics
supplies in the world, offering original halide film, duplicate film, chemicals
for microfilm processing, paper and toners for reader/printers, micrographics
lamps and bulbs, and other consumables. In addition to offering supplies, the
Company markets a complete line of microfilm/microfiche readers. With the
exception of proprietary wet and dry original halide film and chemistry used in
its COM systems, many of these products have become only marginally profitable
in recent years.
To increase profitability, the Company signed an agreement to outsource
the manufacture of readers and reader/printers beginning in fiscal 1996 as
demand and margins for these products continue to decline. Additionally, the
Company ceased production of the DS 300 (a PC-connected workstation introduced
in fiscal 1993 that scans, digitizes and electronically converts micrographic
images on demand) in fiscal 1996 after completing a build-out of inventory.
These decisions resulted in a significant one-time write-off in fiscal 1995.
However, the Company continues to offer these types of products to its customers
on a reseller basis.
The Company supplies proprietary wet and dry original halide film used
in its XFP series of COM systems and proprietary wet and dry original halide
film for its X Series, an earlier generation of Anacomp COM systems. All
original microfilm for the Company's COM systems is manufactured for the Company
by Kodak under an exclusive supply agreement in what the Company considers to be
a proprietary package.
The proprietary film used in the XFP 2000 represents the only original
COM film segment that is currently growing. The Company also believes it can
maintain its market share of XFP 2000 film sales going forward because of the
complexity of the manufacturing process, the Company's patents on its
proprietary canister and the industry's interest in other segments of the film
business.
The Company is the world's largest supplier of duplicate microfilm,
which is used to create one or more additional copies of original microfiche and
microfilm masters. The Company's share of this estimated $75 million worldwide
market is approximately 67%, which includes sales to its own output centers. The
total market for duplicate film has declined as the ratio of duplicates to
masters declines and as customers convert to digital technologies.
The cost of producing all microfilm products has risen because of a
worldwide shortage of polyester, which is the principal raw material for
microfilm products. See "The Company -- Raw Materials and Suppliers."
Customers and Distribution. The Company sells its consumable supplies
directly to more than 90% of its worldwide installed base. In addition, the
Company's indirect sales operation sells supplies to dealers and distributors
throughout the United States, including an exclusive supply agreement through
which Kodak purchases all of its duplicate film from the Company. For fiscal
1995, Kodak accounted for approximately 4%, and First Image accounted for
approximately 1.4%, of the Company's revenues from micrographics equipment and
supplies revenues.
Original microfilm sales include film sold for the Company's COM
systems and for other manufacturers' COM systems, with film sold for the
Company's systems representing the vast majority of original microfilm sales.
The Company recently acquired the assets of one of its competitors, COM
Products, Inc. ("CPI") which provides the Company with a more diverse customer
base.
International sales in fiscal 1995 accounted for 29% of the Company's
total micrographics supplies and equipment revenues. In foreign markets, the
Company offers supplies through wholly owned operating subsidiaries and, in
countries in which the Company does not have a subsidiary, through a network of
dealers and distributors.
Competitors. For non-OEM sales of the XFP 2000, the Company is the
exclusive supplier for original microfilm because of the proprietary nature of
the canister in which the film is placed. The Company competes in sales of
non-proprietary original COM microfilms with other manufacturers, including
Agfa, Fuji Photo Film Co., Ltd. ("Fuji"), Kodak and Imation (formerly part of
3M). The Company's worldwide market share for COM microfilms is approximately
55%.
The Company is the world's largest supplier of duplicate microfilm with
an estimated 70% share of the U.S. market and an estimated 65% share of the
non-U.S. market. The Company's primary competitor in the duplicate microfilm
market is Rexam Graphics Ltd. ("Rexam") with an estimated 25% share of the
worldwide duplicate film market.
The Company has an estimated 33% of the micrographics supplies and
equipment market in Europe and estimated 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 Rexam. Its
primary competitors in Japan are Kodak and Fuji.
Maintenance Services
General. The Company provides 24-hour a day maintenance services
through approximately 700 service employees operating in various countries
worldwide. In such countries, the Company maintains approximately 2300 of the
COM recorders in use. COM maintenance services are facing increased pressure
with the improved capacity and efficiency of the XFP 2000 resulting in reduced
maintenance revenues as customers are able to process more volume on fewer COM
systems. However, the Company believes that operating margins will benefit from
sales of additional XFP 2000 systems because XFP 2000 systems require less
maintenance than older COM systems. The Company also believes additional
maintenance services for AFP and XCF enhancement upgrades to the XFP 2000 should
partially offset this decline. Additionally, the Company plans to continue
adding selected non-micrographics products to its service base.
Customers and Distribution. The Company's maintenance services division
encompasses the Company's maintenance services operations in the United States
as well as a field support group for the Company's data service centers. This
department consists of approximately 500 field service engineers and managers
who provide geographic coverage through ten districts in the United States. The
Company 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. The Company'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. For fiscal 1995, the
Company provided to First Image maintenance services accounting for
approximately 2% of its revenues for the Company's maintenance services.
To lower costs, the Company reduced maintenance headcount by
centralizing its hardware and software analysts. The Company also has
consolidated its two U.S. customer service centers for micrographics customers
in its Poway, California facility. The Company expects the synergies created by
these consolidations to improve customer support while also reducing costs.
International operations accounted for 38% of the Company's maintenance
revenues in fiscal 1995. COM systems sold directly in foreign markets are
maintained by Anacomp employees operating through the Company's foreign
subsidiaries. COM systems sold in foreign markets through distributors are
generally maintained by the employees of such distributors.
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 employ in-house
maintenance staffs. Thus, revenues are primarily a function of new COM system
sales and the size of the installed base.
The Company 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, the Company 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 the Company's
existing maintenance organization. These operations expanded the Company's
maintenance service base and created new opportunities for COM system and
supplies sales.
The Company's COM maintenance market share is approximately 65% in the
United States, 50% in Europe and 15% in the Americas (excluding the United
States) and Asia.
Magnetics
General. The Company 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 and 3490E data tape cartridges. The
Company is the world's largest manufacturer of half-inch tape products, which
includes 3480 and 3490E tape cartridges, open reel tape and CompacTape. However,
with the exception of 3490E cartridges, the Company has faced declining demand
for these products along with steady increases in raw material costs,
particularly polyester.
To address these overall trends, the Company is cutting costs
aggressively in fiscal 1996. The Company also is partially offsetting cost
increases with higher market prices in selected product lines, particularly open
reel tape and 3480 cartridges. Additionally, continued synergies from the
Company's acquisition in 1994 of Graham Magnetics along with the Company
becoming a distributor of Memorex branded magnetic media products is partially
offsetting market trends.
The Company also is seeking new applications and markets based on its
magnetics coating capacity. In 1995, the Company introduced voice logging tape
and instrumentation tape. Voice logging tape is used by brokerage companies,
"911" emergency service providers and other entities to record telephone
conversations. Instrumentation tape is used by various government agencies to
measure and record sensitive data. Both of these products cost little to develop
since they use a slightly modified version of tape already manufactured for
other magnetics products. In fiscal, 1996, the Company began to use magnetic
coated media to manufacture transfer tape, which is found on the back of
transaction media (similar to credit and phone cards). Each of these new
products was inexpensively introduced and helps absorb a substantial amount of
fixed factory costs. The Company is actively seeking partnerships that will
enable the Company to participate in the next generation of magnetic media
products including half-inch metal particle tape (3590E). This product will be
introduced in fiscal 1997, and is expected to enjoy significant growth rates, as
this market expands over the next several years. The growth of the 3590E market
is expected to offset the declines in the 3480 and 3490E market.
Due to decreasing demand and falling prices, the Company ceased
production of "cookies," which are the magnetic media used in manufacturing
flexible (or "floppy") diskettes. As a result, the Company closed its Omaha,
Nebraska facility in October 1995, absorbing a one-time shut-down charge in
fiscal 1995.
To reduce costs, the Magnetics Group's senior management has been
reduced 30% through the creation of a European organization and a U.S. &
Asia/Pacific organization. In October 1995, the Company closed its Bedford,
Texas office, reducing headcount significantly and consolidating the remaining
functions into existing Anacomp facilities in Atlanta, Georgia and Grand
Prairie, Texas.
Customers and Distribution. The Company primarily sells its magnetics
products through its worldwide distributor and dealer network and, to a lesser
extent, through parts of its 200-person 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. The Company markets its products
under the "Dysan," "StorageMaster," "Memorex" and "Graham" trademarks. For
fiscal 1995, sales to BASF accounted for approximately 2%, and sales to 3-M
accounted for approximately 2%, of total revenues from sales of magnetics
products.
Competitors. The Company has no significant competitors with respect to
the manufacture of open reel tape, and its worldwide market share is estimated
at 92%. The Company competes with 3M and BASF AG in the sale of open reel tape,
3480 and 3490E data cartridges. The Company's worldwide market share for 3480
and 3490E data cartridges is estimated to be 38% and 35%, respectively.
Sales Force
The Company employs approximately 200 salespeople worldwide. The
Company maintains two separate domestic sales forces: (i) the U.S. Group, which
employs 130 salespeople, is comprised of 10 regions responsible for sales of
micrographics and CD-R services, COM systems and related maintenance services,
supplies and equipment, sales of digital products and direct sales of magnetics
products and (ii) the Magnetics Division responsible for sales of magnetics
products primarily to dealers and distributors.
The Company employs approximately 60 salespeople who sell to customers
located abroad. In countries in which the Company does not have a subsidiary,
the Company sells through approximately 100 distributors and agents.
Raw Materials and Suppliers
Polyester is the principal raw material used in the manufacture of
microfilm and magnetic media products. The Company believes that the recent
worldwide shortage of polyester is likely to continue, and that the cost of
polyester-based products will continue its recent increases over the next
several years. To date, the Company has had little success in its efforts to
limit the amount of the cost increases that its microfilm and magnetics
polyester vendors have imposed upon the Company. The Company is uncertain
whether it can pass along to its film customers all of the cost increases that
it has experienced and may in the future experience, and the Company's inability
to do so could adversely affect the Company's profitability.
In October 1993, SKC purchased Anacomp's Sunnyvale, California
duplicate microfilm facility and entered into a ten-year supply agreement (the
"Supply Agreement") with the Company pursuant to which SKC became the Company's
sole duplicate microfilm supplier. In connection therewith, SKC invested several
million dollars to consolidate and to enhance the Sunnyvale facilities in order
to improve both productivity and film quality. SKC's duplicate film production
is dedicated exclusively to the Company and, during fiscal 1995, the Company
purchased approximately 490 million square feet of duplicate microfilm from SKC,
costing approximately $40 million. In connection with the Supply Agreement, SKC
also provided the Company with a $25 million trade credit facility (secured by
up to $10 million of products sold to the Company by SKC). In connection with an
amendment to the Supply Agreement as of the effective date under the Plan of
Reorganization, the Company agreed to certain price increases retroactive to
1994 and agreed to make the following deferred payments to SKC: (a) $400,000 in
1997; (b) $600,000 in 1998; (c) $800,000 in 1999; (d) $800,000 in 2000; and (e)
$1,000,000 in 2001.
Pursuant to the Supply Agreement, SKC also provides the Company with a
substantial portion of its polyester requirements for its magnetic media
products. In fiscal 1995, the Company used more than 7.6 million pounds of
polyester, costing approximately $13.7 million, in its magnetic business. While
the Company could purchase certain of these magnetics polyester products from
vendors other than SKC, SKC is currently the sole available source for polyester
used by the Company to manufacture many magnetics products, including open reel
tape. SKC's inability or refusal to supply this polyester in the future might
force the Company to cease manufacturing open reel tape or other magnetics
products, which would negatively impact the Company's profitability and prevent
the Company from fulfilling its contractual obligations to its customers.
The Company's XFP 2000 COM recorder utilizes a proprietary, patented
original film canister, and the original film used in that canister is supplied
exclusively by Kodak. The Company also purchases from Kodak substantially all of
the Company's requirements for original microfilm for earlier-generation COM
recorders manufactured by the Company and others, although the Company has from
time to time purchased the original microfilm utilized in those older COM
systems from other vendors.
Research and Development
The Company has reduced engineering costs substantially by shifting
away from the research and development of various micrographics products in
fiscal 1996. Going forward, research and development expenditures can be
expected to grow as the Company focuses its effort on new digital products.
The Company owns various patents and licenses covering aspects of its
products and production processes, as well as proprietary trade secret
information with respect to such products and processes. While the Company
believes that the protection provided by these patents, licenses and proprietary
information is important to the Company, it also believes that of equal
significance is the knowledge and experience of its management and personnel and
their abilities to develop and market the Company's products and to provide
value-added services in connection with such products.
Employees and Labor Relations
As of June, 1996, the Company employed approximately 2,800 people who
were engaged in management, sales and services, manufacturing, computer and
micrographics operations. In October, 1995, the Company employed approximately
3,600 people.
Industry Segment and Foreign Operations
As discussed in Note 1 to the Consolidated Financial Statements, the
Company operates in a single business segment - providing equipment, supplies
and services for information management, including storage, processing and
retrieval. Financial information concerning the Company's operations in
different geographical areas is included in Note 19 to the Consolidated
Financial Statements.
Facilities
The Company maintains corporate offices at 11550 North Meridian Street
in Carmel, Indiana (a suburb of Indianapolis). Micrographics manufacturing,
engineering, micrographics, customer service and marketing, and product
maintenance facilities are all located in Poway, California near San Diego. The
Company's magnetics manufacturing facilities are located in Graham, Texas and
Brynmawr, Wales.
During 1994, Anacomp's Graham and Brynmawr facilities received
international recognition for quality standards, earning International Standards
Organization (ISO) 9002 certification. Anacomp's Poway facility earned ISO 9002
certification in September 1995.
The following table indicates the square footage of Anacomp's
facilities:
<TABLE>
<CAPTION>
Operating Other Corporate
Facilities Facilities Facilities Total
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
United States:
Leased............................ 702,448 343,349 76,115 1,121,912
Owned............................. 147,420 15,630 ------- 163,050
------- ------ -------
849,868 358,979 76,115 1,284,962
======= ======= ====== =========
International:
Leased............................ 143,834 ------- -------- 143,834
Owned............................. 145,000 ------- -------- 145,000
------- -------
288,834 ------- -------- 288,834
------- -------
Total.................................. 1,138,702 358,979 76,115 1,573,796
========= ======= ====== =========
</TABLE>
Other Facilities consists primarily of leased space of abandoned
facilities. Approximately 109,246 square feet of the Other Facilities have been
sublet to others and an additional 249,733 square feet has been vacant since
September 1995. The Company also leases standard office space for its sales and
service centers in a variety of locations. The Company considers its facilities
adequate for its present needs and does not believe that it would experience any
difficulty in replacing any of its present facilities if any of its current
agreements were terminated.
Legal Proceedings
The Company and its subsidiaries are potential or named defendants in
several lawsuits and claims arising in the ordinary course of business. While
the outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial statements of the Company.
DTSC Matters
The California Department of Toxic Substances Control (the "DTSC")
filed a civil complaint on January 5, 1996, in Alameda County Superior Court
against Anacomp, Inc. and Xidex Corporation that seeks civil penalties and
injunctive relief pursuant to the Hazardous Waste Control Law, Health and Safety
Code Section 25100, et seq., and California Code of Regulations, Title 22, Div.
4.5, Section 66001, et seq., with respect to Anacomp's Sunnyvale, California
facility (the "Sunnyvale Facility"). Among other things, the DTSC contends that:
(a) the Company has not yet completed regulatory closure of the Sunnyvale
Facility, which (the DTSC contends) is required by law; (b) the closure actions
that are required include collection and analysis of soil samples, evaluation of
the risks associated with the contaminants found, and, depending on those risks,
removal, treatment and/or disposal of contaminated soil and/or groundwater; and
(c) the Company has not fully complied with the requirement to demonstrate
financial assurance for completing the required closure activities for the
Sunnyvale Facility.
An order of the California Regional Water Quality Control Board, San
Francisco Bay Region (the "RWQCB") is also in effect with respect to the
Sunnyvale Facility (the "RWQCB Order"). The RWQCB contends that the Company is
obligated to characterize and cleanup environmental contamination at the
Sunnyvale Facility pursuant to the RWQCB Order. The Company's consultants
submitted to the RWQCB a Remedial Action Plan for addressing environmental
contamination at the Sunnyvale Facility that estimates potential environmental
costs of as much as $998,000 for soil cleanup and $1,842,000 for groundwater
cleanup, for total cleanup costs of $2,840,000. The DTSC and the RWQCB estimate
the Company's environmental cleanup liabilities for the Sunnyvale Facility will
total $3,453,900, and possibly as much as $5,008,155.
The DTSC and the RWQCB also contend that: (a) all expenditures
necessary to comply with environmental laws are administrative expenses that the
Company is required to incur during the pendency of the Chapter 11 Cases; and
(b) to the extent the Company is required to hire professionals to comply with
these obligations, the Company must seek bankruptcy court authorization for such
expenditures, in addition to the authorization already received to pay holders
of trade claims.
The Company does not necessarily agree (and in most cases strongly
disagrees) with the contentions of the DTSC in its civil complaint and the RWQCB
Order. The Company has filed an answer to the DTSC complaint, and contends that
DTSC's civil penalties action is enjoined. On June 21, 1996, the Company filed
in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy
Court") a limited objection to DTSC's $300,000 civil environmental penalty claim
and alternatively a request to equitably subordinate the claim to the allowed
claims of all the Company's creditors. The Company reserved its rights to object
to the other claims of RWQCB against the Company. RWQCB then filed a motion
requesting the Bankruptcy Court to abstain from exercising its jurisdiction over
the civil penalty claim or, alternatively, to dismiss for lack of jurisdiction.
The Company has opposed RWQCB's motion, and a hearing on the motion has been
continued.
Customs Claim
On or about May 26, 1996, the United States Customs Service ("Customs")
filed a Notice of Appeal from the order confirming the Plan of Reorganization
(the "Confirmation Order") and also filed an emergency motion for a stay pending
the appeal of the entry of the Confirmation Order with the Bankruptcy Court. On
May 31, 1996, the Bankruptcy Court held a hearing on the Bankruptcy Court stay
motion. After having reviewed legal briefs submitted by the parties and oral
argument, the Bankruptcy Court denied the stay motion.
On May 31, 1996 Customs filed in the United States District Court for
the District of Delaware an emergency motion for a stay pending the appeal of
the Confirmation Order and related memorandum of law. The Company filed an
opposition to the stay motion and related memorandum of law. The District Court
stay motion is still pending. In the interim, on or about July 10, 1996 Customs
filed its brief in support of its appeal of the order confirming the Plan of
Reorganization. The Company's brief was filed on July 24, 1996.
On June 28, 1996, Customs filed two proofs of claim, in the amounts of
$2,482,081.00 and $358,255.74, in the Bankruptcy Court against the Company. On
August 26, 1996, the Company objected to these two proofs of claim, seeking the
disallowance of the claims in their entirety. The claims are secured by surety
bonds which generally cover the claims in full.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain of the terms of the Company's
Senior Secured Notes and Senior Subordinated Notes that were issued on June 4,
1996, the effective date of the Plan of Reorganization. For more complete
information regarding such indebtedness, reference is made to the definitive
agreements and instruments governing such indebtedness, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
part, and which are incorporated by reference to this Prospectus.
11 5/8% Senior Secured Notes due 1999
General
The Senior Secured Notes mature on September 30, 1999 and are in an
aggregate principal amount of $112,190,000. The Senior Secured Notes bear
interest at the rate of 11 5/8% per annum payable semi-annually on March 31 and
September 30 of each year, beginning on September 30, 1996, to the person in
whose name the Senior Secured Note is registered at the close of business on the
preceding March 15 or September 15, as the case may be. The Company prepaid the
September 30, 1996 installment under the Senior Secured Notes, in the amount of
approximately $14.3 million, on September 3, 1996.
Ranking
The Senior Secured Notes are senior secured obligations of the Company
ranking pari passu (on an equal basis) 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 Senior Secured Notes. The
Senior Secured Notes are secured by a lien on substantially all the assets of
the Company and certain of its subsidiaries. The collateral also includes
after-acquired assets of the Company and the subsidiaries to the extent that
such assets are acquired by the Company or any such subsidiary without financing
secured by a lien on such assets.
Optional Redemption
The Senior Secured Notes may be redeemed at the option of the Company,
in whole or from time to time in part, at any time, on not less than 30 days nor
more than 60 days' notice, at a redemption price of 100% of the principal amount
thereof, plus accrued and unpaid interest (if any) to the date of redemption
(subject to the rights of the holders of Senior Secured Notes to receive
interest due on the related interest payment date).
Mandatory Redemption
The Company will redeem the Senior Secured Notes for cash pursuant to
the following sinking fund schedule at a redemption price equal to 100% of the
principal amount, plus accrued interest to the redemption date: (i) March 31,
1996 - $14,286,000; (ii) September 30, 1997 - $16,163,000; (iii) March 31, 1997
- - $16,161,000; (iv) September 30, 1998 - $17,100,000; (v) March 31, 1998 -
$17,100,000; and (vi) September 30, 1999 - $17,092,000.
Restrictive Covenants; Change of Control
Certain of the covenants in the Senior Secured Indenture are
restrictive on the operations and activities of the Company. The covenants
include limitations on certain restricted payments, indebtedness, distributions
from subsidiaries, liens and impairment of collateral, sales of assets and the
stock of certain subsidiaries, affiliate transactions, issuance of additional
shares of capital stock of subsidiaries, additional indebtedness of
subsidiaries, capital expenditures, and generally require the Company to offer
to prepay the Senior Secured Notes at par in the event a person or entity
acquires more than 50% of the Common Stock or other events constituting a change
in control.
Senior Subordinated Notes due 2002
The Senior Subordinated Notes mature on June 30, 2002, and are in an
aggregate principal amount of $160,000,000, plus the principal amount of any
Accrued Interest Securities (as defined below) issued pursuant to the Senior
Subordinated Notes Indenture. The Senior Subordinated Notes bear interest at the
rate of 13% per annum payable semi-annually on June 30 and December 31 of each
year, beginning on December 31, 1996, to the person in whose name the Senior
Subordinated Note (or any predecessor Senior Subordinated Note) is registered at
the close of business on the preceding June 15 or December 15, as the case may
be. In the case of the interest payment dates for the Senior Subordinated Notes
occurring on December 31, 1996 and June 30, 1997, the Company will satisfy its
obligation to pay interest on the Senior Subordinated Notes through the issuance
of securities, in the form of the Senior Subordinated Notes (the "PIK Notes"),
and having a principal amount corresponding to the amount of interest due on the
Senior Subordinated Notes on such interest payment date.
Subordination
Payment of principal and interest and all other amounts on the Senior
Subordinated Notes is unsecured and subordinated and subject to the prior
payment in full of all "Senior Indebtedness," as defined in the Senior
Subordinated Indenture.
Optional Redemption
The Senior Subordinated Notes may be redeemed at the option of the
Company, in whole or from time to time in part, at any time, on not more than 60
days' notice, at the following redemption prices (expressed as percentages of
the principal amounts thereof), together with accrued and unpaid interest (if
any) to the date of redemption (subject to the rights of the holders of Senior
Subordinated Notes to receive interest due on the related interest payment
date): (i) 1996-103.000%; (ii) 1997-103.000%; (iii) 1998-102.625%; (iv)
1999-102.250%; (v) 2000-101.875%; (vi) 2001-101.500%; and (vii) 2002 and
thereafter-100.000%.
Mandatory Redemption
The Company will, prior to the fifth anniversary of the date the Senior
Subordinated Notes were issued, redeem for cash a principal amount of the Senior
Subordinated Notes plus the aggregate principal amount of any Accrued Interest
Securities issued under the Senior Subordinated Indenture. The redemption price
will be the price that would then be applicable pursuant to the optional
redemption schedule set forth above of the principal amount of the Accrued
Interest Securities plus accrued and unpaid interest thereon to the date of
redemption.
Restrictive Covenants; Change of Control
As with the Senior Secured Indenture, certain of the covenants in the
Senior Subordinated Indenture are restrictive on the operations and activities
of the Company. The covenants include limitations on certain restricted
payments, indebtedness, distributions from subsidiaries, sales of assets and the
stock of certain subsidiaries, affiliate transactions, issuance of additional
shares of capital stock of subsidiaries, additional indebtedness of
subsidiaries, capital expenditures, and generally require the Company to offer
to prepay the Senior Subordinated Notes at 101% of the outstanding principal
amount in the event a person or entity acquires more than 50% of the Common
Stock, or other events occur which constitute the change of control.
Proposed Refinancing and Consent Solicitation
As described above under "The Company -- Recent Reorganization," the
Company currently is engaged in efforts, through the Financial Advisor, to
refinance its Senior Secured Notes with other senior secured financing with a
more favorable rate of interest and amortization term and to solicit consents by
the Company from the holders of the Senior Subordinated Notes to proposed
amendments to the Senior Subordinated Indenture intended to facilitate the
refinancing of the Senior Secured Notes. If the Company is successful in
refinancing the Senior Secured Notes on terms acceptable to it, the Company
anticipates significant savings in the amount of cash flow required each year
for payment of interest and principal under such senior indebtedness. There can
be no assurance, however, that the Company will be able to consummate any such
refinancing or to obtain the requisite consents. The consent solicitation also
is expected to solicit the consent of holders of the Senior Subordinated Notes
to exempt from the definition of a change of control (as defined in the Senior
Subordinated Indenture) acquisitions by certain "permitted holders." Such
permitted holders would include Magten Asset Management Corp. on behalf of its
investment advisory client accounts and one or more of the other current
stockholders of the Company.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 1,000,000 shares of preferred stock (the "Preferred
Stock"). As of September 16, 1996, the Company had outstanding 10,100,250 shares
of Common Stock and no shares of Preferred Stock. The following summary
description of the capital stock of the Company is qualified in its entirety to
the Amended and Restated Articles of Incorporation of the Company (the "Articles
of Incorporation"), the Amended and Restated By-laws of the Company (the
"By-laws") and the applicable provisions of the Indiana Business Corporation
Law, as amended (the "IBCL").
Common Stock
Each share of Common Stock entitles the holder of record to one vote on
all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors.
Consequently, the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. Holders of Common Stock have
no conversion, redemption or preemptive rights to subscribe to any securities of
the Company. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, holders of Common Stock will be entitled to share
ratably in the assets of the Company remaining after provision for payment of
liabilities to creditors and the preferences, if any, of holders of Preferred
Stock. The rights, preferences and privileges of holders of Common Stock are
subject to the rights of the holders of any shares of Preferred Stock which the
Company may issue in the future.
Trading Market
The Common Stock is traded in the Nasdaq National Market under the
symbol ANCO.
Transfer Agent and Registrar
Chase Mellon Shareholder Services, L.L.C. is the transfer agent and
registrar of the Common Stock.
Preferred Stock
The Company may issue up to 1,000,000 shares of Preferred Stock. The
Articles of Incorporation authorize the Board of Directors, without further
stockholder action, to issue Preferred Stock in one or more series and to fix
and determine the relative rights and preferences thereof, including voting
rights, dividend rights, liquidation rights, redemption rights, redemption
provisions, sinking fund provisions, or conversion rights. As a result, the
Board of Directors could, without stockholder approval, issue shares of
Preferred Stock with voting, conversion, dividend, liquidation, or other rights
that could decrease the amount of earnings and assets available for distribution
to holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Common Stock. The issuance of the Preferred
Stock could, depending on its terms, have the effect of impeding or facilitating
the completion of a merger, tender offer or other takeover attempt.
Warrants
As of the Effective Date under the Plan of Reorganization, the Company
issued outstanding warrants to purchase 362,694 shares of Common Stock at an
exercise price of $12.23 per share (the "Warrants"). The Warrants are
exercisable at any time and, to the extent not previously exercised, will
terminate on June 4, 2001. The number of shares of Common Stock issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of certain
customary dilutive events, including the issuance of rights at a price below 90%
of the market value. Because of such provision in the Warrants, as of the Record
Date for the Rights Offering, each Warrant entitled the holder to purchase 1.06
shares of Common Stock.
Shares Authorized Under Incentive Plans
On July 22, 1996, the Board of Directors of the Company approved a plan
for the granting of non-qualified stock options and restricted stock covering an
aggregate of 1,047,686 shares of Common Stock to key employees, which plan was
intended in part to recognize the contribution of such employees to the
reorganization of the Company. On August 22, 1996, the Board of Directors
granted under such plan non-qualified stock options to purchase an aggregate of
947,500 shares of Common Stock at a purchase price of $4.63 per share (vesting
during the period from June 30, 1997 through June 30, 2003 or earlier, if
applicable) to management level employees, and granted 100,250 shares of
restricted stock (that can be traded after September 30, 1997) to other key
employees.
On September 9, 1996, the Board of Directors of the Company approved
the 1996 Long-Term Incentive Plan, for employees, officers and directors of the
Company covering an aggregate of 1,452,314 shares of Common Stock.
Restrictions on Resale
The resale or disposition by the recipients of the Common Stock issued
pursuant to the Plan of Reorganization is exempt from registration under the
Securities Act to the extent that the recipients are not deemed to have been
"underwriters" under Section 1145(b) of the United States Bankruptcy Code (the
"Bankruptcy Code") in connection with the issuance of the Common Stock pursuant
to the Plan of Reorganization. To the extent a person deemed to be an
"underwriter" received Common Stock pursuant to the Plan of Reorganization,
resales by that person are not exempted by Section 1145 of the Bankruptcy Code
from registration under the Securities Act except in "ordinary trading
transactions" (within the meaning of Section 1145(b)(1) of the Bankruptcy Code).
The Company has filed a registration statement with the Commission to register
the Common Stock issued pursuant to the Plan of Reorganization that is held by
persons who requested that their shares be registered. That registration
statement has not been declared effective as of this date, but the Company
currently intends to pursue effectiveness as to the registration of such shares
of Common Stock.
Certain Anti-Takeover Matters
The Company is subject to Chapter 43 of the IBCL. In general, subject
to certain exceptions, the provisions of Chapter 43 prohibit a publicly-held
Indiana corporation from engaging in a "business combination" with an
"interested shareholder" for a period of five years after the date of the
transaction in which the person becomes an interested shareholder, unless (i)
prior to such date either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder is approved by
the Board of Directors, (ii) the business combination was approved by the
affirmative vote of the majority of the outstanding voting stock which is not
beneficially owned by the interested shareholder, or (iii) the business
combination meets certain conditions set forth in Chapter 43 of the IBCL.
Although it is entitled to do so, the Company has not elected to opt out of
Chapter 43. A "business combination" includes, among other things, mergers,
asset sales and other transactions resulting in a financial benefit to the
shareholder. An "interested shareholder" is generally a person who, together
with affiliates and associates, owns (or, in the case of affiliates and
associates of the issuer, did own within the last five years) 10% or more of the
corporation's voting stock. Because Magten Asset Management Corp. and the other
two stockholders listed under "Security Ownership of Certain Beneficial Owners
and Management" as owning beneficially more than 10% of the Common Stock
acquired their shares of Common Stock in connection with the Company's
reorganization, a transaction approved by the Board of Directors, such
stockholders are not subject to the proscription of Chapter 43 of the IBCL.
Chapter 42 of the IBCL provides generally that "control shares"
acquired in a "control share acquisition" have the same voting rights as before
the control share acquisition only to the extent granted by shareholder
resolution, unless the corporation's articles of incorporation or bylaws provide
otherwise. Chapter 42 also allows any person who makes a control share
acquisition to deliver an acquiring person statement to the issuing public
company to state the acquiring person's identity and description of the
acquisition. Such acquiring person may also hold a special meeting of
shareholders. As of the Effective Date under the Plan of Reorganization, the
Company elected to opt out of the provisions of Chapter 42 of the IBCL.
The Company's Articles of Incorporation and By-Laws include provisions
which are intended by the Board of Directors to help assure fair and equitable
treatment of the Company's stockholders in the event that a person or group
should seek to gain control of the Company in the future. Such provisions, which
are discussed below, may make a takeover attempt or change in control more
difficult, whether by tender offer, proxy contest or otherwise. Accordingly,
such provisions may be viewed as disadvantageous to stockholders inasmuch as
they might diminish the likelihood that a potential acquiror would make an offer
for the Company's stock (perhaps at an attractive premium over the market
price), impede a transaction favorable to the interests of the stockholders, or
increase the difficulty of removing the incumbent Board of Directors and
management, even if in a particular case removal would be beneficial to the
stockholders.
Classified Board of Directors and Related Provisions. The Articles of
Incorporation provide that the Board of Directors may be divided into two or
more classes of directors with a term of office of one class expiring each year
whenever the Company has nine or more directors. As a result, approximately
one-half or one-third, as the case may be, of the Company's Board of Directors
could be elected each year. The Company believes that a classified board of
directors could help to assure the continuity and stability of the Board of
Directors and the Company's business strategies and policies as determined by
the Board of Directors, but the Company has not elected at this time to provide
for a classified Board of Directors.
The classified board provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, therefore
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
The Articles of Incorporation provide that directors may be removed
only for cause and only by the affirmative vote of the holders of a majority of
all outstanding stock entitled to vote.
No Stockholder Action by Written Consent; Special Meetings. The By-Laws
provide that stockholder action can be taken only at an annual or special
meeting of stockholders. The By-Laws provide that, except as otherwise required
by law, special meetings of the stockholders can only be called by the Board of
Directors or the Chairman. Any call for a special meeting must specify the
matters to be acted upon at the meeting.
Preferred Stock. As described above, the Board of Directors is
authorized to provide for the issuance of shares of Preferred Stock, in one or
more series, and to fix by resolution and to the extent permitted by the IBCL,
the terms and conditions of such series. The Company believes that the
availability of the Preferred Stock issuable in series will provide it with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which might arise. Although the Board of
Directors has no present intention to do so, it could issue a series of
Preferred Stock that could, depending on its terms, either impede or facilitate
the completion of a merger, tender offer or other takeover attempt.
Limitation of Liability
The Articles of Incorporation provide that directors of the Company
will not be personally liable to the Company or its stockholders to the fullest
extent permitted by the applicable provisions of the IBCL from time to time in
effect and by general principles of corporate law. The Articles of Incorporation
provide that a director's responsibility to the Company are to be limited to
discharging his duties as a director in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the director reasonably believes to be in the best interests of
the Company, all based on the facts then known to the director. In discharging
his duties, a director generally is entitled to rely on information, opinions,
reports, or statements, including financial statements and other financial data.
A director may, in considering the best interests of the Company, consider the
effects of any action on shareholders, employees, suppliers, and customers of
the Company, and communities in which offices or other facilities of the Company
are located, and any other factors the director considers pertinent.
MANAGEMENT
The current directors and executive officers of the Company and their
ages (as of June 4, 1996) and positions are listed below.
Name Age Position
P. Lang Lowrey III 42 President, Chief Executive Officer and
Chairman of the Board
Donald L. Viles 50 Executive Vice President and
Chief Financial Officer
Ray L. Dicasali 47 Senior Vice President and Chief Technology Officer
Barry L. Kasarda 52 Senior Vice President--Manufacturing and Materials
Kevin M. O'Neill 41 Senior Vice President--Global Marketing
William C. Ater 56 Vice President--Chief Administrative Officer and
Secretary
Jeffrey S. Withem 36 Vice President--Planning and Communications and
Chief of Staff
Thomas L. Brown 40 Vice President and Treasurer
K. Gordon Fife 50 Vice President--Tax
George C. Gaskin 37 Vice President--Legal and Assistant Secretary
Hasso Jenss 52 President--European Group
Thomas W. Murrel 56 President--Maintenance Group
Gary M. Roth 54 President--International Group
T. Randy Simmons 49 President--U.S. Group
Peter Williams 43 President--Magnetics Group
Talton R. Embry 49 Director
Darius W. Gaskins, Jr. 58 Director
Jay P. Gilbertson 36 Director
Richard D. Jackson 59 Director
George A. Poole, Jr. 64 Director
Lewis Solomon 62 Director
The Company has five divisions with the president of each division
reporting to Mr. Lowrey.
The business experience of each director and executive officer for the
past five years is described below. The current directors of the Company were
appointed effective June 4, 1996, as part of the Plan of Reorganization.
Directors hold office until the next annual meeting of stockholders of the
Company. 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.
P. Lang Lowrey III was elected Chairman of the Board on June 4, 1996.
Mr. Lowrey was elected President and Chief Operating Officer in May 1995 and
subsequently assumed the duties of Chief Executive Officer, effective October 1,
1995. Prior to that, he served as Vice President -- Magnetics Group from
November 1992 to May 1995. He served from October 1990 to October 1992 as Vice
President -- Worldwide Marketing Division.
Donald L. Viles was elected Executive Vice President and Chief
Financial Officer effective March 1, 1996. From October 1985 to March 1996, he
served as Vice President and Controller.
Ray L. Dicasali was elected Senior Vice President and Chief Technology
Officer on June 3, 1996. From 1993 to 1996, Mr. Dicasali served as Senior Vice
President of Technology and CIO of Flexel. From 1989 to 1993 Mr. Dicasali was
Senior Vice President and CIO of Dun and Bradstreet Software.
Barry L. Kasarda was elected Senior Vice President of Manufacturing and
Materials on June 3, 1996. From 1993 to 1996, he served as Vice President of
Materials. Prior to joining the Company, Mr. Kasarda served as Vice President
and General Manager of ABEX Division of Parker Hannifin Corporation from 1989 to
1993.
Kevin M. O'Neill was elected Senior Vice President of Global Marketing
on June 3, 1996. Mr. O'Neill had previously served as Vice President of Global
Marketing from 1995 until June 1996. From 1994 to 1995, Mr. O'Neill served as
Vice President of Marketing, Strategic Resellers Group. Prior to joining the
Company, Mr. O'Neill served as Senior Director, Marketing & Product Development
for Fujitsu-ICL Systems, Inc. from 1982 to 1994.
William C. Ater was elected Vice President and Chief Administrative
Officer in February 1988. He has served as Secretary since March 1985.
Jeffrey S. Withem was elected Vice President, Planning and
Communications and Chief of Staff on June 3, 1996. Mr. Withem was Vice
President, Strategic Planning and Corporation Communications from October 1995
to June 1996. From 1993 to 1995, Mr. Withem served as Vice President, Marketing,
for the Company's Magnetics Group. Prior to that, he was Marketing
Communications Manager for Worldwide Marketing for the Company from 1990 to
1992.
Thomas L. Brown was elected Vice President and Treasurer on May 19,
1996. From January 1995 to April 1996, Mr. Brown served as Corporate Controller
of Hurco Companies, Inc. Mr. Brown had previously served as Assistant Vice
President of Financial Reporting and Analysis for the Company from March 1991.
K. Gordon Fife was elected Vice President of Tax in October 1985.
George C. Gaskin was elected Vice President of Legal and Assistant
Secretary on June 3, 1996. From June 1990 to June 1996, Mr. Gaskin served as
Corporate Counsel and Assistant Secretary.
Hasso Jenss was elected President of the European Group effective
October 1, 1995. Mr. Jenss served as Vice President -- European Micrographics
from November 1993 to September 1995. Prior to that, he served from October 1989
to October 1993 as Managing Director of Anacomp's German subsidiary.
Thomas W. Murrel was elected President of the Maintenance Group on June
3, 1996. From October 1995 to June 1996, Mr. Murrel served a President of the
Worldwide Operations Group. Previously, Mr. Murrel served as Vice President and
General Manager of Poway Operations from January 1993 to September 1995. Prior
to that, he served from February 1988 to December 1992 as Vice President --
Maintenance Division.
Gary M. Roth was elected President of the International Group,
effective October 1, 1995. Previously, Mr. Roth served as Vice President,
Americas/Asia Division from November 1992 to September 1995. 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.
T. Randy Simmons was elected President of the U.S. Group, effective
October 1, 1995. Previously, Mr. Simmons served as Vice President, Direct Sales
Division -- East from November 1994 to September 1995. Prior to that, he served
as Vice President -- Information Systems Division from November 1991 to November
1994. He served from 1987 to 1991 as Vice President -- Micrographics Services
Division.
Peter Williams was elected President of the Magnetics Group, effective
October 1, 1995. Previously, he served as General Manager of the Magnetics
European Group from 1993 to September 1995. Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations -- Magnetics.
Talton R. Embry has served as a director since June 4, 1996. Mr. Embry
has been Chairman and Chief Investment Officer of Magten Asset Management
Corporation, which is an investment advisory firm, since 1978. Mr. Embry is also
a director of Capsure Holdings Corp., Varco International Inc., TSX Corporation,
Combined Broadcasting, Inc., BDK Holdings, Inc., Thermadyne Holdings Corp. and
Revco Drug Stores. In July 1992, Mr. Embry was elected Co-Chairman of the Board
of Directors of Revco Drug Stores.
On September 9, 1993, Magten Asset Management Corp. and Talton R.
Embry, without admitting or denying the allegations in a complaint by the
Securities and Exchange Commission, consented to the entry of judgments
enjoining them from violating (and, in the case of Mr. Embry, aiding and
abetting violations of) anti-fraud and other provisions of the Exchange Act, the
Investment Advisor's Act of 1940 and the Investment Company Act of 1940. The
final judgment to the action, Securities and Exchange Commission v. Talton R.
Embry and Magten Asset Management Corp., 93 Civ. 6294 (LMM) (filed September 9,
1993 S.D.N.Y.), was entered on September 14, 1993.
The Commission's complaint alleged principally that Mr. Embry failed to
advise his clients of certain personal and proprietary trades relevant to the
clients' holdings and to comply with certain reporting requirements. As part of
the settlement, Mr. Embry made a $1 million payment for the benefit of certain
of Magten's clients.
At the same time, Mr. Embry, without admitting or denying the
allegations in an order filed by the Commission, settled a parallel Commission
administrative action against Mr. Embry. The administrative proceeding, the
Matter of Talton R. Embry, Administrative Proceeding File No. 3-8153, was
commenced by the Commission on September 16, 1993. In the settlement, Mr. Embry
agreed to the appointment, for a period of five years, of an independent
consultant approved by the Commission to oversee Mr. Embry's personal securities
transactions and to conduct biannual compliance audits of Magten. Gerald Rath,
Esq. of the law firm of Bingham Dana & Gould, Boston, Massachusetts, has been
appointed and approved as the independent consultant.
On February 26, 1996, Magten and the Maryland Securities Commissioner
entered into a consent order whereby Magten paid a fine of $1,500. The Maryland
Securities Commissioner alleged that Magten effected investment advisory
transactions in Maryland prior to its registration as a Maryland investment
adviser. Magten is currently registered as an investment adviser in Maryland,
and its activities are not restricted.
Darius W. Gaskins, Jr. has served as a director since June 4, 1996. Mr.
Gaskins has been a partner of High Street Associates, Inc. since 1991. Mr.
Gaskins also serves as a director of UNR Industries, Inc. and Northwestern Steel
and Wire Company.
Jay P. Gilbertson has served as a director since June 4, 1996. Mr.
Gilbertson has been the Chief Financial Officer of HBO & Company since April
1993. From December 1991 until April 1993, he served as Corporate Controller of
HBO & Company.
Richard D. Jackson has served as a director since June 4, 1996, and was
elected Vice Chairman of the Board of Directors on that date. Mr. Jackson joined
First Financial Management Corporation in 1993 as Chief Operating Officer and
Senior Executive Vice President. He was elected Vice Chairman of First Financial
Management Corporation in February 1995 and served in that position until August
1995. From 1990 to 1993, Mr. Jackson served as Vice Chairman and Chief Executive
Officer of the Georgia Federal Bank.
George A. Poole, Jr. has served as a director since June 4, 1996. Mr.
Poole has been a private investor for more than the past five years and serves
as a director of Spreckels Industries, Inc., Bucyrus-Erie Company, Rock Island
Foods, Inc. and FCC Receivables Corporation, a wholly-owned subsidiary of
Franklin Resources, Inc.
Lewis Solomon has served as a director since June 4, 1996 and was
elected Lead Director on that date. Mr. Solomon has been Chairman of G&L
Investments for the past five years. He also serves as a director of Anadigics,
Inc., Computer Products, Inc., Cybernetics Services, Inc., ICTV, Inc., Terayon
Corporation and TSX Corporation.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Company's
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and any exchange on which
the Company's common stock is listed. Officers, directors and
greater-than-ten-percent beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
former directors, the Company believes that, during the fiscal year ended
September 30, 1995, all Section 16(a) filings were made on a timely basis.
Executive Compensation
The following Summary Compensation Table sets forth as to the Company's
Chief Executive Officer and the other five most highly compensated executive
officers all compensation awarded to, earned by, or paid to said individuals
(the "Named Executive Officers") for all services rendered in all capacities to
the Company and its subsidiaries for the fiscal years ended September 30, 1995,
1994 and 1993, except as is otherwise specifically noted.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------
Other Annual Stock All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($)(1) (#)(2) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
P. Lang Lowrey III 1995 289,692 87,750 0 375,000 0
- ------------------------------------------------------------------------------------------------------------------
Vice President, Magnetics Group 1994 147,500 180,836 0 0 0
- ------------------------------------------------------------------------------------------------------------------
President and Chief Operating 1993 147,500 130,243 0 80,000 0
Officer (as of 5/15/95); Chief
Executive Officer (as of
10/01/95)
- ------------------------------------------------------------------------------------------------------------------
Louis P. Ferrero 1995 500,000 0 0 0 1,844,253 (3)(4)
- ------------------------------------------------------------------------------------------------------------------
Chairman and Chief Executive 1994 500,000 260,261 0 0 53,122 (5)
- ------------------------------------------------------------------------------------------------------------------
Officer(Separated as of 9/30/95) 1993 500,000 347,735 0 300,000 68,012 (5)
- ------------------------------------------------------------------------------------------------------------------
J. Mark Woods 1995 246,808 30,000 0 0 949,000 (6)
- ------------------------------------------------------------------------------------------------------------------
President and Chief Operating 1994 250,000 229,500 0 0 1,000 (5)
- ------------------------------------------------------------------------------------------------------------------
Officer(Separated as of 5/15/95) 1993 250,000 219,250 0 200,000 1,000 (5)
- ------------------------------------------------------------------------------------------------------------------
Thomas R. Simmons 1995 206,500 66,374 0 0 1,680 (5)
- ------------------------------------------------------------------------------------------------------------------
President, U.S. Group 1994 147,500 137,011 0 0 2,082 (5)(7)
- ------------------------------------------------------------------------------------------------------------------
1993 147,500 153,892 0 100,000 1,000 (7)
- ------------------------------------------------------------------------------------------------------------------
Jack R. O'Donnell 1995 224,000 31,954 0 0 0 (8)
- ------------------------------------------------------------------------------------------------------------------
Executive Vice President, 1994 160,000 170,331 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Treasurer and Chief Financial 1993 160,000 161,080 0 50,000 0
Officer (Separated as of
12/31/95)
- ------------------------------------------------------------------------------------------------------------------
Hasso Jenss 1995 172,771 72,006 0 0 0
- ------------------------------------------------------------------------------------------------------------------
President, European Group 1994 109,224 87,553 0 0 0
- ------------------------------------------------------------------------------------------------------------------
1993 0 0 0 0 0
<FN>
(1) The aggregate amount of perquisites and other personal benefits, securities
or property, given to each Named Executive Officer valued on the basis of
aggregate incremental cost of the Company did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus for each such
officer during fiscal 1995, 1994 and 1993.
(2) All stock option grants prior to the Effective Date of the Plan of
Reorganization were canceled as of the Effective Date.
(3) $1,829,717 of this amount represents a severance payout to Mr. Ferrero
pursuant to the terms of his employment agreement, as well as a $30,000
consulting fee for consulting services rendered from the period October
through December 1995. Mr. Ferrero's outstanding loan of $1,087,000 was
repaid to the Company out of this payout and substantially all of the
balance of the severance payment was withheld for federal tax purposes.
(4) $54,536 of this amount represents the imputed interest in 1995 ($52,122 in
1994 and $67,012 in 1993) on Mr. Ferrero's loan from the Company. The
interest is calculated on the basis of the applicable federal rate computed
by the Internal Revenue Service.
(5) These figures include a $1,000 contribution per year made by the Company to
the Anacomp Savings Plus Plan for fiscal 1994 and fiscal 1993 for each of
Messrs. Ferrero, Woods and Simmons.
(6) This amount represents a severance payout to Mr. Woods pursuant to the
terms of his employment agreement.
(7) $1,680 represents the imputed interest in 1995 ($1,082 in 1994) on Mr.
Simmons' loan from the Company. The interest is calculated on the basis of
the applicable federal rate computed by the Internal Revenue Service.
(8) Subsequent to fiscal 1995, Mr. O'Donnell received a severance payout of
$596,134.10 pursuant to the terms of his employment agreement.
</FN>
</TABLE>
Compensation of Directors
Directors who are not employees of the Company receive $1,000 for each
directors' meeting attended, $750 for each directors' meeting attended by
telephone, $500 for each committee meeting attended and an annual retainer of
$12,000. Employee directors receive no fees. Each of the non-employee directors
will receive options to purchase 5,000 shares of Common Stock for such
director's first year of service.
Board of Directors' Compensation Committee Report on Executive Compensation for
Fiscal 1995
The compensation policy of the Company, which is endorsed by the
Compensation Committee ("Committee"), is that a substantial portion of the
annual compensation of each executive officer relates to and is contingent upon
the individual executive's performance. As a result, much of an executive
officer's annual compensation is "at risk," at target levels during fiscal 1995
amounting to approximately 30% of total cash compensation.
The executive officers' performance for purposes of compensation
decisions is measured under the annual bonus plan against goals established by
the Chief Executive Officer and reviewed by the Committee at the start of the
fiscal year. As a general principle during fiscal 1995, the bonus goals of the
executive officers were tied 50% to a profit objective and 50% to a revenue
objective, in most cases at levels providing incentive to the executive officer
to achieve profit and revenue objectives higher than the prior year's actual
results.
The Committee's goal is to set total cash compensation at levels
required to attract and retain qualified persons in executive officer positions.
To assist the Committee in this judgment, the Company has retained the services
of an outside consulting firm which has compared levels of compensation of the
Company's executive officers with compensation levels for officers of 21 other
companies, primarily in the electronics, electrical equipment, precision
instruments, and computer industries. The consulting firm has reported to the
Company that the total compensation of the Company's executive officers is
competitive, that is, on balance in the middle range of compensation levels of
the companies in the comparison group.
The companies in the executive compensation comparison group are not
the same as those included in the stock price performance graph prepared with
respect to fiscal 1995 (and contained in the Company's annual report on Form
10-K for fiscal 1995). The Committee believes the market for executive talent,
and thus the companies appropriate for executive pay comparisons, are different
from the companies that may be alternative investments for shareholders.
The compensation of the Chief Executive Officer for the fiscal year
ending September 30, 1995 was determined pursuant to a three-year employment
agreement entered into prior to October 1, 1992, the terms of which are set
forth below. Accordingly, all Committee decisions for the fiscal year ending
September 30, 1995 with respect to Chief Executive Officer compensation were
made prior to the period covered by this Report.
Compensation Committee of the Board of Directors (prior to the Effective Date)
Clark Johnson
Richard E. Neal
Roger S. Palamara
Paul G. Roland
Frederick W. Zuckerman
Compensation Committee Interlocks and Insider Participation
As of the Effective Date, the Company's existing Board of Directors was
replaced by a new seven-person Board of Directors. The members of the new
Compensation Committee of the Board of Directors are Messrs. Talton W. Embry
(Chairman), Darius W. Gaskins and Richard D. Jackson, none of whom are employees
of the Company.
Employment Contracts
With the exception of Mr. Jenss, the Named Executive Officers who
continue to be employed by the Company are party to employment agreements with
the Company. Set forth below is a brief description of each such agreement.
P. Lang Lowrey III. In connection with the promotion of Mr. Lowrey to
President, Chief Operating Officer and Director effective October 1, 1995, Mr.
Lowrey entered into an Amended and Restated Employment Agreement with the
Company which expires on September 30, 1996. An extension of such agreement
currently is being negotiated between Mr. Lowrey and the Company. Such agreement
was further amended on November 30, 1995. Mr. Lowrey's compensation plan for
fiscal 1996 is comprised of a base salary of $450,000 and (i) an annual
incentive bonus equal to one-half of one percent of the Company's pre-tax income
for the year, and (ii) an annual stock-based bonus in the amount of $50,000 for
each $1.00 increase in the closing sales price of the Company's Common Stock for
the year, calculated by averaging the closing sales price of the Common Stock
for the ten trading days ending on the last trading day of the fiscal year. Both
bonuses may be paid to Mr. Lowrey in shares of the Company's Common Stock in
lieu of cash. Mr. Lowrey also will be paid a monthly bonus in cash equal to
.0005 of the Company's monthly EBITDA, as defined in the employment agreement.
In July 1996, Mr. Lowrey received a bonus of $500,000 in recognition of his
efforts during the Company's recently completed reorganization under Chapter 11.
Pursuant to Mr. Lowrey's employment agreement, Mr. Lowrey received a
retention bonus equal to $200,000 in November, 1995, in order to induce him to
serve as Chief Executive Officer of the Company, to continue his employment for
one year from October 1, 1995, and to accept a temporary transfer to Poway,
California. If Mr. Lowrey receives at any time an incentive bonus in cash (as
opposed to shares of the Company's Common Stock pursuant to (i) or (ii) above),
then the amount of the retention bonus due will first be offset against the
incentive bonus. If Mr. Lowrey's employment is terminated so that the Severance
Allowance vests, then the amount of the retention bonus will first be offset
against the Severance Allowance. In July 1996, in lieu of the annual incentive
and stock-based bonuses for fiscal 1996 discussed above, Mr. Lowrey's retention
bonus was deemed fully earned and all conditions regarding future offset were
removed.
Mr. Lowrey's employment agreement further provides that, in the event
of a merger or consolidation where the Company is not the surviving company, or
a transfer of all or substantially all of the Company's assets if the surviving
or controlling company does not agree to be bound by the terms of the employment
agreement, or a change in control of the Company or a discontinuation of the
business by the Company, Mr. Lowrey will receive a severance allowance equal to
his prior twenty-four months' compensation, including bonuses and benefits
(collectively, the "Severance Allowance"). In the event of such a change of
control, Mr. Lowrey may elect to treat his employment agreement as terminated
and receive the Severance Allowance, even if the surviving or controlling
company agrees to be bound by the terms of the agreement. In addition, Mr.
Lowrey is entitled to the Severance Allowance if he is terminated by mutual
agreement or without cause by the Company, if he deems a termination to have
occurred due to a demotion, transfer, reduction in compensation or intentional
interference by the Company with the performance of his duties, or if his
employment agreement is not renewed at the end of its current term or any
extension thereof.
Mr. Lowrey also entered into a covenant not to compete with the Company
for a period of one year following any termination of service.
T. Randy Simmons. Mr. Simmons entered into a three-year employment
agreement with the Company which expired on September 30, 1995, and which was
subsequently renewed for a one-year term expiring on September 30, 1996. He has
also entered into a covenant not to compete with the Company for a period of two
years following any termination of employment. Mr. Simmons' compensation plan
for fiscal 1996 includes a base salary of $206,500 and up to $88,500 in bonus
payments. One-half of the bonus is based on the U.S. Group's attaining certain
revenue and profit goals. If achieved, this bonus would be paid monthly and
adjusted at fiscal year end. The other half of the bonus is paid at year-end
only if the Company meets 100% of its profit objectives for the year.
Mr. Simmons' employment agreement provides that, in the event of a
merger or consolidation or a transfer of substantially all of the Company's
assets or a change in control of the Company, Mr. Simmons will receive a
severance allowance equal to his prior twelve months' compensation if he is
subsequently terminated without cause or if he deems a termination to have
occurred due to a demotion, transfer or reduction in compensation.
Termination of Employment and Change of Control Arrangements
As discussed above, the employment agreements of Messrs. Lowrey and
Simmons provide for certain payments in the event of a termination of employment
or a change of control of the Company. Mr. Jenss is entitled to termination pay
and other benefits as provided by applicable German labor laws.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 16,
1996, concerning beneficial ownership of the Common Stock by (a) each
stockholder known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (b) each of the Company's directors, (c)
each Named Executive Officer, and (d) all directors and executive officers of
the Company as a group. Unless otherwise noted in the footnotes to the table,
the stockholders named in the table have sole voting and investment power with
respect to all shares of Common Stock indicated as being beneficially owned by
the stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
--------------------------
Name Number Percent of Class
- ------------------------------ --------- ----------------
<S> <C> <C>
Magten Asset Management Corp.(2) 2,888,751 28.6
Franklin Resources, Inc.(3) 1,444,670 14.3
Merrill Lynch & Co., Inc.(4) 1,407,670 13.9
P. Lang Lowrey III 0 *
Louis P. Ferrero 0 *
J. Mark Woods 0 *
Thomas R. Simmons 0 *
Jack R. O'Donnell 0 *
Hasso Jenss 0 *
Talton R. Embry(5) 0 *
Darius W. Gaskins, Jr. 0 *
Jay P. Gilbertson 0 *
Richard D. Jackson 0 *
George A. Poole, Jr. 0 *
Lewis Solomon 0 *
All directors and executive officers as a group (21 45 *
persons)(6)
<FN>
- -----------------------------------
* Less than 1%.
(1) The information contained in this table with respect to Common Stock
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under the
Exchange Act, including securities such person has the right to acquire within
sixty days. For purposes of computing beneficial ownership and the percentages
of outstanding shares held by each person or group or persons on a given date,
shares which such person or group has the right to acquire within 60 days after
such date are shares for which such person has beneficial ownership and are
deemed to be outstanding for purposes of computing the percentage for such
person but are not deemed to be outstanding for the purpose of computing the
percentage of any other person.
(2) The address of Magten Asset Management Corp. is 35 East 21st Street,
New York, New York 10010. See also note 5 below. Magten may be deemed the
beneficial owner of shares owned by its investment advisory clients. Magten has
shared voting (with its investment advisory clients and Mr. Embry) and shared
dispositive (with its investment advisory clients and Mr. Embry) power with
respect to 2,209,088 and 2,888,751, respectively, shares of the Common Stock.
All of such shares, which in the aggregate represent 28.6% of the Company's
voting securities, are beneficially owned by the investment advisory clients of
Magten and for which Magten disclaims beneficial ownership. The following
investment advisory clients of Magten have an interest in more than 5% of the
shares of Common Stock: General Motors Employees Domestic Group Pension Trust,
Bankers Trust as Trustee for the Hughes Master Retirement Trust and Los Angeles
Fire and Police Pension Systems - Fund 2525.
(3) The address of Franklin Resources, Inc. is 777 Mariners Island Blvd,
P.O. Box 7777, San Mateo, California 94403-7777.
(4) The address of Merrill Lynch & Co., Inc. is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281.
(5) Mr. Embry is a director, executive officer and sole stockholder of
Magten, a registered investment advisor. Mr. Embry may be deemed to be the
beneficial owner of shares owned by Magten and its investment advisory clients
as discussed in note 2 above. Mr. Embry, as trustee of four pension trusts for
the benefit of current and former employees of Magten (including himself), also
has sole voting power and dispositive power with respect to 38,662 shares of
Common Stock held by such trusts and sole voting and investment power with
respect to 1,027 shares of Common Stock held by his minor children. Mr. Embry
disclaims beneficial ownership of all of the above shares.
(6) Excludes shares beneficially owned by Mr. Embry, as to which Mr. Embry
disclaims beneficial ownership. See note 5 above.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships and related transactions that require
disclosure.
PLAN OF DISTRIBUTION
The Common Stock offered pursuant to the Rights Offering is being
offered by the Company directly to its holders of Common Stock.
The Company will pay the fees and expenses of ChaseMellon Shareholder
Services, L.L.C., as Subscription Agent, and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Rights Offering, including liabilities under the Securities Act. The Company
will pay the fees and expenses of Morrow & Co., Inc., as Information Agent, and
has agreed to indemnify the Information Agent from certain liabilities which it
may incur in connection with the Rights offering, including liabilities under
the Securities Act.
Rights Holders who desire to purchase shares of Common Stock in the
Rights Offering are urged to complete, date and sign the Subscription
Certificate accompanying this Prospectus and return it to the Subscription Agent
on or before the Expiration Date, with payment in full of the aggregate
Subscription Price. See "The Rights Offering -- Exercise of Rights." Rights may
be transferred. See "The Rights Offering -- Method of Transferring Rights." Any
questions concerning the procedure for subscribing for the purchase of shares
should be directed to the Subscription Agent or the Information Agent.
THE FINANCIAL ADVISOR
The Company engaged the Financial Advisor to provide advice to
management and to the Board of Directors of the Company in connection with the
Rights Offering. In this capacity, the Financial Advisor: (i) advised the
Company with respect to size, pricing and structure of the Rights Offering; (ii)
performed analyses to assist the Company in determining the appropriate and
desirable pricing terms for the Rights Offering, taking into account similar
transactions in similar circumstances; and (iii) advised the Company with
respect to negotiation of possible standby purchase arrangements. The Financial
Advisor was not asked to, and does not, make any recommendation with respect to
the advisability of any Rights Holder's exercise of its Rights. The Financial
Advisor has not been retained to, and will not, solicit Rights Holders or
purchase Common Stock in connection with the Rights Offering, and will not
otherwise act as an underwriter with respect to the Rights Offering.
The Company has agreed to pay the Financial Advisor a fee of $250,000,
no portion of which will depend upon the level of subscriptions in the Rights
Offering. In addition, the Financial Advisor will be reimbursed for its
out-of-pocket expenses incurred in connection with its services, including fees
and disbursements of its legal counsel. The Company has agreed to indemnify the
Financial Advisor against all liabilities related to the Financial Advisor's
services in connection with the Rights Offering, including liabilities under the
Securities Act.
The Financial Advisor also is providing advice to the Company in
connection with the Company's efforts to refinance its Senior Secured Notes and
in connection with a proposed solicitation of consents by the Company from the
holders of the Senior Subordinated Notes to proposed amendments to the indenture
for the Senior Subordinated Notes intended, among other things, to facilitate
the refinancing of the Senior Secured Notes. The Financial Advisor has provided
other services to the Company for which the Financial Advisor has received usual
and customary fees.
LEGAL MATTERS
The validity of the Common Stock has been passed upon for the Company
by Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1995, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto appearing herein, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Audited Financial Statements
Report of Independent Public Accountants...............................F-2
Consolidated Balance Sheets--September 30, 1995 and 1994 ..............F-3
Consolidated Statements of Operations--Years Ended
September 30, 1995, 1994 and 1993 ................................F-4
Consolidated Statements of Cash Flows--Years Ended
September 30, 1995, 1994 and 1993 ................................F-5
Consolidated Statements of Stockholders' Equity (Deficit)--
Years Ended September 30, 1995, 1994 and 1993 ....................F-7
Notes to Consolidated Financial Statements ............................F-8
Unaudited Financial Statements
Condensed Consolidated Balance Sheets--June 30, 1996
and September 30, 1995 .........................................F-38
Condensed Consolidated Statements of Operations--One Month
Ended June 30, 1996, Two Months Ended May 31, 1996 and
Three Months Ended June 30, 1995 ................................F-39
Condensed Consolidated Statements of Cash Flows--One Month
Ended June 30, 1996, Eight Months Ended May 31, 1996 and
Nine Months Ended June 30, 1995..................................F-41
Condensed Consolidated Statements of Stockholders' Equity
(Deficit)-- One Month Ended June 30, 1996, Eight Months
Ended May 31, 1996 and Nine Months Ended June 30, 1995...........F-42
Notes to Condensed Consolidated Financial Statements..................F-43
<PAGE>
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, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anacomp,
Inc. and subsidiaries as of September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective June 30,
1995, the Company changed its method of accounting for the measurement of
goodwill impairment.
Arthur Andersen LLP
Indianapolis, Indiana
November 10, 1995,
except with respect to Note 2
and the second paragraph of
Note 22 as to which the date
is June 4, 1996.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
------------
1995 1994
---- ----
(Dollars in thousands, except
per share amounts)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,415 $ 19,871
Accounts and notes receivable, less allowances for doubtful accounts of $7,367
and $3,550, respectively 90,091 117,441
Current portion of long-term receivables 6,386 8,021
Inventories 53,995 63,375
Prepaid expenses and other 5,306 5,421
-------- --------
Total current assets 175,193 214,129
-------- --------
Property and equipment, at cost less accumulated depreciation and amortization of
$96,898 and $100,574, respectively 44,983 66,769
Long-term receivables, net of current portion 12,322 16,383
Excess of purchase price over net assets of businesses acquired and other
intangibles, net 160,315 279,607
Deferred tax asset, net of valuation allowance of $108,400 and $57,000, respectively -- 29,000
Other assets 28,216 52,751
-------- --------
$421,029 $658,639
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $389,900 $ 45,222
Accounts payable 57,368 82,790
Accrued compensation, benefits and withholdings 20,891 16,573
Accrued income taxes 9,365 9,000
Accrued interest 40,746 19,701
Other accrued liabilities 60,587 35,027
-------- --------
Total current liabilities 578,857 208,313
-------- --------
Long-term debt, net of current portion -- 366,625
Other noncurrent liabilities 5,841 9,467
Total noncurrent liabilities 5,841 376,092
-------- --------
Commitments and Contingencies (Note 11)
Redeemable preferred stock, $.01 par value, issued and outstanding 500,000 shares
(aggregate preference value of $25,000) 24,574 24,478
-------- --------
Stockholders' equity:
Common stock, $.01 par value; authorized 100,000,000 shares; 46,187,625 and
45,728,505 issued, respectively 462 457
Capital in excess of par value of common stock 182,725 181,843
Cumulative translation adjustment 1,329 (269)
Accumulated deficit (372,759) (132,275)
-------- --------
Total stockholders' equity (deficit) (188,243) 49,756
-------- --------
$421,029 $658,639
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided $219,881 $223,511 $213,302
Equipment and supply sales 371,308 369,088 376,906
-------- -------- --------
591,189 592,599 590,208
-------- -------- --------
Operating costs and expenses:
Costs of services provided 161,211 156,214 141,998
Costs of equipment and supplies sold 279,456 264,269 262,754
Selling, general and administrative expenses 109,127 92,539 96,822
Special charges (See Note 1) 136,889 -- --
Restructuring charges (See Note 3) 32,695 -- --
-------- -------- --------
719,378 513,022 501,574
-------- -------- --------
Income (loss) from operations before interest, other income, income
taxes, extraordinary credit, and cumulative effect of (128,189) 79,577 88,634
accounting change -------- -------- --------
Interest income 2,000 3,144 3,042
Interest expense and fee amortization (70,938) (67,174) (68,960)
Financial restructuring costs (See Note 5) (5,987) -- --
Other income (expense) (212) (192) (2,225)
-------- -------- --------
(75,137) (64,222) (68,143)
-------- -------- --------
Income (loss) before income taxes, extraordinary credit and
cumulative effect of accounting change (203,326) 15,355 20,491
Provision for income taxes 35,000 8,400 8,800
-------- -------- --------
Income before extraordinary credit and cumulative effect of
accounting change (238,326) 6,955 11,691
Extraordinary credit--Reduction of income taxes arising from
utilization of tax loss carryforwards -- -- 6,900
Cumulative effect on prior years of a change in accounting for -- 8,000 --
income taxes -------- -------- --------
Net income (loss) (238,326) 14,955 18,591
Preferred stock dividends and discount accretion 2,158 2,158 2,158
-------- -------- --------
Net income available to common stockholders $(240,484) $ 12,797 $ 16,433
========= ======== ========
Earnings (loss) per common and common equivalent share:
Income (loss), net of preferred stock dividends and discount
accretion $ (5.22) $ .10 $ .22
Extraordinary credit -- -- .17
Cumulative effect on prior years of a change in accounting for
income taxes -- .17 --
-------- -------- --------
Net income (loss) available to common stockholders $ (5.22) $ .27 $ .39
========= ======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
1995 1994 1993
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(238,326) $ 14,955 $ 18,591
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 43,375 40,649 38,208
Cumulative effect of a change in accounting for income taxes -- (8,000) --
Provision (benefit) for losses on accounts receivable 2,742 (695) (892)
Provision for inventory valuation 10,956 -- --
Deferred taxes 29,000 6,000 --
Special charges (See Note 1) 136,889 -- --
Loss (gain) on disposition of assets 6,308 776 (721)
Change in assets and liabilities net of effects from acquisitions:
Decrease in accounts and long-term receivables 30,948 3,040 1,215
Decrease (increase) in inventories and prepaid expenses (1,612) 15,254 1,308
Increase in other assets (8,207) (11,349) (5,329)
Increase (decrease) in accounts payable and accrued expenses 11,465 (3,623) 1,125
Decrease in other noncurrent liabilities (3,626) (4,323) (7,613)
--------- -------- --------
Net cash provided by operating activities 19,912 52,684 45,892
--------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets 18,777 7,805 15,956
Purchases of property, plant and equipment (14,372) (18,868) (20,726)
Proceeds from notes receivable -- ---- 1,343
Payments to acquire companies and customer rights (1,262) (14,565) (1,114)
--------- -------- --------
Net cash provided by (used in) investing activities 3,143 (25,628) (4,541)
--------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 743 1,484 2,262
Proceeds from revolving line of credit and long-term borrowings 22,529 39,000 39,799
Principal payments on long-term debt (45,859) (71,095) (77,958)
Preferred dividends paid (1,031) (2,062) (2,062)
Payments related to the issuance of debt and equity -- -- (7,707)
--------- -------- --------
Net cash used in financing activities (23,618) (32,673) (45,666)
--------- -------- --------
Effect of exchange rate changes on cash 107 566 (644)
--------- -------- --------
Decrease in cash and cash equivalents (456) (5,051) (4,959)
Cash and cash equivalents at beginning of year 19,871 24,922 29,881
--------- -------- --------
Cash and cash equivalents at end of year $ 19,415 $ 19,871 $ 24,922
========= ========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
1995 1994 1993
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash paid (refunded) during the year for:
Interest $39,426 $57,781 $59,552
Income taxes 4,128 2,007 3,468
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1995, 1994 and 1993, 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
-----------------------
1995 1994 1993
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash paid $1,262 $14,565 $1,114
Credit memos issued -- 3,085 150
Notes payable issued -- 4,290 3,170
Stock issued -- 17,201 --
------ ------- ------
Total fair value of acquisitions $1,262 $39,141 $4,434
====== ======= ======
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Year Ended September 30, 1995, 1994 and 1993
--------------------------------------------
Capital in
Excess of
Par Value Cumulative
Common of Common Transaction
Stock Stock Adjustment Deficit Total
----- ----- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
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
Common stock issued for purchases under the
Employee Stock Purchase Plan 3 689 -- -- 692
Exercise of stock options 1 50 -- -- 51
Preferred stock dividends -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock discount -- -- -- (96) (96)
Translation adjustments for year -- -- 1,598 -- 1,598
Graham stock issuance 1 143 -- -- 144
Net loss for the year -- -- -- (238,326) (238,326)
---- -------- ------ --------- ---------
BALANCE AT SEPTEMBER 30, 1995 $462 $182,725 $1,329 $(372,759) $(188,243)
==== ======== ====== ========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
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.
Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenues from sales of products and services or from lease of equipment
under sales-type leases are recorded based on shipment of products or
performance of services. Under sales-type leases, the present values 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. Revenues from
maintenance contracts are deferred and recognized in earnings on a pro rata
basis over the period of the agreements.
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:
September 30
------------
1995 1994
---- ----
(Dollars in thousands)
Finished goods $38,702 $41,661
Work in process 4,955 5,903
Raw materials and supplies 10,338 15,811
------- -------
$53,995 $63,375
======= =======
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.
Debt Issuance Costs
The Company capitalizes all costs related to its issuance of debt and
amortizes those costs using the effective interest method over the life of the
related debt instruments. Remaining debt issuance costs of $12.7 million, and
$18.4 million at September 30, 1995 and 1994, respectively, are included in
"Other Assets" in the accompanying Consolidated Balance Sheets. During the
fiscal years 1995, 1994 and 1993, the Company amortized $5.7 million, $5.3
million and $5.0 million of debt issuance costs which are included in "Interest
Expense and Fee Amortization" in the accompanying Consolidated Statement of
Operations.
Goodwill
Excess of purchase price of net assets of businesses acquired ("goodwill")
is amortized on the straight-line method over the estimated periods of future
demand for the product acquired. Goodwill related to magnetics' products of $5.4
million and $5.2 million, net of accumulated amortization of $575,334 and
$132,375, at September 30, 1995 and 1994, respectively, is being amortized over
15 years. Goodwill related to the micrographics business which includes
supplies, COM systems, micrographics services and maintenance services is
primarily being amortized over 40 years. When factors indicate that goodwill
should be evaluated for impairment, Anacomp historically has evaluated goodwill
based on comparing the unamortized balance of goodwill to undiscounted operating
income over the remaining goodwill amortization period. Effective June 30, 1995,
Anacomp elected to modify its method of measuring goodwill impairment to a fair
value approach. If it is determined that impairment has occurred, the excess of
the unamortized goodwill over the fair value of the goodwill applicable to the
business unit will be charged to operations. For purposes of determining fair
value, the Company values the goodwill using a multiple of cash flow from
operations based on consultation with its investment advisors. Anacomp has
concluded that fair value is a better measurement of the value of goodwill
considering the Company's highly leveraged financial position and the
circumstances discussed in Note 4.
As discussed in Note 4, Anacomp has recently revised its projected
operating results through 1999. This revision along with applying Anacomp's
revised goodwill accounting policy resulted in a write-off of $108.0 million of
goodwill related to the micrographics business for the year ended September 30,
1995. This write-off is reflected in "Special Charges" in the accompanying
Consolidated Statement of Operations.
Other Intangibles
Other intangibles of $21.3 million and $25.2 million, net of accumulated
amortization of $16.1 and $12.0 million, at September 30, 1995 and 1994,
respectively, 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. These unamortized costs are evaluated for
impairment each period by determining their net realizable value.
Research and Development
The costs associated with research and development programs are expensed as
incurred, and amounted to $2.2 million in 1995, $3.0 million in 1994 and $2.5
million in 1993.
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 period by determining their net realizable value. Such costs
are amortized over the greater of the estimated units of sale or under the
straight-line method not to exceed five years. Due to lower than expected sales
of new software products introduced in 1995 and certain other matters as
discussed in Note 2, Anacomp recently revised its projected future sales and
operating results of software products through 1999. As a result, during 1995
Anacomp wrote off $20.3 million of deferred software costs and established a
reserve of $8.6 million (of which $7.7 million was outstanding at September 30,
1995) for future payments to Pennant Systems for software royalty and system
support obligations which are not recoverable based on these revised
projections. These charges are reflected in "Special Charges" in the
accompanying Consolidated Statement of Operations. Unamortized deferred software
costs remaining as of September 30, 1995 total $7.7 million and are included in
"Other Assets" on the accompanying Consolidated Balance Sheets.
Sale-Leaseback Transactions
Anacomp entered into sale-leaseback transactions of $19.3 million in 1995,
$11.9 million in 1994 and $9.9 million in 1993 relating to COM systems installed
in the Company's data service centers. Part of the proceeds were treated as
fixed asset sales and the remainder as sales of equipment. Revenues of $3.5
million, $5.6 million and $4.7 million were recorded for the years ended
September 30, 1995, 1994 and 1993, respectively. All profits were deferred and
are being recognized over the applicable leaseback periods.
Accrued Lease Reserves
Other noncurrent liabilities include 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 amounts were $7.5 million and $12.5
million at September 30, 1995 and 1994, respectively. The current portion of
these obligations was $2.0 million and $3.4 million as of September 30, 1995 and
1994, respectively, and is included in "Other accrued liabilities" in the
accompanying Consolidated Balance Sheets.
Income Taxes
In general, Anacomp's practice has been to reinvest the earnings of its
foreign subsidiaries in those operations and to repatriate those earnings only
when it was advantageous to do so. During 1995, Anacomp changed its practice
whereby the Company now intends to repatriate these earnings in the foreseeable
future. As a result, Anacomp recorded deferred taxes of $8.8 million on all
undistributable 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 14. During 1995, the deferred tax asset was reduced to
zero as a result of the events described in Note 2.
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.
NOTE 2 - FINANCIAL RESTRUCTURING DEVELOPMENTS
For the year ended September 30, 1995, the Company reported a $238.3
million net loss. The Company is highly leveraged, and certain developments had
a material adverse effect on the Company's short term liquidity. Although
revenues for the Company's core micrographic businesses had been declining over
the last several fiscal years due to many factors, including the adverse effect
of digital technologies, the Company believed that these declines would
stabilize. However, based on weaker than anticipated results, including
disappointing sales performance for the Company's new products, the Company did
not have sufficient cash to make certain principal and interest payments on its
existing debt obligations. As a result, on January 5, 1996, the Company filed a
prenegotiated Debtors' Joint Plan of Reorganization ("Plan") with the U.S.
Bankruptcy Court under Chapter 11 of the Bankruptcy Code.
On May 20, 1996, the U.S. Bankruptcy Court confirmed the Company's Third
Amended Joint Plan of Reorganization (the "Plan of Reorganization"), and on June
4, 1996, the Company emerged from bankruptcy. Pursuant to the Plan of
Reorganization, on such date certain indebtedness of the Company was canceled in
exchange for cash, new indebtedness, and/or new equity interests, certain
indebtedness was reinstated, certain other prepetition claims were discharged,
certain claims were settled, executory contracts and unexpired leases were
assumed or rejected, and the members of a new Board of Directors of the Company
were designated. The Company simultaneously distributed to creditors
approximately $22,000,000 in cash, $112,190,000 principal amount of its 11 5/8%
Senior Secured Notes due 1999 (the "Senior Secured Notes") and $160,000,000
principal amount of its 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), all of which are currently outstanding, equity securities
consisting of 10,000,000 shares of common stock and 362,694 warrants, each of
which is convertible into one share of common stock during the five year period
ending June 3, 2001 at an exercise price of $12.23 per share.
As noted above, upon emerging from bankruptcy, the Company's Revolving
Loan, Multi-Currency Revolving Loan, Terms Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures, all described in Note 11, were canceled. In
addition, the Company's 8.25% Cumulative Convertible Redeemable Exchangeable
Preferred Stock described in Note 12 and the Warrants and Stock Options
described in Note 13 were canceled. In connection therewith, the Company issued
new debt and equity securities as mentioned above and described in more detail
below:
Senior Secured Notes
On June 4, 1996, the Company issued $112,190,000 aggregate principal amount
of 11 5/8% Senior Secured Notes due September 30, 1999. Interest is payable on
March 31 and September 30 each year, beginning on September 30, 1996. The
Company is required to redeem a portion of the notes at par on each interest
payment date according to the following schedule:
September 30, 1996 $14,288,000
March 31, 1997 $14,286,000
September 30, 1997 $16,163,000
March 31, 1998 $16,161,000
September 30, 1998 $17,100,000
March 31, 1999 $17,100,000
September 30, 1999 $17,092,000
The notes are redeemable at the option of the Company, in whole or in part,
at any time, at 100% of the principal amount thereof, plus accrued and unpaid
interest. The Company is required in certain circumstances to make offers to
purchase the Senior Secured Notes then outstanding at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, with the
net cash proceeds of certain sales or other distributions of assets by the
Company or certain of its subsidiaries. Also, upon a change of control, the
Company is required to make an offer to purchase the Senior Secured Notes then
outstanding at a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest.
The Senior Secured Notes are senior secured obligations of the Company and
will rank pari passu with all other existing and future senior obligations of
the Company, and senior to all existing and future subordinated or junior
indebtedness of the Company. The collateral securing the Senior Secured Notes
consists of substantially all of the assets of the Company and all future
acquired assets of the Company to the extent such assets are acquired by the
Company without secured financing.
The indenture related to the Senior Secured Notes contains 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 Senior Secured Notes, (vii) consolidations and mergers
and transfers of all or substantially all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions. The
indenture also contains a covenant requiring the Company to maintain a minimum
interest coverage ratio.
Senior Subordinated Notes
On June 4, 1996, the Company issued $160,000,000 aggregate principal amount
of 13% Senior Subordinated Notes due 2002. Interest is payable on June 30 and
December 31 each year, beginning on December 31, 1996. For the interest payable
on December 31, 1996 and June 30, 1997, the Company will provide Payment-In-Kind
("PIK") notes in satisfaction of its interest obligation rather than a cash
settlement. The PIK notes will have a principal amount corresponding to the
amount of interest due on the notes on the related interest payment date.
The Company is required to redeem prior to June 30, 2001 the principal
amount of the Senior Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date, plus any accrued and unpaid interest on
the PIK notes, at a redemption price equal to the price that would be then
applicable in the case of an optional redemption. The remaining Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time, at various redemption prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001. Thereafter, the Senior
Subordinated Notes may be redeemed at the aggregate principal amount thereof.
Also, upon a change in control, the Company is required to make an offer to
purchase the Senior Subordinated Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and rank pari passu with all other existing and future
subordinated obligations of the Company. The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.
The indenture related to the Senior Subordinated Notes contains 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 of
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) sale/leaseback
transactions by the Company and certain of its subsidiaries, (vii)
consolidations and mergers and transfers of all or substantially all of the
Company's and certain of its subsidiaries' assets and (viii) capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions. The indenture also contains a covenant requiring
the Company to maintain a minimum interest coverage ratio.
New Common Stock and Warrants
On June 4, 1996, the Company issued 10,000,000 shares of new Common Stock
to certain creditors. In addition, the Company also issued 362,964 warrants to
certain creditors and previous common and preferred stockholders. Each warrant
is convertible into one share of new common stock at an exercise price of $12.23
per share. The warrants expire on June 3, 2001. In addition, the Plan of
Reorganization approved for future issuance up to 810,811 shares of additional
new Common Stock to the management of the Company.
Pro Forma Unaudited Financial Information
See Note 23 for the Pro Forma Unaudited Financial Information related to
the consummation of the Plan of Reorganization.
NOTE 3 - RESTRUCTURING CHARGES
Included in the operating results for 1995 are restructuring charges of
$32.7 million. These charges are the result of the Company's reassessment of its
strategy for ongoing financial improvement and a decision to downsize or exit
certain areas of its business. Specifically, the Company closed its Omaha,
Nebraska magnetic media manufacturing facility, exited the manufacture of
readers and reader/printers at its San Diego, California manufacturing facility,
and reduced headcount worldwide. These activities were completed by March 31,
1996. The restructuring charges included severance costs of $5.9 million, which
includes personnel related to Omaha, Nebraska, reader and reader/printer
manufacturing and other various personnel associated with the worldwide
headcount reduction. Approximately 400 people were terminated pursuant to these
plans. Also included in restructuring charges are inventory write-downs of $9.1
million, excess facility reserves of $7.7 million and other reserves of $10.0
million.
NOTE 4 - GOODWILL
Goodwill related to the micrographics business is summarized as follows
September 30
------------
1995 1994
---- ----
(Dollars in thousands)
Goodwill $315,561 $314,865
Less goodwill write-off (108,000) --
Less accumulated amortization (73,988) (65,698)
-------- --------
$133,573 $249,167
======== ========
The developments discussed in Notes 1, 2 and 3 have significantly
constrained Anacomp's ability to finance certain previously projected
activities. In addition, Anacomp failed to achieve its original projections of
fiscal 1995 operating results and has experienced lower than expected sale of
new software products first introduced in January 1995. In light of Anacomp's
withdrawn note offering, disappointing recent financial performance and default
on its indebtedness, the Company prepared a revised business plan and operating
forecast through 1999.
Based on these developments and in connection with the change in accounting
discussed in Note 1, Anacomp determined that goodwill had been impaired and
measured the impairment based on a fair value approach. As required by generally
accepted accounting principles, this accounting change, which amounted to a
charge of $108.0 million, was recorded as a change in estimate and was included
in the results of operations for the quarter ended June 30, 1995.
NOTE 5 - FINANCIAL RESTRUCTURING COSTS
On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225.0 million Senior Secured Notes and a related offer to purchase
up to $50.0 million of the Company's outstanding 15% Senior Subordinated Notes.
The offering would have deferred an aggregate of $153.0 million in scheduled
principal payments in fiscal years 1995 through 1998, thereby providing Anacomp
with increased liquidity and additional cash for product development. Also, as
mentioned in Note 2, the Company has been engaged in continuous efforts since
May 1995 to formulate a restructuring plan to satisfy its various investor
constituencies. Costs directly related to these activities of $6.0 million are
included as "Financial restructuring costs" in the accompanying Consolidated
Statements of Operations.
NOTE 6 - 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, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Long-Term Debt:
Revolving Loan $31,328 $31,328 $ 23,000 $ 23,000
Multicurrency Revolving Loan 28,813 28,813 20,665 20,665
Term Loans 13,039 13,039 40,261 40,261
Series A Senior Notes -- -- 3,548 3,548
Series B Senior Notes 58,908 58,908 67,500 74,410
15% Senior Subordinated Notes 220,281 181,224 219,384 249,357
13.875% Convertible Subordinated Debentures 21,155 4,376 20,922 23,232
9% Convertible Subordinated Debentures 10,479 1,880 10,479 10,479
Redeemable Preferred Stock 24,574 -- 24,478 19,371
</TABLE>
The September 30, 1995 estimated fair values of Long-Term Debt and
Redeemable Preferred Stock are based on a restructuring proposal prepared as a
result of discussion and negotiations with representatives of the lenders in
connection with a "prepackaged" plan of reorganization.
The September 30, 1994 estimated fair values of Long-Term Debt and
Redeemable Preferred Stock are based on quoted market values or discounted
future cash flows, assuming current interest rates.
NOTE 7 - ACQUISITIONS
During the three years ended September 30, 1995, 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 1995
During fiscal 1995, Anacomp made no significant acquisitions.
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 $39.1 million of which
approximately $24.2 million 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 $17.2 million of its common stock and
increased debt and accrued liabilities by $4.3 million.
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:
(Dollars in
thousands)
Cash paid to NBS shareholders....................... $ 7,400
Common stock issued to NBS shareholders............. 7,400
Acquisition costs incurred.......................... 416
-------
$15,216
Anacomp issued 1,973,000 common shares to the NBS shareholders at a price
of $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
when dilutive.
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:
(Dollars in
thousands)
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
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.
Contingent consideration of $7.6 million 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 and the estimate for fiscal 1995 is zero.
Anacomp also issued 360,000 common shares to a Graham creditor at $3.57 per
share to reduce the note payable to $4.2 million. 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 $2.5
million at September 30, 1995.
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
$4.4 million, of which approximately $1.9 million has been assigned to excess of
purchase price over net assets of businesses acquired and other intangible
assets.
NOTE 8 - 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.
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, 1995, $720,000
is due from SKC. Costs of $3.4 million associated with the Supply Agreement have
been deferred and are being amortized over the life of the Supply Agreement. The
unamortized balance at September 30, 1995 was $2.8 million.
SKC is providing Anacomp with a $25.0 million trade credit arrangement
which expires December 31, 2001. However, since Anacomp is in default under its
various debt agreements as discussed in Note 11, SKC has the option to terminate
the Supply Agreement at any time. If SKC were to terminate the Supply Agreement,
all amounts owed pursuant to the trade credit arrangement or the Supply
Agreement become immediately due and payable. The trade credit arrangement bears
interest at 2.5% over the prime rate of The First National Bank of Boston (8.75%
as of September 30, 1995). Anacomp has provided SKC a purchase money security
interest of up to $10.0 million in products purchased by Anacomp under the
Supply Agreement.
<PAGE>
NOTE 9 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30
Estimated Useful ------------
Life in Years 1995 1994
------------- ------------ ------------
(Dollars in thousands)
Land and buildings 10-40 $ 5,283 $ 7,590
Office furniture 3-12 12,141 12,553
Manufacturing equipment and
tooling 2-10 31,351 28,901
Field support spare parts 4-7 21,764 25,555
Leasehold improvements Term of Lease 10,782 12,826
Equipment leased to others 2-4 1,838 1,824
Processing equipment 3-12 58,722 78,094
--------- ---------
141,881 167,343
Less accumulated depreciation
and amortization (96,898) (100,574)
--------- ---------
$ 44,983 $ 66,769
========= =========
NOTE 10 - LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
September 30
1995 1994
------------ ------------
(Dollars in thousands)
Lease contracts receivable $15,678 $21,160
Other lease receivables -- --
Notes receivable from asset sales 2,619 1,015
Other 411 2,229
------- -------
18,708 24,404
Less current portion (6,386) (8,021)
------- -------
$12,322 $16,383
======= =======
Other long-term receivables include $1.1 million at September 30, 1994 due
from officers. This receivable was settled during 1995.
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:
Year Ended
September 30
------------
(Dollars in thousands)
1996 $7,024
1997 5,337
1998 3,328
1999 1,971
2000 736
-------
18,396
Less deferred interest (2,718)
-------
$15,678
=======
<PAGE>
NOTE 11 - LONG-TERM DEBT
Long-term debt is comprised of the following:
September 30
1995 1994
------------ ------------
(Dollars in thousands)
Revolving Loan at 8.63% and 7.81%, respectively $ 31,328 $ 23,000
Multicurrency Revolving Loan at 8.44%
and 7.67%, respectively 28,813 20,665
Term Loans at 8.56% and 7.56%, respectively 13,039 40,261
Series A Senior Notes at 7.56% -- 3,548
Series B Senior Notes at 12.25% 58,908 67,500
15% Senior Subordinated Notes (net of
unamortized discount of $4,619 and
$5,516, respectively) 220,281 219,384
13.875% Convertible Subordinated Debentures due
January 15, 2002 (net of unamortized discount
of $2,077 and $2,309, respectively) 21,155 20,922
9% Convertible Subordinated Debentures due
January 15, 1996 10,479 10,479
Installment note payable at 10% due July 15, 1997 2,513 3,895
Other 3,384 2,193
--------- --------
389,900 411,847
Less current portion (389,900) (45,222)
--------- --------
$ -- $366,625
========= ========
On April 26, 1995, the Company failed to make scheduled principal payments
of $12.5 million on its Term Loan and $7.5 million on its Series B Senior Notes.
The Company failed on May 1, 1995 to make a scheduled interest payment of $17.0
million on its 15% Senior Subordinated Notes (the "15% Notes") and on July 17,
1995 to make a scheduled interest payment of $1.6 million on its 13.875%
Convertible Subordinated Debentures. As a result of these failures and the
violation of various debt covenants, the Company is in default of all of its
debt and all such amounts are classified as current.
The Term Loan, Revolving Loans and Series B Senior Notes call for the
payment of default interest in the amount of 2% annually of the outstanding
principal. The 15% Notes call for the payment of default interest in the amount
of 1% annually of the principal amount of the Notes and for the payment of
interest on unpaid scheduled interest in the amount of 16% annually.
The Company has accrued default interest and interest on unpaid scheduled
interest as of September 30, 1995 in the amount of $3.3 million.
The Company has agreed with its Senior Creditors (collectively the holders
of the Term Loan, Revolving Loans and Series B Senior Notes) to continue to pay
interest monthly on its Senior Debt at the regular non-default rate. At
September 30, 1995, the Company was current in its payment of such interest
obligations.
The Company also failed on October 15, 1995 to make a $345,000 payment on
the installment note payable, and on October 26, 1995 to make a scheduled Term
Loan principal payment of $539,000 and a scheduled Series B Senior Note
principal payment of $7.5 million. On October 26, 1995, the Company's Revolving
Loans became due, but were not repaid. On November 1, 1995, the Company failed
to make a scheduled interest payment on its 15% Notes in the amount of $17.2
million.
The Company is currently in negotiations with its Senior and Subordinated
Creditors to arrive at a resolution to the above described defaults and intends
to continue to defer the above payments until an agreement is reached.
The Multicurrency Revolving Loan has been borrowed by certain of the
Company's foreign subsidiaries and by the Company in U.S. Dollars and German
Marks in an equivalent amount of $28.8 million, and carries an interest rate of
275 basis points (excluding default interest) 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 Revolving Loan carries an interest rate of 275 basis points (excluding
default interest) over the one, two, three or six-month reserve adjusted LIBOR,
selected at the Company's option.
The Term Loans and Series A Senior Notes carry an interest rate of 275
basis points (excluding default interest) over the three-month LIBOR rate.
The Series B Senior Notes carry an interest rate of 12.25% (excluding
default interest).
Subject to certain exceptions, 100% of proceeds from the sale of assets
must be applied to repayment of the Senior Debt.
The 15% Notes were issued in 224,900 units of $1,000 and 30.351 and
detachable warrants to purchase Anacomp Common Stock at $1.873 per share.
Accordingly, capital surplus was increased by $8,996,000 in fiscal 1991 with the
issuance of these warrants and the notes were recorded at their discounted value
of $215.9 million and are being accreted to their face value through the
original due date in 2000.
The Master Agreement, which covers the Term Loans, the Revolving Credit
Commitment, and the Series A 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.
The Master Agreement also provided for the availability of letters of
credit under the Revolving Loan. As of September 30, 1995, letters of credit for
approximately $4.5 million have been issued. The revolving loan expired on
October 26, 1995 without the Company repaying or funding the outstanding amount
of $4.5 million in letter of credit commitments resulting in such commitments
remaining outstanding.
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 12. 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 are convertible into
1,327,542 shares of Anacomp 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 with an original due date of
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.
NOTE 12 - 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 original 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.
Dividends on the preferred shares have accrued but not paid since the March
15, 1995 quarterly dividend payment. Interest on the unpaid dividends compounds
quarterly at an annual rate of 8.25%. If the Company is in arrears for the
equivalent of four quarterly dividend payments, then two directors are to be
added to the Board of Directors. The holders of the preferred shares have the
exclusive right to elect the two additional directors.
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, 1995.
NOTE 13 - 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.
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 as 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, 1995 and 1994 (see Note 12).
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 1,401,328, 725,827 and
895,145 at September 30, 1995, 1994 and 1993, respectively. Options outstanding,
of which 2,512,992 are exercisable as of September 30, 1995, are as follows:
Option Price
Shares Per Share
--------- -------------
Outstanding at September 30, 1992 3,680,709 $1.000-$7.875
Granted 1,308,834 2.750- 9.000
Canceled (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
Canceled (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
Granted 1,355,736 .563- 2.500
Canceled (2,010,753) .563- 4.750
Expired (20,484) 2.000- 4.500
Exercised (24,863) .563- 2.000
---------- -------------
Outstanding at September 30, 1995 3,507,895 $.563-$9.000
========= =============
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.
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, 1995 approximately 23.4 million 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 14 - INCOME TAXES
The components of income (loss) before income taxes and extraordinary
credits were:
Year Ended September 30
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
United States $ (209,151) $ 7,143 $10,761
Foreign 5,825 8,212 9,730
---------- ------- -------
$ (203,326) $15,355 $20,491
========== ======= =======
The components of income tax expense after utilization of net operating
loss carryforwards and the adjustment of the tax reserves are summarized below:
Year Ended September 30
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Federal $ -- $ -- $ 5,800
Foreign 4,800 3,300 4,800
State -- 300 1,900
-------- ------- -------
4,800 3,600 12,500
Tax reserve adjustment 1,200 (1,200) (3,700)
Deferred 29,000 6,000 --
-------- ------- -------
Continuing operations 35,000 8,400 8,800
Extraordinary credit, reduction of
income taxes arising from
carryforward of prior year's
operating losses -- -- (6,900)
$ 35,000 $ 8,400 $ 1,900
======== ======= =======
The following is a reconciliation of the United States federal statutory
rate to the rate used for the provision for income taxes:
Year Ended September 30
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Provision for income taxes at
U.S. statutory rate................ $(71,200) $5,374 $7,131
Increase in deferred tax asset
valuation allowance ............... 51,400 -- --
Nondeductible amortization and
write-off of intangible assets ..... 40,500 3,175 2,973
U.S. tax on distributed and
undistributed foreign earnings..... 12,300 -- --
Tax reserve adjustment............... 1,200 (1,200) (3,700)
State and foreign income taxes....... 2,800 821 2,140
Other................................ (2,000) 230 256
------- ------ ------
$35,000 $8,400 $8,800
======= ====== ======
The Company adopted FAS 109 in the first quarter of fiscal 1994 and
recorded a deferred tax asset of $95.0 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 $60.0 million
reducing the deferred tax asset to a net $35.0 million. Recognition of the
deferred tax asset reduced goodwill by $27.0 million and provided a cumulative
effect increase to income of $8.0 million. During 1994, the net deferred tax
asset was reduced to $29.0 million, reflecting usage of the asset to reduce
income taxes payable by $6.0 million. During 1995, tax effects of future
differences and carryforwards increased from $86.0 million to $108.4 million, an
increase of $22.4 million resulting from the tax effect of the 1995 taxable loss
($5.6 million) and the tax effect of an increase in cumulative temporary
differences ($16.8 million) between income reported for financial reporting
purposes and for tax purposes. The valuation allowance was increased from $57.0
million to $108.4 million to reduce the net deferred tax asset to zero as a
result of the uncertainty associated with the utilization of these assets in
future periods due to the events described in Note 2.
The components of deferred tax assets and liabilities at September 30, 1995
and 1994 are as follows:
September 30, September 30,
1995 1994
------------- -------------
(Dollars in thousands)
Tax effects of future tax deductible
differences related to:
Inventory reserves $ 5,700 $ 2,600
Depreciation 1,700 1,600
Building reserves 1,800 5,000
EPA reserve 2,500 2,300
Sale/leaseback of assets 2,800 900
Restructuring reserves 8,000 --
Asset sale 3,200 --
Capitalized software 1,600 --
Bad debt reserve 2,100 --
Other net deductible differences 5,500 4,100
Tax effects of future taxable differences
related to:
Undistributed foreign earnings (8,800) --
Leases (3,300) (4,500)
Capitalized software -- (6,000)
--------- --------
Net tax effects of future differences 22,800 6,000
--------- --------
Net tax effects of carryforward benefits:
Federal net operating loss carryforwards 78,600 73,000
Federal general business tax credits 3,000 3,000
Foreign tax credits 4,000 4,000
--------- --------
Tax effects of carryforwards 85,600 80,000
--------- --------
Tax effects of future differences and
carryforwards 108,400 86,000
Less valuation allowance (108,400) (57,000)
--------- --------
Net deferred tax asset $ -- $ 29,000
========= ========
At September 30, 1995, the Company has NOLs of approximately $218.0 million
available to offset future taxable income. This amount will increase to $281.0
million as certain timing differences reverse in future periods. The Company
also has tax credit carryforwards of $3.0 million available to reduce future tax
liabilities, including $1.0 million of preacquisition tax credits. The NOLs
expire commencing in 1996 ($2.0 million) with remaining amounts in various
periods through 2010. The tax credit carryforwards expire substantially in 1997.
During 1995, 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 an unfavorable adjustment to federal
and foreign income tax reserves in 1995 of $1.2 million and favorable
adjustments in 1994 and 1993 to federal and foreign income tax reserves of $1.2
million and $3.7 million, respectively. The adjustments are reflected as a
charge or credit to income tax expense.
The 1993 provision for income taxes includes an amount which is offset by
the utilization of federal and foreign NOLs. The tax benefit from utilization of
these NOLs prior to the adoption of FAS 109 is reported as an extraordinary
credit in the Consolidated Statements of Operations. The net tax provision
results from foreign and state income taxes which cannot be reduced by NOLs from
prior years.
NOTE 15 - 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 noncancelable operating lease obligations, including
the unfavorable lease commitments and vacant facilities discussed in Note 1,
which extend beyond one year:
Year Ended
September 30
------------
(Dollars in
thousands)
1996 23,508
1997 18,822
1998 15,540
1999 7,789
2000 4,558
2000 and thereafter 28,985
-------
$99,202
Less liabilities recorded as of September 30, 1994
related to unfavorable lease commitments and
future lease costs for vacant facilities (6,664)
-------
$92,538
=======
The total of future minimum rentals to be received under noncancelable
subleases related to the above leases is $1.9 million. No material losses in
excess of the liabilities recorded are expected in the future.
Anacomp leases certain equipment installed in its data service centers. As
a result of the Company's default under its debt obligations, as more fully
discussed in Notes 2 and 11, Anacomp is in default under these lease agreements
whereby the lessors have the right to require that Anacomp prepay the remaining
future lease payments. Because the equipment lease payments have been made and
are expected to be made in a timely manner, the Company does not expect that the
lessors will assert this right under these lease agreements.
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 resulted in the XFP 2000 being able to interpret AFP data streams,
including those containing fonts, logos, signatures and other images on
microfiche.
As consideration for the development of the AFP, Anacomp paid Pennant
Systems a development fee of $6.5 million. Anacomp must also pay Pennant Systems
minimum annual royalty payments for the licensed system installations for six
years. The minimum royalty payments for years one through three are $1.5 million
per year and $1.0 million 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 $5.7 million. As of September 30, 1995, Anacomp
established a reserve of $7.7 million for future payments to Pennant Systems for
software royalty and systems support obligations which are not recoverable as
more fully discussed in Note 1.
The Company sold $10.5 million and $5.9 million of lease receivables in the
years ended September 30, 1995 and 1994, respectively. Under the terms of the
sale, the purchasers have recourse to the Company should the receivables prove
to be uncollectible. The amount of recourse at September 30, 1995 is $5.5
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 16 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended September 30
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Maintenance and repairs $16,609 $12,759 $11,765
Depreciation and amortization:
Property and equipment 19,406 17,524 17,149
Deferred software costs 3,449 3,673 2,873
Intangible assets 13,143 13,418 12,984
Rent and lease expense 23,755 19,371 19,312
NOTE 17 - OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
Year Ended
September 30
------------
1995 1994
---- ----
(Dollars in thousands)
Deferred profit on sale/leaseback transactions $14,559 $ 9,165
EPA reserve 7,350 6,420
Accrued lease reserve 7,672 --
Other 31,006 19,442
------- -------
$60,587 $35,027
======= =======
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.
NOTE 18 - EARNINGS PER SHARE
The computation of earnings (loss) 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 (loss) 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 (loss) per share is:
1995 1994 1993
---- ---- ----
For earnings (loss) per common
and common equivalent share 46,061,818 47,335,723 42,749,933
For earnings (loss) per share
assuming full dilution 46,061,818 47,534,485 42,964,380
NOTE 19 - 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, 1995, 1994 and 1993 is as follows:
U.S. International Elimination Consolidated
----------- ------------- ----------- ------------
(Dollars in thousands)
1995
Customer sales $ 404,239 $186,950 $ -- $ 591,189
Inter-geographic 24,973 -- (24,973) --
- ---------------- --------- -------- -------- ---------
Total sales $ 429,212 $186,950 $(24,973) $ 591,189
========= ======== ======== =========
Operating Income $(135,811) $ 7,622 $ -- $(128,189)
========= ======== ======== =========
Identifiable assets $ 350,310 $ 70,719 $ -- $ 421,029
========= ======== ======== =========
U.S. International Elimination Consolidated
----------- ------------- ----------- ------------
(Dollars in thousands)
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 $590,743 $107,492 $ -- $698,235
======== ======== ======== ========
U.S. International Elimination Consolidated
----------- ------------- ----------- ------------
(Dollars in thousands)
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 $570,863 $ 72,685 $ -- $643,548
======== ======== ======== ========
NOTE 20 - QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
Fiscal 1995
<S> <C> <C> <C> <C>
Revenues $ 151,812 $ 151,489 $ 148,933 $ 138,955
Gross profit 42,089 39,667 39,147 29,619
Net income (loss) 281 (7,664) (138,829) (92,114)
Preferred stock dividends and discount
accretion 540 539 540 539
--------- ---------- --------- ----------
Net loss to common stockholders $ (259) $ (8,203) $(139,369) $ (92,653)
Earnings (loss) per common share (primary ========== ========== ========== ==========
and fully diluted):
Net Loss to common stockholders $ (.01) $ (.18) $ (3.02) $ (2.01)
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal 1994
Revenues $ 136,949 $ 146,569 $ 145,581 $ 163,500
Gross profit 41,337 42,049 40,944 47,786
Income before cumulative effect of
accounting change 1,401 942 2,185 2,427
Cumulative effect on prior years of a
change in accounting for income taxes 8,000 -- -- --
----- ----- ----- ------
Net income 9,401 942 2,185 2,427
Preferred stock dividends and discount
accretion 540 539 540 539
------- ------- -------- --------
Net income available to common stockholders $ 8,861 $ 403 $ 1,645 $ 1,888
========= ========= ========= =========
Earnings per common share (primary and
fully diluted):
Income before cumulative effect of
accounting change (net of preferred
stock dividends) $ .02 $ .01 $ .03 $ .04
Net income available to common stockholders
$ .20 $ .01 $ .03 $ .04
</TABLE>
<PAGE>
NOTE 21 - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The following is a summary of activity in the Company's valuation and
qualifying accounts and reserves for the fiscal years ended September 30, 1995,
1994 and 1993:
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- --------- -------- ---------- ---------
YEAR ENDED SEPTEMBER 30, 1995:
Allowance for doubtful accounts $3,550 $4,670 $ 853[1] $ 7,367
====== ====== ========== ========
YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts $4,245 $ (268) $ 427[1] $ 3,550
====== ======= ========== ========
YEAR ENDED SEPTEMBER 30, 1993:
Allowance for doubtful accounts $7,365 $ 669 $ 3,789[1] $ 4,245
====== ======= ========== ========
[1] Uncollectible accounts written off, net of recoveries.
NOTE 22 - SUBSEQUENT EVENTS
Subsequent to September 30, 1995, Anacomp sold its Image Conversion
Services Division ("ICS") for approximately $13.5 million which resulted in a
net gain to the Company of approximately $6.2 million. The proceeds from this
sale were used to reduce the principal balance on certain senior debt. The ICS
Division performed source document microfilm services at several facilities
around the country generating approximately $20.0 million of revenues per year.
On June 4, 1996, the Company emerged from Chapter 11 Bankruptcy
proceedings. See Note 2 for further discussion.
NOTE 23 - PRO FORMA UNAUDITED FINANCIAL INFORMATION RELATED TO THE
CONSUMMATION OF THE PLAN OF REORGANIZATION
The unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1995
and the unaudited Pro Forma Consolidated Statement of Operations for the year
ended September 30, 1995 have been prepared giving effect to the sale of the
Image Conversion Services (ICS) Division, the consummation of the Plan of
Reorganization, including the costs related thereto (collectively, the "Pro
Forma Adjustments"), in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") and the consummation of the Rights Offering. The Company will
account for the restructuring using the principles of "fresh start" reporting as
required by SOP 90-7. Pursuant to such principles, in general, the Company's
assets and liabilities will be revalued. The reorganization value of the Company
("Reorganization Value") plus liabilities excluding debt is the value assigned
to total assets. In accordance with SOP 90-7, specific identifiable assets and
liabilities will be adjusted to fair market value. Any portion of the
Reorganization Value plus liabilities, excluding debt not attributable to
specific identifiable assets, will be reported as Reorganization Value in excess
of identifiable assets and will be amortized over a three and a half year
period. For purposes of the Pro Forma Unaudited Financial Information presented
herein, the fair value of specific identifiable assets and liabilities other
than debt is assumed to be the historical book value of those assets and
liabilities. The Company is in the process of obtaining an appraisal of certain
assets to assist in determining their value. The fair value of long-term debt is
based on the negotiated fair values adjusted to present values using discount
rates ranging from 11 5/8% to 15%. The difference between the revalued assets
and the revalued liabilities will be recorded as stockholders' equity with
retained earnings restated to zero.
The unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1995
was prepared as if the Pro Forma Adjustments had occurred on September 30, 1995.
The unaudited Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1995 was prepared as if the Pro Forma Adjustments had occurred on
October 1, 1994.
Other than the Pro Forma Adjustments to exclude the operating results of
the ICS Division, no changes in revenues and expenses have been made to reflect
the results of any modification to operations that might have been made had the
Plan of Reorganization been confirmed on the assumed effective dates of the
confirmation of the Plan of Reorganization for presenting pro forma results. The
Pro Forma Unaudited Consolidated Financial Information does not purport to be
indicative of the results which would have been obtained had such transactions
in fact been completed as of the date hereof and for the periods presented or
that may be obtained in the future.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Pro Forma
(Unaudited) (Dollars in thousands) Historical Adjustments Pro Forma
- ---------------------------------- ---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $19,415 $13,500 (a) $ --
(12,700)(a)
(6,994)(b)
(3,000)(h)
(2,750)(i)
(7,500)(i)
(800)(i)
(1,250)(n)
(2,079)(o)
Receivables, net of reserves.............. 96,477 (3,800)(a) 92,677
Inventories............................... 53,995 (500)(a) 53,495
Prepaid expenses and other................ 5,306 -- 5,306
-------- ------- --------
Total current assets 175,193 (23,715) 151,478
Property and equipment (net)................ 44,983 (2,000)(a) 42,983
Long term receivables....................... 12,322 -- 12,322
Excess of purchase price over net assets of
businesses acquired and other intangibles 160,315 (160,315)(l) --
Other assets................................ 28,216 (12,721)(c) 15,495
Reorganization value in excess of identifiable -- 275,018 (m) 275,018
assets...................................
-------- ------- --------
$421,029 $76,267 $497,296
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........ $389,900 $361,324)(d) $ 28,576
Accounts payable......................... 57,368 (5,094)(b) 54,353
2,079 (o)
Accrued compensation, benefits and
withholdings.......................... 20,891 -- 20,891
Accrued income taxes..................... 9,365 -- 9,365
Accrued interest......................... 40,746 (37,806)(d) 2,940
Other accrued liabilities................ 60,587 1,000 (a) 61,406
(1,900)(b)
(1,031)(f)
4,000 (h)
(1,250)(n)
-------- ------- --------
Total current liabilities 578,857 (401,326) 177,531
-------- ------- --------
Long-term debt, net of current.............. -- 234,456 (d) 234,456
Other noncurrent liabilities................ 5,841 -- 5,841
-------- ------- --------
Total noncurrent liabilities 5,841 234,456 240,297
-------- ------- --------
Redeemable preferred stock.................. 24,574 (24,574)(f) --
-------- ------- --------
Stockholders' equity (deficit):
Common stock................................ 462 (462)(g) 100
100 (e)
Capital in excess of par value.............. 182,725 79,368 (e) 79,368
25,605 (f)
462 (g)
(324,824)(j)
1,329 (k)
(160,315)(l)
275,018 (m)
Cumulative translation adjustment........... 1,329 (1,329)(k) --
Retained earnings (deficit)................. (372,759) 6,200 (a) --
(7,000)(h)
324,824 (j)
48,735 (i)
-------- ------- --------
Total Stockholders' equity (deficit) (188,243) 292,311 79,468
-------- ------- --------
$421,029 $76,267 $497,296
======== ======= ========
See Notes to Pro Forma Consolidated Balance Sheet
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
as of September 30, 1995
(unaudited, dollars in thousands, except per share amounts)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Balance Sheet.
(a) Reflects the sale of certain assets of the ICS division subsequent to the
balance sheet date. Assets sold principally consisted of approximately $500
of inventory, $3,800 of accounts receivable and $2,000 of fixed assets for
$13,500 cash. In addition, the Company incurred legal fees and wind-down
costs of approximately $1,000, which is reflected in other accrued
liabilities on the Pro Forma Consolidated Balance Sheet, resulting in a net
gain of $6,200. The Pro Forma adjustment reflects a substantial portion of
the proceeds ($12,700) used to pay down the Old Credit Facilities.
(b) Represents cash paid to SKC America ("SKC"), a supplier to the Company, on
June 4, 1996, the effective date of the Plan of Reorganization ("Effective
Date") related to certain amounts payable to SKC.
(c) For financial reporting purposes, old deferred financing costs of $12,721
applicable to the old debt securities is being written off to the
extraordinary gain as discussed in (i).
(d) Represents changes in the current portion of long-term debt and related
accrued interest as a result of the confirmation of the Plan. In accordance
with SOP 90-7, the Company's liabilities will be recorded at their
estimated fair values as of the Effective Date. The fair value of long-term
debt is based on the negotiated face values adjusted to present values
using discount rates ranging from 11-5/8% to 15%. The change in debt
consists of the following:
<TABLE>
<CAPTION>
Current
Portion of
Accrued Long-Term Long-Term
Interest Debt Debt Total
-------- ---- ---- -----
<S> <C> <C> <C> <C>
Historical $40,746 $389,900 $ -- $430,646
------- -------- ------- --------
Cancellation of Old Revolving Loan (31,328) (31,328)
Cancellation of Old Multicurrency Cancellation
of Revolving Loan (28,813) (28,813)
Cancellation of Old Term Loan (13,039) (13,039)
Cancellation of Old Series B Senior Notes (58,908) (58,908)
Cancellation of Old Senior Subordinated Notes (220,281) (220,281)
Cancellation of Old 9% Subordinated Debentures (10,479) (10,479)
Cancellation of Old 13.875% Subordinated
Debentures (21,155) (21,155)
Installment Note and Other (5,897) 4,584 (1,313)
Accrued Interest (37,806) (37,806)
New Senior Secured Notes due 1999 28,576 83,614 112,190
New 13% Senior Subordinated Notes due 2002
(Face Value $160,000) 146,258 146,258
------- -------- ------- --------
Pro Forma adjustments (37,806) (361,324) 234,456 (164,674)
------- -------- ------- --------
Pro Forma balance $2,940 $28,576 $234,456 $265,972
======= ======== ======== ========
</TABLE>
Market values of securities have been estimated solely for the purpose of
the foregoing computations. The present values of the Company's Installment Note
and Other are assumed to be equal to their respective face values. The estimated
present value of the Company's other long-term debt obligations (which do not
constitute or purport to reflect actual market values) were established by the
Company. Based on the foregoing, an adjustment of $13,742 was made to reduce the
face value of the New Senior Subordinated Notes to their estimated present
value. The adjustment will be amortized into interest expense over the terms of
the New Senior Subordinated Notes.
(e) Reflects issuance of 10,000,000 shares of New Common Stock (par value $.01)
at an estimated market price of $79,468 under the terms of the
Restructuring.
Capital in
Common Stock Excess of Par Value Total
------------ ------------------- -----
To Holders of old debt........ $100 $79,368 $79,468
(f) Reflects the cancellation of Old Preferred Stock at historical carrying
value.
Historical carrying value...................... $24,574
Accrued dividends.............................. 1,031
-------
Capital in excess of par value adjustment...... $25,605
=======
(g) Reflects the transfer from common stock to capital in excess of par value
of $462, resulting from the cancellation of 46,187,625 shares of Old Common
Stock.
(h) Reflects a $3 million cash payment and the recognition of a $4 million
liability related to certain non-recurring fees and expenses incurred in
connection with the Plan of Reorganization.
(i) The extraordinary gain, net of taxes, resulting from the Restructuring has
been estimated as follows:
Historical carrying value of old debt securities................ $389,900
Historical carrying value of related accrued interests.......... 37,806
Write off of old deferred financing costs....................... (12,721)
Market value of consideration exchanged for the Old Debt:
Plan Securities (Face Value $272,190)........................ 258,448)
New Common Stock (New shares issued 10,000,000).............. (79,468)
Installment note and other................................... (4,584)
Cash used to reduce debt:
Proceeds from sale of ICS division..................... (12,700)
Payment on new Senior Secured Notes on Effective Date.. (7,500)
Payment on installment note on Effective Date.......... (800)
Senior Restructuring Premium............................... (2,750)
--------
48,735
Tax provision.............................................. --
--------
Extraordinary gain......................................... $48,735
========
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
(j) In accordance with SOP 90-7, this adjustment reflects the elimination of
the accumulated deficit against capital in excess of par value.
(k) In accordance with SOP 90-7, this adjustment reflects the elimination of
deferred translation against capital in excess of par value.
(l) Reflects the write-off of "Excess of Purchase Price Over Net Assets of
Businesses Acquired and other intangibles" of $160,315. For fresh start
reporting purposes, any portion of the Reorganization Value not
attributable to specific identifiable assets will be reported as
"Reorganization Value in excess of identifiable assets". See note (m).
(m) An estimated Reorganization Value of $350,000, which represents the value
of the total assets of the Company less liabilities excluding debt, is
being used to implement fresh start reporting. The Reorganization Value in
excess of identifiable assets is calculated below.
Reorganization Value....................................... $350,000
Plus: Current liabilities excluding debt (Pro Forma)...... 148,955
Noncurrent liabilities excluding debt (Pro Forma)... 5,841
Less: Current assets (Pro Forma).......................... (151,478)
Cash used to pay new Senior Secured Notes on
Effective Date........... (7,500)
Noncurrent tangible assets (Pro Forma).............. (70,800)
--------
Reorganization value in excess of identifiable assets...... $275,018
========
Total Stockholders' Equity, in accordance with SOP 90-7, does not purport
to present the fair market value of the common stock of the Company. The
Reorganization Value was estimated by the Company based on the range
provided by the Company's financial advisor for its reorganization (the
"Financial Advisor"). Based on the valuation analysis described below, the
Financial Advisor estimated a range of Reorganization Value of between
approximately $300,000 and $400,000. The Company used a Reorganization
Value of $350,000.
The valuation methodologies considered by the Financial Advisor are
described below:
Discounted Cash Flow - The Financial Advisor calculated the present value
of the after tax unleveled cash flows of the Company using projections
prepared by the Company for fiscal years 1996 through 1999. The Financial
Advisor estimated the weighted average cost of capital based on the
estimated cost of capital of a group of selected publicly traded companies.
The Financial Advisor also estimated a terminal value based on the
normalized fiscal 1999 after tax unleveled cash flow, the weighted average
cost of capital and estimated rates of decline which was included in the
present value calculation of the Company's net operating loss carryforward
which was included in the estimated range of the reorganization value. The
weighted average cost of capital used in the analysis ranged from 12% to
14.5%.
Selected Publicly Traded Company Market Multiples - The Financial Advisor
reviewed the market multiples of a group of selected publicly traded
companies. The Financial Advisor reviewed valuation multiples of revenues,
EBITDA, EBIT, net income and book value.
Selected Acquisition Transaction Multiples - The Financial Advisor reviewed
the acquisition multiples of a group of selected acquisition transactions.
The Financial Advisor reviewed acquisition multiples of revenues, EBITDA,
EBIT and net income.
The Financial Advisor believes that the discounted cash flow analysis is
the most appropriate methodology for valuing the Company. The Financial
Advisor reviewed the selected publicly traded company market multiples and
selected acquisition transaction multiples and believes they are less
appropriate methodologies for valuing the Company due to the lack of
directly comparable publicly traded companies or directly comparable
acquisition transactions.
The Company's estimate of its Reorganization Value is based upon a number
of assumptions, including the assumptions upon which the projections are
based. Many of these assumptions are beyond the Company's control, and
there may be material variations between such assumptions and the actual
facts. Moreover, such estimates should not be relied upon for, nor is it
intended as an estimate of, the market price of the Company's securities at
any time in the future. The market price of the Company's securities will
fluctuate with changes in interest rates, market conditions, the condition
and prospects, financial and otherwise, of the Company and other factors
which generally influence the price of securities.
(n) Represents cash paid on June 4, 1996, the effective date of the Plan of
Reorganization to settle certain disputed claims.
(o) Represents reclassification of negative cash balance to accounts payable.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Year Ended September 30, 1995 (unaudited)
-----------------------------------------
(Dollars in thousands, except per share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Services provided................................ $219,881 ($20,357) (a) $199,524
Equipment and supplies........................... 371,308 (1,164) (a) 370,144
--------- -------- ---------
Total revenues............................... 591,189 (21,521) 569,668
--------- -------- ---------
Operating costs and expenses:
Costs of services provided....................... 161,211 (17,585) (a) 143,626
Costs of equipment sold.......................... 279,456 (737) (a) 278,719
Selling, general and administrative.............. 109,127 (1,691) (a) 173,747
66,311 (f)
Special and restructuring charges.................. 169,584 -- 169,584
--------- -------- ---------
719,378 46,298 765,676
--------- -------- ---------
Loss before interest, other income, and income taxes (128,189) (67,819) (196,008)
--------- -------- ---------
Interest income....................................... 2,000 -- 2,000
Interest expense and fee amortization................. (70,938) 27,047 (b) (43,891)
Other expenses........................................ (6,199) 5,987 (c) (212)
--------- -------- ---------
(75,137) 33,034 (42,103)
--------- -------- ---------
Loss before income taxes.............................. (203,326) (34,785) (238,111)
Provision for income taxes............................ 35,000 -- 35,000
--------- -------- ---------
Net loss (238,326) (34,785) (273,111)
Preferred stock dividends and discount accretion...... 2,158 (2,158) (e) --
--------- -------- ---------
Net loss available to common Stockholders per share... ($240,484) ($32,627) ($273,111)
========= ======== =========
Net loss available to common Stockholders per share... ($27.31)
==========
Weighted average common shares outstanding............ 10,000,000 (d)
==========
See Notes to the Pro Forma Consolidated Statement of Operations
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the year ended September 30, 1995
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division subsequent to September 30, 1995 at a net
gain to the Company of $6,200. The Pro Forma Adjustments represent the
exclusion of the division's operating activities, revenues and expenses
during the year ended September 30, 1995.
(b) Net reduction of interest expense as a result of the Restructuring has been
estimated as follows:
Interest expense on new debt:
11 5/8% Senior Secured Notes (Face Value $112,190)......... $13,042
13% Senior Subordinated Notes (Face Value $160,000)......... 20,800
Interest on other debt and trade credit arrangements........ 7,759
Interest accretion on new debt discount..................... 2,290
-------
Subtotal............................................... 43,891
Reversal of actual expense during the twelve month
period ended September 30, 1995........................ (70,938)
-------
Pro forma adjustment........................................ $27,047
=======
In accordance with SOP 90-7, all debt obligations have been adjusted to
estimated present value. The debt premium/discount is being amortized over
the term of the applicable debt obligation.
(c) Represents $5,987 of costs incurred during fiscal 1995 related to the
Financial Restructuring costs which is being excluded from the pro forma
results for the year ended September 30, 1995.
(d) Pro forma loss per common share is computed based upon 10,000,000 average
shares of New Common Stock assumed to be outstanding during the year ended
September 30, 1995 as if the effective date under the Plan of
Reorganization had occurred on October 1, 1994.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) In accordance with SOP 90-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value of
identifiable assets (which is assumed to be the historical book value of
those assets) has been reflected on the unaudited Pro Forma Consolidated
Balance Sheet as an intangible asset. The adjustment shown on the unaudited
Pro Forma Consolidated Statement of Operations reflects the amortization of
the intangible asset over a three and a half year period.
<PAGE>
Amortization Annual
Amount Period Amortization
------ ------ ------------
New Intangible Assets.............. $275,018 3.5 Years $78,577
Historical Intangible Assets
Amortization....................... 12,266
-------
$66,311
=======
Reorganization fees directly attributable to the restructuring totaling $7,000
have been excluded from pro forma operating results for the year ended September
30, 1995.
The Restructuring adjustments shown on the unaudited Pro Forma Consolidated
Statement of Operations exclude the extraordinary gain to be recognized in
connection with the Plan of Reorganization and "fresh start" reporting required
by SOP 90-07. The extraordinary gain, net of taxes, resulting in the
Restructuring has been estimated as follows:
Historical carrying value of Old Securities.................... $389,900
Historical carrying value of related accrued interests......... 37,806
Write-off of old deferred financing costs...................... (12,721)
-------
Market value of securities exchanged for the old debt:
Plan Securities (Face Value $272,190).................... (258,448)
New Common Stock (10,000,000 shares)..................... (79,468)
Installment note and other..................................... (4,584)
Cash used to reduce debt
Proceeds for the sale of ICS division.................... (12,700)
Payment on New Senior Secured Notes on Effective Date (7,500)
Payment on Installment Note on Effective Date (800)
Senior Restructuring Premium................................... (2,750)
------
48,735
Tax provision............................................ --
Extraordinary gain....................................... $48,735
=======
The Company believes that it will not recognize any gain for tax purposes
due to any cancellation of indebtedness resulting from the Restructuring.
The gain related to cancellation of debt will result in a reduction of the
Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of adopting fresh start accounting. These estimates
should not be relied upon for, nor are they intended as estimates of, the
market prices of the Company's securities at any time in the future. The
market prices of the Company's securities will fluctuate with changes in
interest rates, market conditions, the condition and prospects, financial
and otherwise, of the Company and other factors which generally influence
the price of securities.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------- -------
June 30, September 30,
1996 1995
---- ----
(Dollars in thousands, except per share amounts)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,727 $ 19,415
Restricted cash 7,095 --
Accounts and notes receivable, less allowances for doubtful accounts
of $7,434 and $7,367, respectively 62,705 90,091
Current portion of long-term receivables 4,805 6,386
Inventories 37,931 53,995
Prepaid expenses and other 4,912 5,306
--------- ---------
Total current assets 157,175 175,193
--------- ---------
Property and equipment, less accumulated depreciation 24,327 44,983
Long-term receivables, net of current portion 8,990 12,322
Excess of purchase price over net assets of businesses acquired
and other tangibles, net -- 160,315
Reorganization value in excess of identifiable assets 262,744 --
Other assets 7,945 28,216
--------- ---------
$ 461,181 $ 421,029
========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 29,474 $ 389,900
Accounts payable 51,422 57,368
Accrued compensation, benefits and withholdings 12,346 20,891
Accrued income taxes 10,540 9,365
Accrued interest 6,351 40,746
Other accrued liabilities 40,715 60,587
--------- ---------
Total current liabilities 150,848 578,857
--------- ---------
Long-term debt, net of current portion 232,644 --
Other noncurrent liabilities 1,971 5,841
--------- ---------
Total noncurrent liabilities 234,615 5,841
--------- ---------
Redeemable preferred stock
$.01 par value, 500,000 shares issued and
outstanding at September 30, 1995
(aggregate preference value of $25,000) -- 24,574
--------- ---------
Stockholders' equity (deficit):
Preferred stock, 1,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 20,000,000 and
100,000,000 authorized, respectively, 10,000,000 and
46,187,625 issued, respectively 100 462
Capital in excess of par value 79,666 182,725
Cumulative translation adjustment 324 1,329
Accumulated deficit (4,372) (372,759)
--------- ---------
Total stockholders' equity (deficit) (75,718) (188,243)
--------- ---------
$ 461,181 $ 421,029
========= =========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------- -------------------
One Month Two Months Three Months
Ended Ended Ended
June 30, 1996 May 31, 1996 June 30, 1995
------------- ------------ -------------
(Notes 2 & 3)
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided $ 14,351 $ 31,012 $ 55,126
Equipment and supplies 22,435 47,410 93,807
-------- --------- ---------
Total Revenues 36,786 78,422 148,933
-------- --------- ---------
Operating costs and expenses:
Costs of services provided 7,757 17,890 30,277
Costs of equipment and supplies sold 17,134 36,629 71,464
Selling, general and administrative expenses 5,702 15,780 36,140
Amortization of reorganization asset 6,416 -- --
Special charges -- -- 130,000
-------- --------- ---------
37,009 70,299 267,881
-------- --------- ---------
Income before interest, other income, reorganization items,
income taxes and extraordinary credit (223) 8,123 (118,948)
-------- --------- ---------
Interest expense and fee amortization (2,920) (2,975) (18,310)
Other income (loss) 71 968 (171)
-------- --------- ---------
(2,849) (2,007) (18,481)
-------- --------- ---------
Income (loss) before reorganization items, income taxes
and extraordinary credit 3,072 (6,116) (137,429)
-------- --------- ---------
Reorganization Items (Note 5) -- 116,090 --
-------- --------- ---------
Income (loss) before income taxes and extraordinary credit (3,072) 122,206 (137,429)
Provision for income taxes 1,300 -- 1,400
-------- --------- ---------
Net income (loss) before extraordinary credit (4,372) 122,206 (138,829)
Extraordinary credit:
Gain on discharge of indebtedness, net of
taxes (Note 3) -- 56,442 --
-------- --------- ---------
Net income (loss) (4,372) 174,648 (138,829)
Preferred stock dividends and discount accretion -- -- 540
-------- --------- ---------
Net income (loss) available to common $ (4,372) $ 174,648 $(139,369)
======== ========= =========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Net loss available to common (Note 8) $ (.44)
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------- -------------------
One Month Eight Months Nine Months
Ended Ended Ended
June 30, 1996 May 31, 1996 June 30, 1995
------------- ------------ -------------
(Notes 2 & 3)
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided $ 14,351 $ 130,202 $ 165,962
Equipment and supplies 22,435 204,396 286,272
--------- --------- ---------
Total Revenues 36,786 334,598 452,234
--------- --------- ---------
Operating costs and expenses:
Costs of services provided 7,757 72,641 90,685
Costs of equipment and supplies sold 17,134 156,526 214,438
Selling, general and administrative expenses 5,702 63,826 105,162
Amortization of reorganization asset 6,416 -- --
Special charges -- -- 130,000
--------- --------- ---------
37,009 292,993 540,285
--------- --------- ---------
Income before interest, other income, reorganization items,
income taxes and extraordinary credit (223) 41,605 (88,051)
--------- --------- ---------
Interest expense and fee amortization (2,920) (26,760) (52,310)
Other income (loss) 71 8,544 (3,051)
--------- --------- ---------
(2,849) (18,216) (55,361)
--------- --------- ---------
Income (loss) before reorganization items, income taxes
and extraordinary credit (3,072) 23,389 (143,412)
--------- --------- ---------
Reorganization Items (Note 5) -- 92,839 --
--------- --------- ---------
Income (loss) before income taxes and extraordinary credit (3,072) 116,228 (143,412)
Provision for income taxes 1,300 3,700 2,800
--------- --------- ---------
Net income (loss) before extraordinary credit (4,372) 112,528 (146,212)
Extraordinary credit:
Gain on discharge of indebtedness, net of
taxes (Note 3) -- 52,442 --
--------- --------- ---------
(4,372) 164,970 (146,212)
Net income (loss)
Preferred stock dividends and discount accretion -- 540 1,619
--------- --------- ---------
Net income (loss) available to common $ (4,372) $ 164,430 $(147,831)
========= ========= =========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Net loss available to common (Note 8) $ (.44)
=========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------- -------------------
One Month Eight Months Nine Months
Ended Ended Ended
June 30, 1996 May 31, 1996 June 30, 1995
------------- ------------ -------------
(Notes 2 & 3)
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,372) $ 164,970 $(146,212)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gain -- (52,442) --
Non cash reorganization items -- (107,352) --
Special charges -- -- 130,000
Depreciation and amortization 7,471 18,788 31,479
Other 649 997 1,087
Gain on sale of ICS Division -- (6,202) --
Change in assets and liabilities:
Decrease in accounts and long-term receivables 3,175 24,734 12,253
Decrease (increase) in inventories and
prepaid expenses 2,433 11,174 (8,520)
Decrease (increase) in other assets (36) 1,094 (8,867)
Decrease in accounts payable and
accrued expenses (15,725) (5,077) (3,225)
Decrease in other noncurrent liabilities (172) (5,899) (2,783)
-------- --------- ---------
Net cash provided by (used in) operating
activities (6,577) 44,785 5,212
-------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of ICS Division -- 13,554 --
Proceeds from sale of other assets -- -- 16,093
Purchases of property, plant and equipment (519) (3,599) (10,420)
Payments to acquire companies and customer rights -- -- (1,475)
-------- --------- ---------
Net cash provided by (used in)
investing activities (519) 9,955 4,198
-------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock
and warrants -- -- 698
Proceeds from revolving line of credit and
long-term borrowings -- 2,656 20,000
Principal payments on long-term debt (8,302) (15,332) (42,949)
Preferred dividends paid -- -- (1,031)
-------- --------- ---------
Net cash used in financing activities (8,302) (12,676) (23,282)
-------- --------- ---------
Effect of exchange rate changes on cash 50 691 211
-------- --------- ---------
Increase (decrease) in cash and cash equivalents (15,348) 42,755 (13,661)
Cash and cash equivalents at beginning of period 62,170 19,415 19,871
-------- --------- ---------
Cash and cash equivalents at end of period $ 46,822 $ 62,170 $ 6,210
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 699 $ 11,613 $ 34,182
Income taxes $ 42 $ 1,606 $ 2,961
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (Unaudited)
<TABLE>
<CAPTION>
One Month Ended June 30, 1996 - Reorganized Company
---------------------------------------------------
(Notes 2 & 3)
Capital in
Excess of
Par Value Cumulative Retained
Common of Common Translation Earnings
Stock Stock Adjustment (Deficit) Total
----- ----- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1996 $ 100 $ 79,666 $ -- $ -- $ 79,766
Translation adjustments for period -- -- 324 -- 324
Net loss for the period -- -- -- (4,372) (4,372)
----- --------- ------- --------- ---------
BALANCE AT JUNE 30, 1996 $ 100 $ 79,666 $ 324 $ (4,372) $ 75,718
===== ========= ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Eight Months Ended May 31, 1996 - Predecessor Company
-----------------------------------------------------
Capital in
Excess of
Par Value Cumulative Retained
Common of Common Translation Earnings
Stock Stock Adjustment (Deficit) Total
----- ----- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 $ 462 $ 182,725 $ 1,329 $(372,759) $(188,243)
Preferred stock conversion 11 7,893 -- -- 7,904
Preferred stock dividends -- -- -- (516) (516)
Accretion of redeemable preferred stock discount -- -- -- (24) (24)
Translation adjustment for period -- -- (1,560) -- (1,560)
NBS stock issuance 11 (11) -- -- --
Reorganization (484) (190,607) 231 208,329 17,469
New stock issuance 100 79,666 -- -- 79,766
Net income for the period -- -- -- 164,970 164,970
----- --------- ------- --------- ---------
BALANCE AT MAY 31, 1996 $ 100 $ 79,666 $ -- $ -- $ 79,766
===== ========= ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended June 30, 1995 - Predecessor Company
-----------------------------------------------------
Capital in
Excess of
Par Value Cumulative Retained
Common of Common Translation Earnings
Stock Stock Adjustment (Deficit) Total
----- ----- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 $ 457 $ 181,843 $ (269) $(132,275) $ 49,756
Exercise of stock options 1 50 -- -- 51
Shares issued for purchases under the
Employee Stock Purchase Plan 3 644 -- -- 647
Preferred stock dividends -- -- -- (1,547) (1,547)
Accretion of redeemable preferred stock discount -- -- -- (72) (72)
Translation adjustment for period -- -- 2,451 -- 2,451
Graham stock issuances 1 143 -- -- 144
Net loss for the period -- -- -- (146,212) (146,212)
----- --------- ------- --------- ---------
BALANCE AT JUNE 30, 1995 $ 462 $ 182,680 $ 2,182 $(280,106) ($ 94,782)
===== ========= ======= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - GENERAL
The condensed consolidated financial statements included herein have been
prepared by Anacomp, Inc. ("Anacomp" or the "Company") and its wholly-owned
subsidiaries without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The condensed
consolidated financial statements included herein should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Report on Form 10-K as of September 30, 1995, as amended on July 29, 1996.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments necessary to present fairly the consolidated
financial condition, results of operations, and changes in financial position
and stockholders' equity of Anacomp and its subsidiaries for interim periods.
Certain amounts in the prior interim consolidated financial statements have been
reclassified to conform to the current period presentation.
Due to the Restructuring and implementation of "fresh start" reporting, the
Condensed Consolidated Financial Statements for the new Reorganized Company
(period starting May 31, 1996) are not comparable to those of the Predecessor
Company. For financial reporting purposes, the effective date of the bankruptcy
is considered to be the close of business on May 31, 1996.
A black line has been drawn on the accompanying Condensed Consolidated
Financial Statements to distinguish between the Reorganized Company and the
Predecessor Company.
NOTE 2 - RECENT DEVELOPMENTS
On May 20, 1996, the U.S. Bankruptcy Court confirmed the Company's Third
Amended Joint Plan of Reorganization (the "Reorganization"), and on June 4,
1996, the Company emerged from bankruptcy. Pursuant to the Reorganization, on
such date certain indebtedness of the Company was canceled in exchange for cash,
new indebtedness, and/or new equity interests, certain indebtedness was
reinstated, certain other prepetition claims were discharged, certain claims
were settled, executory contracts and unexpired leases were assumed or rejected,
and the members of a new Board of Directors of the Company were designated. The
Company simultaneously distributed to creditors approximately $22.0 million in
cash, $112.2 million principal amount of its 11 5/8% Senior Secured Notes due
1999 (the "Senior Secured Notes") and $160.0 million principal amount of its 13%
Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes"), equity
securities consisting of 10.0 million shares of common stock and 362,694
warrants, each of which is convertible into one share of common stock during the
five-year period ending June 3, 2001 at an exercise price of $12.23 per share.
As noted above, upon emerging from bankruptcy, the Company's Revolving
Loan, Multi-Currency Revolving Loan, Term Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures were canceled. In addition, the Company's
8.25% Cumulative Convertible Redeemable Exchangeable Preferred Stock, Common
Stock, Warrants and Stock Options were canceled. In connection therewith, the
Company issued new debt and equity securities as mentioned above and described
in more detail below:
Senior Secured Notes
In connection with the Reorganization, the Company issued $112.2 million
aggregate principal amount of 11 5/8% Senior Secured Notes due September 30,
1999. Interest is payable on March 31 and September 30 each year, beginning on
September 30, 1996. The Company is required to redeem a portion of the notes at
par on each interest payment date according to the following schedule:
September 30, 1996 $14,288,000
March 31, 1997 $14,286,000
September 30, 1997 $16,163,000
March 31, 1998 $16,161,000
September 30, 1998 $17,100,000
March 31, 1999 $17,100,000
September 30, 1999 $17,092,000
The notes are redeemable at the option of the Company, in whole or in part,
at any time, at 100% of the principal amount thereof, plus accrued and unpaid
interest. The Company is required in certain circumstances to make offers to
purchase the Senior Secured Notes then outstanding at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, with the
net cash proceeds of certain sales or other distributions of assets by the
Company or certain of its subsidiaries. Also, upon a change of control, the
Company is required to make an offer to purchase the Senior Secured Notes then
outstanding at a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest.
The Senior Secured Notes are senior secured obligations of the Company and
will rank pari passu with all other existing and future senior obligations of
the Company, and senior to all existing and future subordinated or junior
indebtedness of the Company. The collateral securing the Senior Secured Notes
consists of substantially all of the assets of the Company and all future
acquired assets of the Company to the extent such assets are acquired by the
Company without secured financing.
The indenture related to the Senior Secured Notes contains 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 Senior Secured Notes, (vii) consolidations and mergers
and transfers of all or substantially all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions. The
indenture also contains a covenant requiring the Company to maintain a minimum
interest coverage ratio.
Senior Subordinated Notes
In connection with the Reorganization, the Company issued $160.0 million
aggregate principal amount of 13% Senior Subordinated Notes due 2002. This debt
was recorded at its estimated fair value of $146.3 million. The difference
between the aggregate principal amount and the fair value of the debt will be
accrued as a charge to interest expense over the life of the debt. Interest is
payable on June 30 and December 31 each year, beginning on December 31, 1996.
For the interest payable on December 31, 1996 and June 30, 1997, the Company
will provide Payment-In-Kind ("PIK") notes in satisfaction of its interest
obligation rather than a cash settlement. The PIK notes will have a principal
amount corresponding to the amount of interest due on the notes on the related
interest payment date.
The Company is required to redeem prior to June 30, 2001 the principal
amount of the Senior Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date, plus any accrued and unpaid interest on
the PIK notes, at a redemption price equal to the price that would be then
applicable in the case of an optional redemption. The remaining Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time, at various redemption prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001. Thereafter, the Senior
Subordinated Notes may be redeemed at the aggregate principal amount thereof.
Also, upon a change in control, the Company is required to make an offer to
purchase the Senior Subordinated Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and rank pari passu with all other existing and future
subordinated obligations of the Company. The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.
The indenture related to the Senior Subordinated Notes contains 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 of
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) sale/leaseback
transactions by the Company and certain of its subsidiaries, (vii)
consolidations and mergers and transfers of all or substantially all of the
Company's and certain of its subsidiaries' assets and (viii) capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions. The indenture also contains a covenant requiring
the Company to maintain a minimum interest coverage ratio.
New Common Stock and Warrants
In connection with the Reorganization, the Company issued 10.0 million
shares of Common Stock to certain creditors. In addition, the Company also
issued 362,694 warrants to certain creditors and previous common and preferred
stockholders. Each warrant is convertible into one share of new common stock at
an exercise price of $12.23 per share. The warrants expire on June 3, 2001. In
addition, the Plan of Reorganization approved for future issuance of up to
810,811 shares of additional new Common Stock to the management of the Company.
New Preferred Stock
The Board of Directors of the Company has the ability, at its discretion,
to create one or more series of Preferred Stock and shall determine the
preferences, limitations, and relative voting and other rights of one or more
series of Preferred Stock.
NOTE 3 - FRESH START REPORTING
As of May 31, 1996, the Company adopted Fresh Start Reporting in accordance
with the American Institute of Certified Public Accountant's Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Fresh Start Reporting resulted in material
changes to the Condensed Consolidated Balance Sheet, including valuation of
assets, intangible assets (including goodwill) and liabilities at fair market
value and valuation of equity based on the appraised reorganization value of the
ongoing business.
The reorganization value of $350.0 million (the approximate fair value) was
based on the consideration of many factors and various valuation methods,
including discounted cash flows, selected publicly traded company market
multiples, selected acquisition transaction multiples and other applicable
ratios and valuation techniques believed by management and its financial
advisors to be representative of the Company's business and industry. The excess
of the reorganization value over the fair value of identifiable assets and
liabilities is reported as "Reorganization value in excess of identifiable
assets" in the accompanying Condensed Consolidated Balance Sheets and is being
amortized over a three and a half year period.
The Reorganization and the adoption of Fresh Start Reporting resulted in
the following adjustments to the Company's Condensed Consolidated Balance Sheet
for the period ended May 31, 1996:
<TABLE>
<CAPTION>
Predecessor Reorganization and Reorganized
Company Fresh Start Adjustments Company
------- ----------------------- -------
May 31, May 31,
1996 Debit Credit 1996
---- ----- ------ ----
(Dollars in thousands)
ASSETS
<S> <C> <C> <C> <C>
Total Current Assets $ 179,457 $ -- $ 1,881 (a) $ 177,576
Property and equipment (net) 35,619 -- 10,754 (b) 24,865
Long-term receivables 9,411 -- -- 9,411
Excess of purchase price over net
assets of businesses acquired and
other intangibles 153,864 -- 124,864 (c) --
29,000 (d)
Reorganization value in excess of
identifiable assets -- 269,460 (e) -- 269,460
Other Assets 12,862 -- 4,384 (f) 7,878
600 (g)
----------- ----------- ----------- -----------
$ 391,213 $ 269,460 $ 171,483 $ 489,190
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt $ 380,554 $ 379,256 (h) $ 36,076 (i) $ 37,374
Accrued interest 52,696 48,500 (h) -- 4,196
Accounts payable and other accrued
liabilities 130,179 -- 2,673 (j) 132,852
----------- ----------- ----------- -----------
Total Current Liabilities 563,429 427,756 38,749 174,422
----------- ----------- ----------- -----------
Total Noncurrent Liabilities 5,130 -- 229,872 (i) 235,002
----------- ----------- ----------- -----------
Redeemable preferred stock and
accrued dividends 18,241 18,241 (k) -- --
Stockholders' Equity (Deficit):
Common stock 484 484 (l) 100 (m) 100
Capital in excess of par value 190,607 190,607 (l) 79,666 (m) 79,666
Cumulative translation adjustment (231) -- 231 (l) --
Retained earnings (deficit) (386,447) 29,000 (d) 334,005 (l) --
81,442 (n)
----------- ----------- ----------- -----------
$ 391,213 $ 666,088 $ 764,065 $ 489,190
=========== =========== =========== ===========
</TABLE>
Explanations of adjustment columns of the balance sheet are as follows:
(a) To adjust current assets to fair market value.
(b) To adjust property and equipment to estimated current market value. The
market value of property and equipment will be determined upon completion
of an appraisal currently in process. Further adjustments may be required,
but are not expected to be material.
(c) To reflect the write-off of excess of purchase price over net assets of
businesses acquired and other intangibles.
(d) To provide income tax expense for gain on discharge of indebtedness,
reflected as a reduction in the goodwill of the Predecessor Company related
to the utilization of pre-acquisition NOL's.
(e) To establish the reorganization value in excess of identifiable
assets. The reorganization value in excess of identifiable assets is
calculated below:
New debt $270,234
New equity 79,766
--------
Reorganization Value 350,000
Plus: Fair value of identifiable liabilities 139,190
Less: Fair value of identifiable assets (219,730)
--------
$269,460
========
(f) To adjust other long-term assets to current market value.
(g) To write-off the remaining debt issue costs.
(h) To reflect the cancellation of the old debt and related accrued interest.
(i) To reflect issuance of new current and long-term debt.
(j) To adjust current liabilities to fair market value.
(k) To reflect the cancellation of the old preferred stock.
(l) To reflect the elimination of stockholders' equity of the Predecessor
Company.
(m) To reflect the issuance of 10,000,000 shares of new common stock (par value
$.01).
(n) To reflect extraordinary gain resulting from discharge of indebtedness. The
extraordinary gain, net of taxes is calculated below:
Historical carrying value of old debt securities $ 379,256
Historical carrying value of related accrued interest 48,500
Unamortized of old deferred financing costs (600)
Market value of consideration exchanged for the old debt:
Plan securities (face value $279,691) (265,948)
New common stock (10.0 million new shares issued) (79,766)
---------
81,442
Tax provision (29,000)
---------
Extraordinary gain $ 52,442
=========
The following unaudited Pro Forma Condensed Financial Information for the
nine months ended June 30, 1996 and 1995, have been prepared giving effect to
the sale of the Image Conversion Services ("ICS") Division and consummation of
the Reorganization, including adjustments to interest expense and intangible
asset amortization. The Condensed Financial Information was prepared as if the
Pro Forma adjustments had occurred on October 1, 1995 and October 1, 1994,
respectively. This information does not purport to be indicative of the results
which would have been obtained had such transactions in fact been completed as
of the date hereof and for the periods presented or that may be obtained in the
future.
Anacomp, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Financial Information
Pro Forma Nine Pro Forma Nine
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
Dollars in thousands
Total revenues $ 369,881 $ 436,566
Operating costs and expenses $ 373,568 $ 574,272
Loss before interest, other income,
reorganization items, income taxes and
extraordinary credit $ (3,687) $ (137,706)
Interest expense and fee amortization $ (30,805) $ (32,292)
Net loss available to common $ (37,077) $ (169,862)
NOTE 4 - COMPONENTS OF CERTAIN BALANCE SHEET ACCOUNTS
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by methods approximating the first-in, first-out basis. In accordance
with Fresh Start Reporting, inventories were reflected at fair market value as
of May 31, 1996.
The cost of the inventories is distributed as follows:
June 30, 1996 Sept. 30, 1995
------------- --------------
Dollars in thousands
Finished goods............................ $ 26,010 $ 38,702
Work in progress.......................... 3,430 4,955
Raw materials and supplies................ 8,491 10,338
---------- -----------
$ 37,931 $ 53,995
========== ===========
Restricted Cash
Restricted cash represents cash reserved as collateral for letters of
credit issued by the Company primarily to secure certain contingent obligations
of the Company. The contingent obligations are primarily related to
environmental liabilities and certain insurance policies.
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. In accordance with Fresh Start
Reporting, property and equipment were reflected at fair market values as of May
31, 1996.
NOTE 5 - REORGANIZATION ITEMS
In accordance with SOP 90-7, expenses resulting from the Chapter 11
reorganization should be reported separately as reorganization items in the
Condensed Consolidated Statements of Operations, and are summarized below:
Reorganization items:
Two Months Ended Eight Months Ended
(dollars in thousands) May 31, 1996 May 31, 1996
------------ ------------
Write-off of deferred debt issue costs
and discounts $ -- $ (17,551)
Adjustment of assets and liabilities to
fair market value 124,903 124,903
Financial restructuring costs (9,008) (14,944)
Interest earned on accumulated cash 195 431
---------- -----------
$ 116,090 $ 92,839
========== ===========
NOTE 6 - SALE OF ICS DIVISION
Effective November 1, 1995, Anacomp sold its Image Conversion Services
Division ("ICS") for approximately $13.5 million which resulted in a net gain to
the Company of $6.2 million. The proceeds from this sale were used to reduce the
principal balance on certain senior debt. The ICS Division performed source
document microfilm services at several facilities around the country generating
approximately $20.0 million of revenues per year.
NOTE 7 - INCOME TAXES
Income tax expense is reported for the Predecessor Company based on the
actual effective tax rate for the eight-month period ended May 31, 1996. Also
for the eight months ended May 31, 1996, the U.S. Federal tax benefit of the
domestic loss was offset by a corresponding increase to the valuation allowance.
Accordingly, the income tax provision for the Predecessor Company relates
entirely to foreign taxes.
Income tax expense is reported for the Reorganized Company based on a 40%
effective tax rate for the interim period. For the one month ended June 30,
1996, the income tax provision relates entirely to domestic income taxes. The
limited tax benefit of the U.S. Federal net operating loss carryforwards
("NOLs") of the Reorganized Company is credited to "Reorganization value in
excess of identified assets" and does not reduce income tax expense.
At June 30, 1996, the Reorganized Company had NOLs of approximately $158
million available to offset future taxable income. Usage of these NOLs by the
Reorganized Company is limited to approximately $4 million annually. However,
the Reorganized Company may authorize the use of other tax planning techniques
to utilize a portion of the remaining NOLs before they expire. In any event, the
Reorganized Company expects that substantial amounts of the NOLs will expire
unused.
NOTE 8 - EARNINGS (LOSS) PER SHARE
The computation of earnings (loss) per common and common equivalent share
is based upon the weighted average number of common shares outstanding during
the periods plus (in the periods in which they have a dilutive effect) the
effect of common shares contingently issuable, primarily from stock options and
exercise of warrants.
Fully diluted earnings (loss) per share are the same as primary earnings
per share for the periods presented.
The weighted average number of common shares outstanding and net income
(loss) per common share for periods prior to May 31, 1996 have not been
presented because, due to the restructuring and implementation of Fresh Start
Reporting, they are not comparable to subsequent periods.
NOTE 9 - SUBSEQUENT EVENTS
On July 15, 1996, the Reorganized Company purchased certain assets of Com
Products, Inc. for approximately $4.3 million consisting of $3.8 million in cash
and $500,000 in a note payable due within 12 months. Com Products sold
micrographics equipment and supplies consisting primarily of film for COM
recorders.
On July 29, 1996, the Reorganized Company filed a Registration Statement on
Form S-1 with the Securities and Exchange Commission for the resale by certain
holders of the new Common Stock, 11 5/8% Senior Secured Notes due 1999 and 13%
Senior Subordinated Notes due 2002.
On August 1, 1996, the Reorganized Company filed a Registration Statement
on Form S-1 with the Securities and Exchange Commission to authorize the
issuance of rights to its shareholders to purchase additional Common Stock. The
net proceeds from the Rights Offering, anticipated to be approximately $24.6
million, will be used for the acquisition of businesses and technologies.
On July 22, 1996, the Board of Directors of the Reorganized Company
approved a plan for the granting of non-qualified stock options and restricted
stock covering an aggregate of 1,047,686 shares of Common Stock to key
employees, which plan was intended in part to recognize the contribution of such
employees to the reorganization of the Reorganized Company. On August 22, 1996,
the Board of Directors granted under such plan non-qualified stock options to
purchase an aggregate of 947,500 shares of Common Stock at a purchase price of
$4.63 per share (vesting during the period from June 30, 1997 through June 30,
2003 or earlier, if applicable) to management level employees, and granted
100,250 shares of restricted stock (that can be traded after September 30, 1997)
to other key employees. The Company will recognize $3.2 million of compensation
expense related to the stock option grants, computed as the difference between
the market price of the Company's common stock and the exercise price of the
options on the date of grant, to be amortized ratably over the expected vesting
period. The Company has recorded an $800,000 compensation charge related to the
restricted stock awards.
On September 9, 1996, the Board of Directors of the Reorganized Company
approved the 1996 Long-Term Incentive Plan, covering an aggregate of 1,452,314
shares of Common Stock. The plan provides for various stock based compensation
to be issued to employees in the future. The Plan is subject to approval by the
Company Stockholders.
<PAGE>
================================================================================
ANACOMP, INC.
Common Stock
Offered Pursuant to Transferable Rights
3,636,364 Shares
Prospectus
Dated , 1996
===============================================
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. 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
Page
Available Information..............................2
Prospectus Summary.................................3
Summary Consolidated Financial Data................7
Risk Factors......................................10
The Rights Offering...............................14
Use of Proceeds...................................22
Price Range of Common Stock.......................22
Determination of Offering Price...................22
Dividend Policy...................................23
Capitalization....................................23
Selected Consolidated Financial Data..............24
Pro Forma Unaudited Financial Information.........27
Management's Discussion and
Analysis of Results of Operations
and Financial Condition........................33
The Company.......................................41
Description of Certain Indebtedness...............55
Description of Capital Stock......................57
Management........................................60
Security Ownership of Certain Beneficial
Owners and Management..........................67
Certain Relationships and Related Transactions....68
Plan of Distribution..............................68
The Financial Advisor.............................69
Legal Matters.....................................69
Experts...........................................69
Index to Consolidated Financial
Statements....................................F-1
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this offering
are estimated as follows:
Registration Fee under the Securities Act of 1933.......$ 8,620
Printing Expenses........................................15,000
Financial Advisor Fees and Expenses.....................250,000
Subscription Agent Fees and Expenses.....................17,500
Information Agent Fees and Expenses.......................5,000
Accounting Fees and Expenses.............................31,000
Legal Fees and Expenses.................................100,000
Blue Sky Fees and Expenses................................8,000
Miscellaneous Expenses....................................4,880
Total.............................................$440,000
Item 14. Indemnification of Directors and Officers
The Registrant is empowered by Chapter 37 of the Indiana Business
Corporation Law (the "IBCL"), subject to the procedures and limitations therein,
to indemnify any person against expenses (including counsel fees) and the
obligation to pay a judgment, settlement, penalty, fine or reasonable expenses
incurred with respect to a threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, in which such person is made a party by reason of such
person's being or having been a director, officer, employee or agent of the
Registrant. The statute provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under a corporation's articles of incorporation or by-laws, vote of
directors or stockholders, or otherwise.
Article IX of the Company's Amended and Restated Articles of Incorporation
allows the Company to indemnify any person in connection with any claim, action,
suit or proceeding arising by reason of such person's status as a director,
officer, employee or agent of the Company or service at the request of the
Company as a director, officer, employee, agent or fiduciary of another entity,
if such person is wholly successful with respect to the claim, action, suit or
proceeding or, if not wholly successful, if such person acted in good faith in
what the person reasonably believed to be in the best interests of the Company
or at least not opposed to its best interests and, with respect to any criminal
proceeding, is determined to have had reasonable cause to believe that such
person's conduct was lawful or had no reasonable cause to believe that the
conduct was unlawful.
The foregoing statements are subject to the detailed provisions of the IBCL
and the Company's Amended and Restated Articles of Incorporation.
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits
2.1 -- Third Amended Joint Plan of Reorganization of the Company and
certain of its subsidiaries. (1)
3.1 -- Amended and Restated Articles of Incorporation of the Company.(2)
3.2 -- Amended and Restated By-laws of the Company.(2)
4.1 -- Form of Common Stock Certificate.(2)
4.2 -- Indenture, dated as of June 4, 1996, between the Company and The
Bank of New York, as trustee (the "Senior Secured Trustee"), relating
to the Company's 11 5/8% Senior Secured Notes due 1999.(2)
4.3 -- Form of 11 5/8% Senior Secured Note (included as part of Exhibit 4.2
hereto).(2)
4.4 -- Application by the Company for Exemption from Section 314(d) of the
Trust Indenture Act of 1939, as amended, pursuant to Section 304(d)
and Rule 4d-7 thereunder.(2)
4.5 -- Indenture, dated as of June 4, 1996, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, relating to the Company's
13% Senior Subordinated Notes due 2002.(2)
4.6 -- Form of 13% Senior Subordinated Note (included as part of Exhibit 4.5
hereto).(2)
4.7 -- Warrant Agreement, dated as of June 4, 1996, between the Company and
ChaseMellon Shareholder Services, L.L.C.(2)
4.8 -- Form of Warrant Certificate.(2)
4.9 -- Security and Pledge Agreement, dated as of June 4, 1996, by the
Company, in favor of the Senior Secured Trustee.(2)
4.10 -- First Leasehold Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated June 4, 1996, made by Anacomp,
Inc., as grantor, in favor of Chicago Title Insurance Company, as
trustee, for the benefit of The Bank of New York, as beneficiary.(2)
4.11 -- First Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing, dated June 4, 1996, made by Anacomp, Inc., as grantor,
in favor of Chicago Title Insurance Company, as trustee, for the
benefit of The Bank of New York, as beneficiary.(2)
4.12 -- Instructions (including Form of Rights Subscription Certificate).
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
10.1 -- Amended and Restated Employment Agreement, effective September 24,
1995, between Anacomp, Inc. and P. Lang Lowrey III.(3)
10.2 -- First Amendment to Amended and Restated Employment Agreement,
effective October 1, 1995, between Anacomp, Inc. and P. Lang Lowrey
III.(3)
10.3 -- Letter Agreement, dated November 16, 1995, between Anacomp, Inc. and
P. Lang Lowrey III.(3)
10.4 -- Employment Agreement, effective March 1, 1992, between Anacomp, Inc.
Inc. and Thomas R. Simmons.(4)
10.5 -- Common Stock Registration Rights Agreement, dated as of June 4, 1996,
by and among the Company and Holders of Registrable Shares.(2)
10.6 -- Senior Secured Note Registration Rights Agreement, dated as of June 4,
1996 by and among the Company and the Holders of Registrable Notes.(2)
10.7 -- Senior Subordinated Note Registration Rights Agreement dated as of
June 4, 1996, by and among the Company and Holders of Registrable
Notes.(2)
10.8 -- Amended and Restated Master Supply Agreement, dated October 8, 1993,
1993, among Anacomp, Inc., SKC America, Inc. and SKC Limited.(4)
10.9 -- Amendment to Amended and Restated Master Supply Agreement dated as of
May 17, 1996, among Anacomp, Inc., SKC America, Inc. and SKC
Limited.
21.1 -- Subsidiaries.(2)
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney pursuant to which amendments to this
Registration Statement may be filed (included in the signature page).
(6)
25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Senior Secured Trustee.(5)
- -----------------------------------
(1) Previously filed and incorporated by reference to the Company's Form 8-A
filed with the Securities and Exchange Commission on May 15, 1996 (File No.
0-7641)
(2) Previously filed and incorporated by reference to the Company's Form 8-K
filed with the Securities and Exchange Commission on June 19, 1996 (File
No. 1-8328).
(3) Previously filed and incorporated by reference to the Company's Form 10-K
for the year ended September 30, 1995.
(4) Previously filed and incorporated by reference to the Company's Form 10-K
for the year ended September 30, 1993.
(5) Previously filed and incorporated by reference to the Company's Form T-3
filed with the Securities and Exchange Commission on May 7, 1996 (File No.
22-22227).
(6) Previously filed.
Item 17. Undertakings
Undertakings with Respect to Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Undertakings with Respect to Section 430A
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies 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 September 18, 1996.
ANACOMP, INC.
By: /s/Lang Lowrey III
-----------------------------
P. Lang Lowrey III
President, Chief Executive Officer,
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated on
September 18, 1996.
Signature Title
/s/Lang Lowrey III President, Chief Executive Officer, and
- --------------------------------- Chairman of the Board
P. Lang Lowrey III (Principal Executive Officer)
/s/Donald L. Viles Executive Vice President and Chief
- --------------------------------- Financial Officer
Donald L. Viles (Principal Financial and Accounting
Officer)
* Director
- ---------------------------------
Talton R. Embry
* Director
- ----------------------------------
Darius W. Gaskins, Jr.
* Director
- ----------------------------------
Jay P. Gilbertson
* Director
- ----------------------------------
Richard D. Jackson
* Director
- ----------------------------------
George A. Poole, Jr.
* Director
- -----------------------------------
Lewis Solomon
*By: /s/ Donald L. Viles
-----------------------------
Donald L. Viles
Attorney-in-fact
EXHIBIT 4.12
<PAGE>
ANACOMP, INC.
INSTRUCTIONS FOR USE OF RIGHTS SUBSCRIPTION CERTIFICATES
--------------------------
CONSULT THE INFORMATION AGENT OR YOUR BANK OR BROKER
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
---------------------------
These instructions are being sent in connection with the rights
offering (the "Rights Offering") by Anacomp, Inc., an Indiana corporation (the
"Company"), to the holders of its Common Stock, par value $0.01 per share (the
"Common Stock"), as described in the Company's Prospectus dated September __,
1996 (the "Prospectus"). The following summarizes the terms of the Rights
Offering.
Holders of record of Common Stock at the close of
business on September 18, 1996 (the "Record Date") are receiving .36
transferable subscription rights (each a "Right") for each share of
Common Stock held on the Record Date. In lieu of fractional Rights,
the aggregate number of Rights issued to a holder of Rights ("Rights
Holder") will be rounded up to the next whole number.
Each Right entitles the holder of the Right to
subscribe for and purchase from the Company one share of Common Stock
at the subscription price (the "Subscription Price") of $6.875 per
share (the "Basic Subscription Privilege").
The number of Rights each Record Holder is receiving is
set forth on the enclosed Rights Subscription Certificate
("Subscription Certificate").
Subject to the proration and possible reduction
described below, each Right also entitles any Rights Holder exercising
the Basic Subscription Privilege in full to subscribe at the
Subscription Price for up to two additional shares of Common Stock for
each share of Common Stock purchased by the Rights Holder under the
Basic Subscription Privilege (the "Oversubscription Privilege").
Shares of Common Stock will be available for purchase under the
Oversubscription Privilege only to the extent that any shares of
Common Stock are not subscribed for through the Basic Subscription
Privilege.
If the shares of Common Stock not subscribed for
through the Basic Subscription Privilege (the "Excess Shares") are not
sufficient to satisfy all subscriptions under the Oversubscription
Privilege, the Excess Shares will be allocated pro rata (subject to
the elimination of fractional shares) among those Rights Holders
exercising the Oversubscription Privilege in proportion to the
respective numbers of shares each such Rights Holder subscribes for
under the Basic Subscription Privilege, except that if such pro rata
allocation results in any Rights Holder being allocated a greater
number of Excess Shares than such holder subscribed under the
exercise of the Oversubscription Privilege, then each Rights Holder
will be allocated only that number of Excess Shares for which such
holder subscribed for under the exercise of the Oversubscription
Privilege, and the remaining Excess Shares will be allocated among all
other Rights Holders exercising the Oversubscription Privilege on the
same pro rata basis as described above. The Subscription Price is
payable in cash. See "THE RIGHTS OFFERING" in the Prospectus.
The Rights will expire at 5:00 p.m. New York City time
on October 21, 1996, unless extended by the Company (the "Expiration
Date").
The number of Rights to which you are entitled is
printed on the face of your Rights Subscription Certificate. You
should indicate your wishes with regard to the exercise or transfer of
your Rights by completing the appropriate form or forms on the reverse
side of your Subscription Certificate and returning the Subscription
Certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATE OR NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE SUBSCRIPTION AGENT AND PAYMENT OF THE SUBSCRIPTION PRICE,
INCLUDING FINAL CLEARANCE OF ANY UNCERTIFIED CHECKS, MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT AT OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 21,
1996. YOU MAY NOT REVOKE ANY EXERCISE OF A RIGHT.
1. Subscription Privileges.
(a) Exercise of Rights. To exercise your Rights, complete the
front of your Subscription Certificate and send to the Subscription Agent your
properly completed and executed Subscription Certificate, with payment in full
of the Subscription Price for each share of Common Stock subscribed for under
the Basic Subscription Privilege and the Oversubscription Privilege. Payment of
the Subscription Price must be made in U.S. dollars for the full number of
shares of Common Stock being subscribed for (a) by check or bank draft drawn
upon a U.S. bank or postal, telegraphic or express money order, in each case,
payable to ChaseMellon Shareholder Services, L.L.C., as Subscription Agent, or
(b) by wire transfer of same day funds to the account maintained by the
Subscription Agent for the purpose of accepting subscriptions described in
Section 2 below. The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank, or of any postal, telegraphic or express money order or (iii)
receipt of collected funds in the Subscription Agent's account designated above.
IF PAYING BY UNCERTIFIED CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, RIGHTS HOLDERS WHO WISH TO
PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED CHECK ARE URGED TO MAKE
PAYMENT SUFFICIENTLY IN ADVANCE OF THE RIGHTS EXPIRATION DATE TO ENSURE THAT
SUCH PAYMENT IS RECEIVED AND CLEARS BEFORE THE EXPIRATION TIME AND ARE URGED TO
CONSIDER, IN THE ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED CHECK, BANK DRAFT,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
If you exercise less than all of the Rights evidenced by your
Subscription Certificate by so indicating on your Subscription Certificate, the
Subscription Agent either (i) will issue to you a new Subscription Certificate
representing the remaining Rights or (ii) if you so indicate on your
Subscription Certificate, will issue a new Subscription Certificate to a
designated transferee. If no indication is made, the Subscription Agent will
issue to you a new Subscription Certificate evidencing the unexercised Rights.
If you choose, however, to have a new Subscription Certificate sent to you or a
designated transferee, any such new Subscription Certificate may not be received
in sufficient time to permit you or the designated transferee to sell or
exercise the Rights evidenced thereby.
A new Subscription Certificate will be issued to a submitting
Rights Holder, or to any designated transferee, upon the partial exercise or
sale of Rights only if the Subscription Agent received a properly endorsed
Subscription Certificate no later than 5:00 p.m., New York City time, on October
21, 1996. After such time and date, no new Subscription Certificates will be
issued.
A new Subscription Certificate will be sent by first class
mail to the submitting Rights Holder, or to any designated transferee, only if
the Subscription Agent receives the properly completed Subscription Certificate
by 5:00 p.m. New York City time on October 17, 1996. Unless the submitting
Rights Holder, or designated transferee, makes other arrangements with the
Subscription Agent, a new Subscription Certificate issued after 5:00 p.m. New
York City time on October 17, 1996 will be held for pick-up by the submitting
Rights Holder, or designated transferee, at the Subscription Agent's hand
delivery address provided in Section 2 below. All deliveries of newly issued
Subscription Certificates will be at the risk of submitting Rights Holder, or
designated transferee.
If you have not indicated the number of Rights being
exercised, or if you have not forwarded full payment of the Subscription Price
for the number of Rights that you have indicated are being exercised, then you
will be deemed to have exercised the Basic Subscription Privilege with respect
to the maximum number of Rights which may be exercised for the aggregate payment
delivered by you and, to the extent that the aggregate payment delivered by you
exceeds the product of the Subscription Price multiplied by the number of Rights
evidenced by the Subscription Certificate(s) delivered by you (such excess being
the "Subscription Excess"), you will be deemed to have exercised the
Oversubscription Privilege to purchase, to the extent available, that number of
whole Excess Shares equal to the quotient obtained by dividing the Subscription
Excess by the Subscription Price and any amount remaining after such division
will be returned to you.
The Company will implement a mechanism whereby a stockholder
may limit its beneficial ownership of Common Stock to a certain percentage
interest, notwithstanding the exercise of the Basic Subscription Privilege and,
if applicable, Oversubscription Privilege. In such event, the Company will limit
such stockholder's exercise of Rights to an amount that would not cause the
stockholder's percentage interest to increase beyond such percentage interest.
(b) Exercise of Rights through a Nominee. Banks, brokers and
other nominees who exercise the Oversubscription Privilege on behalf of the
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, by delivery to the Subscription Agent of a Nominee Holder
Oversubscription Certification in the form available from the Subscription Agent
or the Information Agent, the aggregate number of Rights as to which the
Oversubscription Privilege is being exercised and the number of Shares of Common
Stock thereby subscribed for by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
(c) Exercise of Rights if Subscription Certificate Might Not
Properly Reach the Subscription Agent Prior to the Expiration Date. You may
cause a written guarantee substantially in the form of Exhibit A to these
Instructions (the "Notice of Guaranteed Delivery") from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or from a commercial bank or trust company having
an office or correspondent in the United States (each, an "Eligible
Institution"), to be received by the Subscription Agent at or prior to the
Expiration Date; payment in full of the applicable Subscription Price may be
made separately as long as said payment is also received by the Subscription
Agent at or prior to the Expiration Time. Such Notice of Guaranteed Delivery
must state your name, the number of Rights represented by your Subscription
Certificate and the number of Shares of Common Stock being subscribed for under
the Basic Subscription Privilege and being subscribed for, if any, under the
Oversubscription Privilege, and the Eligible Institution must guarantee the
delivery to the Subscription Agent of your properly completed and executed
Subscription Certificate(s) evidencing those Rights within three (3) trading
days on the Nasdaq National Market following the date of the Notice of
Guaranteed Delivery. If this procedure is followed, your Subscription
Certificate(s) must be received by the Subscription Agent within three (3)
trading days on the Nasdaq National Market following the date of the Notice of
Guaranteed Delivery relating thereto. Additional copies of the Notice of
Guaranteed Delivery may be obtained upon request from the Information Agent.
2. The Subscription Agent and the Information Agent.
The address, telephone and facsimile numbers of, and wire information for, the
Subscription Agent are as follows:
By Mail: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
REORGANIZATION DEPARTMENT
P.O. Box 837
Midtown Station
New York, NY 10018
By Hand or
Overnight: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
REORGANIZATION DEPARTMENT
120 Broadway
13th Floor
New York, NY 10271
By Wire: The Chase Manhattan Bank
New York, NY 10001
ABA: 021 000 021
Credit Acct. # 323-213057
ChaseMellon Shareholder Services, L.L.C. (Anacomp Rights)
Attn: Evelyn O'Connor
(201) 296-4515
Facsimile: (For Eligible Institutions Only) 201-329-8936
For Confirming Fax ONLY: 201-296-4209
The address and telephone number of the Information Agent are as follows:
Morrow & Company
909 Third Avenue
New York, N.Y. 10022
Telephone: (800) 662-5200 or (212) 754-8000
3. Issuance and Delivery of Stock Certificates. The following
issuances, deliveries and payments will be made to you at the address shown on
the face of your Subscription Certificate unless you provide special payment,
issuance or delivery instructions to the contrary by completing the applicable
part of your Subscription Certificate. See "THE RIGHTS OFFERING - Subscription
Privileges" in the Prospectus.
(a) Basic Subscription Privilege. As soon as practicable after
the Expiration Date, the Subscription Agent will issue and mail in accordance
with the instruction of the exercising Rights Holder, a certificate representing
shares of Common Stock purchased under the Basic Subscription Privilege. See
"THE RIGHTS OFFERING - Subscription Privileges" in the Prospectus.
(b) Oversubscription Privilege. As soon as practicable after
the Expiration Date and after all prorations and possible reductions
contemplated by the terms of the Rights Offering have been effected, the
Subscription Agent will issue and mail to each Rights Holder who validly
exercises the Oversubscription Privilege a certificate representing shares of
Common Stock purchased under the Oversubscription Privilege. See "THE RIGHTS
OFFERING - Subscription Privileges" in the Prospectus.
(c) Refunding of Excess Payments. Promptly after the
Expiration Date and after all prorations and possible reductions contemplated by
the terms of the Rights Offering have been effected, the Subscription Agent will
return by mail or wire transfer, depending on the method by which the
Subscription Price was paid, with interest at the rate earned on such funds to
each Rights Holder exercising the Oversubscription Privilege any excess funds
received in payment of the Subscription Price for shares of Common Stock that
were subscribed for by such Rights Holder but not allocated to such Rights
Holder under the Oversubscription Privilege.
4. Sale or Transfer of Rights.
(a) Sale of Rights Through a Bank, Broker or other Nominee. To
sell or transfer all Rights evidenced by a Subscription Certificate through your
bank, broker or other nominee, so indicate on your Subscription Certificate and
deliver your properly completed and executed Subscription Certificate to your
bank or broker. Your Subscription Certificate should be delivered to your bank
or broker in sufficient time for the Rights to be sold. If the form on the
reverse of your Subscription Certificate is completed without designating a
transferee, the Subscription Agent may thereafter treat the bearer of the
Subscription Certificate as the absolute owner of all of the Rights evidenced by
such Subscription Certificate for all purposes, and the Subscription Agent will
not be affected by any notice to the contrary.
(b) Transfer of Rights to a Designated Transferee. To sell or
transfer all of your Rights, you must complete the form on the reverse of your
Subscription Certificate in its entirety, execute the Subscription Certificate
and have your signature guaranteed by a bank, broker, dealer, municipal
securities dealer, municipal securities broker, government securities dealer,
government securities broker, credit union, national securities exchange,
registered securities association, or clearing agency or savings association (an
"Eligible Guarantor Institution"). A Subscription Certificate that has been
properly transferred in its entirety may be exercised by a new Rights Holder
without having a new Subscription Certificate issued. To exercise, or otherwise
take action with respect to, such a transferred Subscription Certificate, the
new Rights Holder should deliver the Subscription Certificate, together with
payment of the applicable Subscription Price (with respect to the exercise of
both the Basic Subscription Privilege and the Oversubscription Privilege) and
complete separate instructions signed by the new Rights Holder to the
Subscription Agent in sufficient time to permit the Subscription Agent to take
the desired action. The new Rights Holder may be subject to the prorations and
possible reductions described in Section 1 above. Only the Subscription Agent
can issue Subscription Certificates. However, you may transfer a portion of the
Rights evidenced by a single Subscription Certificate (but not fractional
Rights) by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register that portion of
the Rights indicated therein in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing the transferred Rights. In
that event, a new Subscription Certificate evidencing the balance of the Rights
will be issued to you or, if you so instruct, to an additional transferee.
Alternatively, you may divide your Subscription Certificate into Subscription
Certificates evidencing appropriate numbers of Rights for transfer by following
the instructions in Section 5 below.
If you wish to transfer all or a portion of your Rights (but
not fractional Rights), you should allow a sufficient amount of time prior to
the Expiration Date for (i) the transfer instructions to be received and
processed by the Subscription Agent, (ii) new Subscription Certificates to be
issued and transmitted to the transferee(s), with respect to transferred Rights,
and to you with respect to retained Rights, if any, and (iii) the Rights
evidenced by the new Subscription Certificates to be exercised or sold by the
recipients thereof. Such amount of time could range from two to four business
days, depending upon the method by which delivery of the Subscription
Certificates and payment is made and the number of transactions which you
instruct the Subscription Agent to effect. Neither the Company nor the
Subscription Agent will have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
5. Dividing a Subscription Certificate. To have your Subscription
Certificate divided into two or more Subscription Certificates, evidencing the
same aggregate number of Rights, send your Subscription Certificate, together
with complete separate instructions (including specification of the
denominations into which you wish your rights to be divided) signed by you, to
the Subscription Agent, allowing a sufficient amount of time for new
Subscription Certificates to be issued and returned so they can be used prior to
the Expiration Date. Alternatively, you may ask a bank or broker to effect such
action on your behalf. Your signature must be guaranteed by an Eligible
Guarantor Institution (as defined in Section 4) if any of the new Subscription
Certificates are to be issued in a name other than that in which the original
Subscription Certificate was issued. Subscription Certificates may not be
divided into fractional Rights, and any instruction to do so will be rejected.
As a result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new Subscription Certificates in time to enable the Rights Holder to complete a
sale or exercise by the Expiration Date. Neither the Company nor the
Subscription Agent will be liable to either a transferor or transferee for any
such delays.
6. Signatures.
(a) Execution by Rights Holder. The signature on the Subscription
Certificate must correspond with the name of the Rights Holder exactly as it
appears on the face of the Subscription Certificate without any alteration or
change whatsoever. Persons who sign the Subscription Certificate in a
representative or other fiduciary capacity must indicate their capacity when
signing and, unless waived by the Company in its sole and absolute discretion,
must present to the Subscription Agent satisfactory evidence of their authority
to so act.
(b) Execution by Person Other Than Rights Holder. If the
Subscription Certificate is executed by a person other than the Rights Holder
named on the face of the Subscription Certificate, proper evidence of authority
of the person executing the Subscription Certificate must accompany the same
unless, for good cause, the Company dispenses with proof of authority.
(c) Signature Guarantees. Unless your Subscription Certificate
(i) provides that the shares of Common Stock to be issued pursuant to the
exercise of Rights are to be issued to you or (ii) is submitted for the account
of an Eligible Institution (as defined in Section 1), your signature on each
Subscription Certificate must be guaranteed by an Eligible Guarantor Institution
(as defined in Section 4).
7. Method of Delivery. The method of delivery of Subscription
Certificates and payment of the Subscription Price to the Subscription Agent
will be at your election and risk, but, if sent by mail, you are urged to send
such materials by registered mail, properly insured, with return receipt
requested, and are urged to allow a sufficient number of days to ensure delivery
to the Subscription Agent, if you are paying by uncertified check, for the
clearance of payment of the Subscription Price prior to the Expiration Date.
Because uncertified checks may take at least five business days to clear, you
are strongly urged to consider payment by means of certified check, cashier's
check, money order or wire transfer.
8. Substitute Form W-9. Each Rights Holder who elects to exercise
Rights should provide the Subscription Agent with a correct Taxpayer
Identification Number on the Substitute Form W-9 attached to the Subscription
Certificate. Additional copies of Substitute Form W-9 may be obtained upon
request from the Information Agent or Subscription Agent. Failure to provide the
information on the Substitute Form W-9 may subject such Rights Holder to a $50
penalty and to a 31% Federal income tax withholding with respect to dividends
that may be paid by the Company on shares of Common Stock purchased upon the
exercise of Rights (for those Rights Holders exercising Rights). For more
information see "Important Tax Information" attached as Exhibit B to these
Instructions.
9. Transfer Taxes. Except for the fees charged by the Subscription
Agent (which will be paid by the Company as described in Section 3 above), all
commissions, fees and other expenses (including brokerage commissions and
transfer taxes) incurred in connection with the purchase, sale or exercise of
Rights will be for the account of the Rights Holder, and none of such
commissions, fees or expenses will be paid by the Company or the Subscription
Agent.
10. Irregularities. All questions concerning the timeliness, validity,
form and eligibility of any exercise of Rights will be determined by the
Company, whose determinations will be final and binding. The Company, in its
sole discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any Right. Subscription Certificates will not be deemed to
have been received or accepted until all irregularities have been waived or
cured within such time as the Company determines, in its sole discretion.
Neither the Company nor the Subscription Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission of
Subscription Certificates or incur any liability for failure to give such
notification. The Company reserves the right to reject any exercise if such
exercise is not in accordance with the terms of the Rights Offering or not in
proper form or if the acceptance thereof or the issuance of these shares of
Common Stock pursuant thereto could be deemed unlawful.
<PAGE>
EXHIBIT A TO INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY
FOR RIGHTS SUBSCRIPTION CERTIFICATES ISSUED BY ANACOMP, INC.
This form, or one substantially equivalent to this form, must be used to
exercise Rights under the Rights Offering described in the Prospectus dated
September __, 1996 (the "Prospectus") of Anacomp, Inc., an Indiana corporation
(the "Company"), if a holder of Rights cannot deliver the Subscription
Certificate(s) evidencing the Rights (the "Subscription Certificate(s)"), to the
Subscription Agent listed below (the "Subscription Agent") at or prior to 5:00
p.m. New York City time on October 21, 1996, unless extended by the Company (the
"Expiration Date"). Such form must be delivered by hand or sent by facsimile
transmission, overnight courier or mail to the Subscription Agent, and must be
received by the Subscription Agent at or prior to the Expiration Date. Properly
completed and executed Subscription Certificate(s) relating to this Notice of
Guaranteed Delivery must be received by the Subscription Agent within three (3)
business days following the date of this Notice of Guaranteed Delivery. See "THE
RIGHTS OFFERING -- Exercise of Rights" in the Prospectus. PAYMENT OF THE
SUBSCRIPTION PRICE OF $6.875 PER SHARE FOR EACH SHARE OF COMMON STOCK SUBSCRIBED
FOR UNDER THE BASIC SUBSCRIPTION PRIVILEGE AND THE OVERSUBSCRIPTION PRIVILEGE
MUST BE RECEIVED BY THE SUBSCRIPTION AGENT IN THE MANNER SPECIFIED IN THE
INSTRUCTIONS AS TO THE USE OF SUBSCRIPTION CERTIFICATES AT OR PRIOR TO THE
EXPIRATION DATE EVEN IF THE SUBSCRIPTION CERTIFICATE EVIDENCING SUCH RIGHT IS
BEING DELIVERED UNDER THE PROCEDURE FOR GUARANTEED DELIVERY THEREOF.
THE SUBSCRIPTION AGENT IS:
CHASEMELLLON SHAREHOLDER SERVICES, L.L.C.
By Mail: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
REORGANIZATION DEPARTMENT
P.O. Box 837
Midtown Station
New York, NY 10018
By Hand or
Overnight: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
REORGANIZATION DEPARTMENT
120 Broadway
13th Floor
New York, NY 10271
By Wire: The Chase Manhattan Bank, New York, N.Y. 10001
ABA: 021 000 021
Credit Acct. # 323-213057
ChaseMellon Shareholder Services, L.L.C. (Anacomp Rights)
Attn: Evelyn O'Connor, (201) 296-4515
Facsimile: (For Eligible Institutions Only) 201-329-8936
For Confirming Fax ONLY: 201-296-4209
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN THAT SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned represents that the undersigned is the holder
of Subscription Certificate(s) representing _______________ Rights and that such
Subscription Certificate(s) cannot be delivered to the Subscription Agent at or
before 5:00 p.m., New York City time, on October 21, 1996, or such later time to
which the Rights Offering has been extended by the Company (the "Expiration
Date"). Upon the terms and subject to the conditions set forth in the
Prospectus, receipt of which is hereby acknowledged, the undersigned hereby
elects to exercise (i) the Basic Subscription Privilege to subscribe for one
share of Common Stock per Right with respect to Rights represented by such
Subscription Certificate and (ii) the Oversubscription Privilege, to the extent
that the undersigned has exercised the Basic Subscription Privilege in full and
that Excess Shares (as defined in the Prospectus) are available therefor, for an
aggregate of up to two additional shares of Common Stock for each share of
Common Stock purchased by the Rights Holder under the Basic Subscription
Privilege, subject to the proration and possible reduction described in the
Prospectus.
The undersigned understands that payment of the Subscription
Price of $6.875 per share for each share of Common Stock subscribed for under
the Basic Subscription Privilege and the Oversubscription Privilege must be
received by the Subscription Agent at or before the Expiration Date, and
represents that such payment, in the aggregate amount of $_________________,
either (check appropriate box(es)):
|_| Wire transfer of funds directed to ChaseMellon Shareholder Services,
L.L.C., at The Chase Manhattan Bank, New York, NY 10001, ABA # 021 000
021, Credit Account # 323-213057, ChaseMellon Shareholder Services,
L.L.C. (Anacomp Rights).
|_| Uncertified check payable to ChaseMellon Shareholder Services, L.L.C.
(Payment by uncertified check will not be deemed to have been received
by the Subscription Agent until such check has cleared. Rights Holders
paying by such means are urged to make payment sufficiently in advance
of the Expiration Date to ensure that such payment clears by such
date.)
|_| Certified check payable to ChaseMellon Shareholder Services, L.L.C.
|_| Bank draft payable to ChaseMellon Shareholder Services, L.L.C.
|_| Money order payable to ChaseMellon Shareholder Services, L.L.C.
Signature(s) _______________________________________
Address ____________________________________________
____________________________________________________
____________________________________________________
Area Code and Tel. No(s).
Name(s) ____________________________________________
Please Type or Print
(If signature is by trustee(s), executor(s), guardian(s), attorney(s)-in-fact,
agent(s), officer(s), of a corporation or another acting in a fiduciary or
representative capacity, such capacity must be clearly indicated above.)
Subscription Certificate
No(s). (if available) _____________
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION RIGHT
CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, guarantees
that the undersigned will deliver to the Subscription Agent the Subscription
Certificate(s) representing the Rights being exercised hereby, with any required
signature guarantees and any other required documents, all within three (3)
business days after the date hereof.
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Title)
________________________________________________________________________________
Dated: ______________________, 1996
Address: ______________________________________________________________________
(Including Zip Code)
________________________________________________________________________________
(Area Code and Telephone Number)
The institution which completes this form must communicate the guarantee to the
Subscription Agent and must deliver the Subscription Certificate(s) to the
Subscription Agent within the time period shown herein. Failure to do so could
result in financial loss to such institution.
<PAGE>
EXHIBIT B TO INSTRUCTIONS
IMPORTANT TAX INFORMATION
Under the U.S. Federal income tax law, dividend payments that may be made by the
Company on shares of Common Stock issued upon the exercise of Rights may be
subject to backup withholding, and each Rights Holder who exercises Rights
should provide the Subscription Agent (as the Company's agent) with such Rights
Holder's correct taxpayer identification number on the Substitute Form W-9
attached to the Subscription Certificate. If such Rights Holder is an
individual, the taxpayer identification number is his or her social security
number. If the Subscription Agent, which is also the transfer agent for the
Company, is not provided with the correct taxpayer identification number in
connection with such payments, the Rights Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
Exempt Rights Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and information
reporting requirements. In general, for a foreign individual to qualify as an
exempt recipient, the Rights Holder must submit a statement, signed under the
penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Subscription Agent.
If backup withholding applies, the Company or the Subscription Agent, as the
case may be, will be required to withhold 31% of any such payments made to the
Rights Holder. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the Rights Holder is required to notify the
Subscription Agent of his or her correct taxpayer identification number by
completing the substitute Form W-9 included as part of the Subscription
Certificate certifying that the taxpayer identification number provided on
Substitute Form W-9 is correct (or that such Rights Holder is awaiting a
taxpayer identification number).
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights Holder is required to furnish to the Subscription Agent such Rights
Holder's social security number or employer identification number. If the Rights
are in more than one name or are not in the name of the actual owner, consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: I.E.,
000-00-000. Employer identification numbers have nine digits separated by only
one hyphen: I.D., 00-0000000. The table below will help you determine the number
to give the payer.
Give the name and SOCIAL SECURITY
For this type of account number of:
Individual The individual
Two or more individuals (joint The actual owner of the account or,
accounts) if combined funds, the first
individual on the account (1)
Custodian account of a minor The minor (2)
(Uniform Gift/Transfer to
Minors Act)
The usual revocable savings The grantor-trustee (1)
trust (grantor is also trustee)
Sole proprietorship The owner (3)
For this type of account: Give the name and EMPLOYER
IDENTIFICATION number of:
A valid trust, estate or Legal entity (do not furnish the
pension trust identification of the personal
representative or trustee unless
the legal entity itself is not
designated in the account title) (4)
Corporation The corporation
Association, club, religious, The organization
charitable, education or
other tax-exempt organization
Partnership The partnership
A broker or registered nominee The broker or nominee
Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments.
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. You may also use an Employer Identification
Number.
(4) List first and circle the name of legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at your local office of
the Social Security Administration or the Internal Revenue Service ("IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an
individual retirement plan, or a custodial account under section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
- - An international organization or any agency or instrumentality
thereof.
- - A dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1).
- An entity registered at all times under the Investment Company
Act of 1940.
- - A foreign central bank of issue.
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under
section 1441.
- - Payments to partnerships not engaged in a trade or business in
the United States and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is
not paid in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payers described above should file the Substitute Form W-9 attached to
the Subscription Certificate to avoid erroneous backup withholding. FILE THE
FORM WITH PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON
THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A and 6060N and the regulations thereunder.
PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividends, interest, or other payments
to give taxpayer identification numbers to payers who must report the payments
to the IRS. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. Payers must be given the numbers whether
or not recipients are required to file tax returns. Payers must generally
withhold 31% of taxable interest, dividends, and certain other payments to a
payee who does not furnish a taxpayer identification number. Certain penalties
may also apply.
PENALTIES
PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to
furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a
false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certification or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX ADVISOR
OR THE INTERNAL REVENUE SERVICE
<PAGE>
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Part I: PLEASE PROVIDE YOUR TIN AND CERTIFY BY
SIGNING AND DATING BELOW.
SUBSTITUTE
FORM W-9
______________________________
Social Security Number OR
Employer Identification No.
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN) Part 2: For Payees NOT subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code, see the
enclosed Guidelines for Certification of Taxpayer Identification Numbers on
Substitute Form W-9 and complete as instructed therein.
Part 3: Awaiting TIN / /
CERTIFICATION. Under penalty of perjury, I certify that (1) the number shown on
this form is my correct Taxpayer Identification Number (or I am waiting for a
number to be issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate IRS
center or Social Security Administration office or (b) I intend to mail or
deliver an application in the near future), and (2) I am not subject to backup
withholding either because I have not been notified by the IRS that I am subject
to backup withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see the enclosed guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.)
Signature ___________________________________ Date __________________________
Name ________________________________________________________________________
(Please Print)
Address _____________________________________________________________________
<PAGE>
RIGHT NO. ____
ACCOUNT KEY ______
RECORD DATE SHARES _________
NUMBER OF RIGHTS ___________
ANACOMP, INC.
RIGHTS SUBSCRIPTION CERTIFICATE
FOR INFORMATION AND ASSISTANCE PLEASE CALL:
The Information Agent,
Morrow & Co., Inc.
1-800-662-5200
MAXIMUM SHARES UNDER BASIC SUBSCRIPTION PRIVILEGE _________
CUSIP NO. 032371122
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED SEPTEMBER [19], 1996 (THE "PROSPECTUS") AND ARE INCORPORATED IN
THIS RIGHTS SUBSCRIPTION CERTIFICATE ("SUBSCRIPTION CERTIFICATE") BY REFERENCE.
COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM MORROW & COMPANY (THE
"INFORMATION AGENT"). CAPITALIZED TERMS USED IN THIS SUBSCRIPTION CERTIFICATE
AND NOT DEFINED HAVE HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE PROSPECTUS.
THIS SUBSCRIPTION CERTIFICATE OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (THE "SUBSCRIPTION AGENT")
WITH PAYMENT IN FULL BY 5:00 P.M, NEW YORK CITY TIME, ON OCTOBER 21, 1996,
UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE").
The Rights represented by this Subscription Certificate, in whole or in part,
may be (A) exercised by duly completing Form 1 or (B) transferred or exercised
or sold through a bank or broker, by duly completing Form 2. Before exercising
or selling Rights, Rights Holders are urged to read carefully and in their
entirety the Prospectus, and Instructions for use of Subscription Certificates
(the "Instructions"), additional copies of which are available from the
Information Agent and the Subscription Agent. IMPORTANT: COMPLETE THE
APPROPRIATE FORM AND, IF APPLICABLE, DELIVERY INSTRUCTIONS, AND SIGN THIS
SUBSCRIPTION CERTIFICATE.
[Name and Address of Registered Holder]
The registered owner whose name is inscribed on this Subscription Certificate,
or assigns, is entitled to subscribe for and purchase from the Company, at the
Subscription Price, one share of the Company's Common Stock, $0.01 par value per
share (the "Common Stock"), for each Right evidenced by this Subscription
Certificate upon the terms and subject to the conditions set forth in the
Prospectus and the Instructions. Shares of Common Stock subscribed for under the
Basic Subscription Certificate will be delivered as soon as practicable after
receipt by the Subscription Agent of this Subscription Certificate, duly
completed, and of payment of the applicable Subscription Price. Shares of Common
Stock subscribed for under the Oversubscription Privilege will be delivered as
soon as practicable after the Expiration Date and after all prorations and
reductions contemplated by the terms of the Rights Offering have been effected.
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT
THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN
ALL OF THE RIGHTS EVIDENCED HEREBY, A NEW SUBSCRIPTION CERTIFICATE MAY NOT BE
RECEIVED IN SUFFICIENT TIME TO EXERCISE OR TRANSFER THE REMAINING RIGHTS
EVIDENCED THEREBY. NEITHER THE COMPANY NOR THE SUBSCRIPTION AGENT SHALL HAVE ANY
LIABILITY TO A TRANSFEREE OR TRANSFEROR OF RIGHTS IF SUBSCRIPTION CERTIFICATES
ARE NOT RECEIVED IN TIME FOR EXERCISE OR SALE PRIOR TO THE RIGHTS EXPIRATION
DATE. AN EXERCISE OF RIGHTS EVIDENCED HEREBY IS IRREVOCABLE.
IMPORTANT: PLEASE PRINT ALL INSTRUCTIONS CAREFULLY
FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercise
one or more Rights to subscribe for shares of Common Stock as indicated below,
on the terms and subject to the conditions specified in the Prospectus, receipt
of which is hereby acknowledged.
Number of shares subscribed for under the
Basic Subscription Privilege: (a)_____________________
Number of shares subscribed for under the
Oversubscription Privilege:: (b)_____________________
Total shares (sum of lines (a) and (b)): (c)_____________________
Total Subscription Price (total number
of shares subscribed for under both the
Basic Subscription Privilege and the
Oversubscription Privilege multiplied by
the Subscription Price
of $6.875 per share): (d)_____________________
- -----------------------------------
To exercise the Oversubscription Privilege, the undersigned must exercise all of
the Rights under the Basic Subscription Privilege.
If the aggregate Subscription Price paid by an exercising Rights Holder is
insufficient to purchase the number of Shares of Common Stock that such holder
indicates are being subscribed for, or if an exercising Rights Holder does not
specify the number of Shares of Common Stock to be purchased, then such Rights
Holder will be deemed to have exercised first the Basic Subscription Privilege
in full and second the Oversubscription Privilege to purchase Shares of Common
Stock to the full extent of the payment rendered (subject to proration under
certain circumstances as described in the Prospectus). If the aggregate
Subscription Price paid by an exercising Rights Holder exceeds the amount
necessary to purchase the number of shares of Common Stock for which the Rights
Holder has indicated an intention to subscribe, then the Rights Holder will be
deemed to have exercised first, the Basic Subscription Privilege (if not already
fully exercised) and second, the Oversubscription Privilege to the full extent
of the excess payment tendered.
METHOD OF PAYMENT
(CHECK AND COMPLETE APPROPRIATE BOX(ES))
[_] Certified check, bank draft or money order in the amount of $________
payable to ChaseMellon Shareholder Services, L.L.C., Subscription Agent.
[_] Wire transfer in the amount of $__________ directed to The Chase Manhattan
Bank, ChaseMellon Shareholder Services, L.L.C. (Anacomp Rights) Account No.
323-213057. Indicate name of institution transferring funds and name of
registered owner.
IF LESS THAN ALL RIGHTS ARE EXERCISED
If the number of Rights being exercised under the Basic Subscription Privilege
is less than all of the Rights represented by this Subscription Certificate:
[_] Deliver to the undersigned a new Subscription Certificate evidencing the
remaining Rights to which the undersigned is entitled.
[_] Deliver a new Subscription Certificate evidencing the remaining Rights in
accordance with the undersigned's instructions in Form 2 below (which include
any required signature guarantees).
If the instructions of the Rights Holder are inconsistent or are insufficient to
delineate the proper action to be taken with respect to all of the Rights
evidenced hereby, such Rights Holder will be delivered a new Subscription
Certificate evidencing the remaining Rights to which such Rights Holder is
entitled.
NOTICE OF GUARANTEED DELIVERY
[_] CHECK HERE IF RIGHTS ARE BEING EXERCISED UNDER
A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE
DATE HEREOF AND COMPLETE THE FOLLOWING.
Name(s) of Registered Owner(s)
--------------------------------------
Window Ticket Number (if any)
--------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------
Telephone Number
---------------------------------------------------
<PAGE>
FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR
UNEXERCISED RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER:
For value received, ______________ Rights represented by this Subscription
Certificate are hereby assigned to (please print name and address and tax
identification or social security number of transferee in full):
Name:
---------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security Number:
-----------------------
If the number of Rights being transferred is less than all of the Rights
represented by this Subscription Certificate:
[_] For Value received, _____________ Rights represented by this Subscription
Certificate are hereby assigned to (please print name and address and tax
identification or social security number of transferee in full)
Name:
---------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security Number:
-----------------------
A new Subscription Certificate will be delivered to undersigned evidencing
remaining Rights to which the undersigned is entitled.
<PAGE>
FORM 3 - SPECIAL PAYMENT ISSUANCE OR DELIVERY INSTRUCTIONS: Unless otherwise
indicated below, the Subscription Agent is hereby authorized to issue and
deliver any check and certificates for Common Stock to the undersigned at the
address appearing on the face of this Subscription Certificate.
SPECIAL PAYMENT INSTRUCTIONS (See Section 3 of the Instructions). To be
completed ONLY if the check evidencing a cash payment is to be made payable, or
the name in which the certificate representing the Common Stock is to be issued,
as to someone other than the registered holder.
Issue and mail to:
Name:
---------------------------------------------
(Please Print)
Address (Include Zip Code):
------------------------
Tax Identification Number:
------------------------
SPECIAL DELIVERY INSTRUCTIONS (See Section 3 of the Instructions)
To be completed only if the check evidencing a cash payment and/or the
certificate representing the Common Stock, is to be sent to someone other than
the registered holder or to an address other than that appearing on the face of
this Subscription Certificate.
Mail and deliver check and/or certificate for Common Stock to:
Name:
---------------------------------------------
(Please Print)
Address (Include Zip Code): ------------------------
IMPORTANT: RIGHTS HOLDERS SIGN HERE AND, IF RIGHTS ARE BEING EXERCISED, COMPLETE
ATTACHED SUBSTITUTE FORM W-9
Dated: ______________, 1996
(Signature(s) of Registered Holder(s))
Dated: ______________, 1996
(Signature(s) of Registered Holder(s))
Must be signed by the registered holder(s) as name(s) appear(s) on this
Subscription Certificate. If signature is by trustee(s), executor(s),
administrator(s), attorney(s)-in-fact, agent(s), officer(s) of a corporation or
another acting in a fiduciary or representative capacity, please provide the
following information. See the Instructions.
Name:
--------------------------------------------------
(Please Print)
Capacity (Full Title):
---------------------------------
Address (Include Zip Code):
----------------------------
Area Code and Telephone Number:
-------------------------
Tax Identification or Social Security Number:
-----------
<PAGE>
GUARANTEE OF SIGNATURE
NOTE: SEE SECTION 6 OF THE INSTRUCTIONS
Authorized Signature:
------------------------------------------------
Name:
----------------------------------------------------------------
(Please Print)
Title:
---------------------------------------------------------------
Name of Firm:
--------------------------------------------------------
Address:
------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
--------------------------------------
Dated: _________________, 1996
EXHIBIT 5.1
<PAGE>
[Letterhead of Cadwalader, Wickersham & Taft]
September 18, 1996
Anacomp, Inc.
11550 North Meridian Street
P.O. Box 40888
Indianapolis, Indiana 46240
Re: Anacomp, Inc.
Rights Offering
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Anacomp, Inc., an Indiana corporation (the
"Company"), in connection with the preparation of the registration statement on
Form S-1 (file number 333-9359) (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), on August 1, 1996, for the registration under the
Securities Act with respect to transferable subscription rights (the "Rights")
and shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") referred to in the Registration Statement. Capitalized terms
used and not defined in this opinion have the meanings ascribed to them in the
Registration Statement.
In so acting as counsel, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of the following: (a) the Amended and
Restated Articles of Incorporation of the Company, (b) the Amended and Restated
By-Laws of the Company, and (c) the form of Subscription Certificate. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements and other instruments, and
of certificates or comparable documents of public officials and of officers and
representatives of the Company and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary for the purpose of this
opinion.
Based on the foregoing, we are of the opinion that:
(i) the Rights have been duly authorized and, when issued in accordance
with such authorization, will be legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to the effect of applicable bankruptcy, insolvency, reorganization, moratorium
and other laws relating to, or affecting, creditors' rights and remedies
generally and general principles of equity (regardless of whether considered in
a proceeding at law or in equity); and
(ii) the shares of Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, when issued,
subscribed for and delivered as contemplated in the Registration Statement, will
be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to Cadwalader, Wickersham & Taft in
the Prospectus forming a part of the Registration Statement under the heading
"Legal Matters." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
Cadwalader, Wickersham & Taft
THIS FIRST CUMULATIVE AMENDMENT (the "Cumulative Amendment") to the Amended
and Restated Master Supply Agreement (the "Agreement") is made and entered into
on this 17th day of May, 1996, by and among Anacomp, Inc., an Indiana
corporation ("Anacomp"), SKC America, Inc., a New Jersey corporation ("SKCA"),
and SKC Limited, an affiliated corporation of SKCA organized pursuant to the
laws of the Republic of Korea ("SKCL"). SKCA and SKCL are hereinafter jointly
and severally referred to as "SKC."
W I T N E S S E T H:
WHEREAS, Anacomp and SKC entered into the Agreement on October 8, 1993, a
true copy of which is attached hereto, pursuant to which SKC agreed to
manufacture and sell to Anacomp, and Anacomp agreed to purchase, Products (as
defined in the Agreement) for use by Anacomp in the manufacture of its duplicate
microfilm and magnetic media products, and SKC agreed to provide trade credit to
Anacomp in an aggregate amount of up to $29,000,000, no more than $25,000,000 of
which could remain outstanding for more than 30 days, for the purchase of
Products from SKC; and
WHEREAS, Anacomp filed a petition for relief under Chapter 11 of the United
States Bankruptcy Code on January 5, 1996; and
WHEREAS, SKC and Anacomp desire to continue their mutually beneficial
relationship and in connection therewith desire that Anacomp assume the
Agreement, including this Cumulative Amendment, and cure all defaults upon the
effectiveness of Anacomp's Chapter 11 plan of reorganization; and
WHEREAS, SKC desires to assist Anacomp in successfully fulfilling its new
business plan and in connection therewith is willing to make certain changes to
the Agreement; and
WHEREAS, an amendment was made to the Agreement on December 1, 1993 and the
parties desire that all prior amendments be included in this Cumulative
Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and intending to be legally bound hereby, Anacomp and SKC agree to
amend the Agreement as follows:
1. New Defined Terms: Section 1 of the Agreement is amended to add the
following definitions:
<PAGE>
"Bankruptcy" shall mean the Chapter 11 case of Anacomp initiated by that
certain petition for relief filed by Anacomp under Chapter 11 of the United
States Bankruptcy Code on January 5, 1996 in the United States Bankruptcy
Court for the District of Delaware.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for the
District of Delaware, or any other court of competent jurisdiction
exercising jurisdiction over the Bankruptcy.
"Continuing Director" shall mean, at any time, (i) any member of the Board
of Directors of Anacomp who was a director of Anacomp on the Reorganization
Effective Date or (ii) any person who becomes a member of the Board of
Directors if such person was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors.
"Plan of Reorganization" shall mean the Second Amended Joint Plan of
Reorganization filed by Anacomp with the Bankruptcy Court on March 28,
1996, as amended or modified from time to time.
"Reorganization Effective Date" shall mean the date on which the Plan of
Reorganization shall have become effective pursuant to Section 10.2
thereof.
2. Redefining Terms: Notwithstanding the definitions given in Section 1 of the
Agreement, Section 1 of the Agreement is amended to redefine the following
definitions as follows:
"Junior Loan Document" shall mean the Indenture dated as of the
Reorganization Effective Date between Anacomp and I.B.J. Schroder Bank and
Trust Company, as Trustee for the benefit of the holders of Anacomp's 13%
Senior Subordinated Notes due 2002, and any waivers or amendments thereto.
"Senior Loan Document" shall mean the Indenture dated as of the
Reorganization Effective Date between Anacomp and the Bank of New York, as
Trustee for the benefit of the holders of Anacomp's 11.625% Senior Secured
Notes due 1999, and any waivers or amendments thereto.
3. Magnetic Base Products Percentage Purchase Obligation: Section 5.1 of the
Agreement is amended by adding after Section 5.1(a) the following Section
5.1(a-1): "The provisions of the letters dated January 15, 1996 and May 3,
1996 from Peter Williams of Anacomp Magnetics to Y.W. Kim of SKCA Marketing
& Sales shall apply in accordance with their terms notwithstanding anything
to the contrary in Section 5.1(a) or 5.1(b) with respect to the Magnetic
Base Products Percentage Purchase Obligation or in Section 7.1(a) with
respect to the pricing of Magnetic Base Products."
4. Volume Adjustments: Section 5 of the Agreement is amended by adding a new
subclause, Section 5.3(h), entitled "Volume Adjustments," which will be as
follows: "Notwithstanding anything stated to the contrary in Section 5.3(d)
and (e), no new volume adjustment will be made for the 1994-1995 Contract
Year or the 1995-1996 Contract Year, and the volume adjustment will
continue to be the same as was made for the 1993-1994 Contract Year. The
price for the 1996-1997 Contract Year will be adjusted prospectively at the
beginning of the Contract Year (December 1, 1996) to reflect actual volume
levels purchased in the 1995-1996 Contract Year, and again retroactively at
November 30, 1997 to reflect actual volume levels purchased in the
1996-1997 Contract Year."
5. Returned Goods: Section 5 is amended by adding a new clause 5.8, entitled
"Returned Goods," which will be as follows: "In calculating volume
adjustments pursuant to Section 5.3(d) and (e), Microfilm Products returned
by Anacomp in any Contract Year shall be excluded from the calculation of
volume in such Contract Year. In the event returned Microfilm Products are
repackaged and sold, such Microfilm Products will be included in volume in
the Contract Year and quarter of their resale."
6. Cumulative Restatement of 12/1/93 Amendment: Section 7.1(c)(i)(A) of the
Agreement is amended by changing the phrase "June 30, 1994" in line 3
thereof to "September 30, 1994".
7. Packaging:
A. Section 7.1(c)(i) of the Agreement is amended by adding new subclause
(C) which will be as follows: "For shipments of Converted Microfilm
Products and Coated Microfilm Products shipped on or after June 1,
1995, the prices will be increased by 5% over the prices called for in
Section 7.1(c)(i)(B)."
B. Section 7.1(c)(i) of the Agreement is amended by adding a new
subclause (D) which will be as follows: "For shipments of Converted
Microfilm Products and Coated Microfilm Products shipped on or after
the Reorganization Effective Date, the prices will be increased by 2%
over the prices called for in Section 7.1(c)(i)(B) and Section
7.1(c)(i)(C) and such price increases will begin on the Reorganization
Effective Date."
8. Cumulative Restatement of 12/1/93 Amendment: Section 7.2(b) of the
Agreement is amended by adding the following after the first sentence
thereof: "The costs experienced by SKCA in the 1993-1994 Contract Year,
which will be used as the initial Base Year for the first price adjustment
under this Section 7.2, shall exclude such costs experienced by SKCA from
the Closing Date through the date on which the Pastoria Facility achieves
the Operational Levels, i.e., May 31, 1994, and shall therefore consist of
such costs experienced by SKCA during the period from June 1, 1994 through
November 30, 1994, annualized."
9. Production Cost Increases: Section 7.2 is amended by adding a new subclause
(g), entitled "Payments to SKC following Bankruptcy" which will be as
follows:
(i) Notwithstanding anything to the contrary in this Agreement, with
respect to the calculation of the price increases under this Section 7.2
due to increased costs for the 1994-1995 Contract Year and the 1995-1996
Contract Year, (1) a 5% price increase shall be applied beginning on the
Reorganization Effective Date, (2) an additional 5% price increase shall be
applied beginning on December 1, 1996, (3) Anacomp shall pay to SKC $1.9
million on the Reorganization Effective Date with respect to increased
costs for the 1994-1995 Contract Year, (4) and Anacomp shall pay to SKC a
deferred amount of $3.6 million as provided in Section 7.2(g)(ii), of which
$1,800,000 shall be allocated to the 1994-1995 Contract Year and $1,800,000
million shall be allocated to the 1995-1996 Contract Year. Other than as
provided in this Section 7.2(g)(i), there will be no additional increases
for production costs incurred in the 1994-1995 Contract Year or the
1995-1996 Contract Year and there will be no other price increases due to
increased production costs until the next production cost increase for the
1996-1997 Contract Year, collected retroactively after calculation as of
November 30, 1997 and based on increases in production costs incurred in
the 1996-1997 Contract Year over production costs incurred in the 1995-1996
Contract Year;"
"(ii) The deferred payment of $3,600,000 provided for in Section
7.2(g)(i)(4) shall not bear interest, shall be evidenced by a note and
shall be amortized as follows: (1) June 1, 1997, $400,000, (2) June 1,
1998, $600,000, (3) June 1, 1999, $800,000, (4) June 1, 2000, $800,000 and
(5) June 1, 2001, $1,000,000."
10. Payment of Invoices: Section 7.5(g) of the Agreement is amended by adding a
new subclause, Section 7.5(g)(v), which will be as follows: "On the
Reorganization Effective Date, Anacomp will make a cash payment to SKC in
an amount necessary to bring the aggregate Outstanding Amounts to an amount
less than $25,000,000, as required by Section 7.5(g)(i) of the Agreement."
11. Mandatory Prepayment: Section 7.5(h) of the Agreement is amended to add a
new sentence, which will be as follows: "Notwithstanding anything to the
contrary in this Section 7.5(h), for purposes of this Section 7.5(h), the
plan of reorganization effective under the Bankruptcy shall not be deemed
to constitute a refinancing or restructuring that would require mandatory
prepayment, and shall not be a cause for termination of the Trade Credit
Arrangement."
11(a). Special Representations and Warranties: Section 7.5(n)(i)(G) of the
Agreement is amended by changing the phrase "Section 5.1" to "Section 4.12"
and by changing the phrase "Lenders" to "Trustee and Security Holders."
12. Events of Default: Section 7.5(r) of the Agreement is amended by adding at
the end of Section 7.5(r) a new paragraph to read as follows:
"Notwithstanding anything to the contrary set forth in this Section 7.5(r)
or in this Agreement, as of the Reorganization Effective Date, SKC waives
any event of default under this Section 7.5(r) (as now or at any time
theretofore in effect) which was or could have occurred or been in
existence and which was known to SKC on the date of execution hereof as a
result of or in connection with the Bankruptcy, including the Change in
Control event of default referred to in Section 7.5(r)(x), and none of such
events shall constitute events of default under this Agreement. The
foregoing shall not constitute a waiver of any event of default not known
to SKC or a waiver of any event occurring after the date of execution
hereof that may constitute an event of default under this Agreement."
13. Attorney's Fees Following Bankruptcy: Section 7.5(t) of the Agreement is
amended by adding the following sentence: "This obligation includes the
reimbursement by Anacomp to SKC of reasonable fees paid to SKC's attorneys
in connection with the Bankruptcy. Anacomp has agreed that the amount of
such fees incurred through April 30, 1996, amounting to approximately
$185,000, is reasonable and will be paid upon presentation of invoice
following the Reorganization Effective Date."
14. Paying Accumulated Interest: Section 7.5 of the Agreement is amended by
adding a new subclause, Section 7.5(w), entitled "Paying Interest After
Bankruptcy," which will be as follows: "On the Reorganization Effective
Date, Anacomp will pay all interest due to SKC pursuant to Sections 7.5(d)
and 7.5(p) of the Agreement. Attached hereto as Schedule I is a statement
of all such outstanding interest due to SKC through April 30, 1996.
15. Waiver of Termination Rights: Section 14.2 of the Agreement is amended by
adding a new subclause, Section 14.2(e), entitled "Temporary Waiver of
Termination Rights," which will be as follows: "For purposes of this
Section 14.2, the Bankruptcy will not be a valid cause for SKC to terminate
this Agreement pursuant to Section 14.1."
16. Effective Date: This Cumulative Amendment will not become effective until
the Reorganization Effective Date; provided, however, that if the
Reorganization Effective Date has not occurred by June 30, 1996 this
Cumulative Amendment shall not become effective without further agreement
of the parties in writing. If this Cumulative Amendment does not become
effective for any reason, the parties expressly reserve all rights with
respect to the Agreement and the Bankruptcy.
17. Counterparts: This Cumulative Amendment may be executed by facsimile and in
separate counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
18. Entire Agreement: Effective as of the Reorganization Effective Date, this
Cumulative Amendment and the schedules hereto, together with the Agreement
in the form attached hereto as amended hereby, constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements, oral or written, and all other
communications relating to the subject matter hereof including the
amendment of December 1, 1993 referred to in the fifth WHEREAS clause
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Cumulative
Amendment as of the date first above written, with this Cumulative Amendment to
be effective as of the Reorganization Effective Date.
ANACOMP, INC.
By: ___________________________
Name:
Title:
SKC AMERICA, INC.
By: ___________________________
Name:
Title:
SKC LIMITED
By: ___________________________
Name:
Title:
<PAGE>
Schedule 1
SKC Interest Owed
Through April 30, 1996
Dollar Amount Interest Rate Date Invoice Amount
- ------------- ------------- ---- --------------
Daily Amount 15% adj. Apr 05-01-96 $ 50,845.86
25,000,000.00 10% 04-01-96 208,333.33
15% adj Mar 04-01-96 62,053.39
25,000,000.00 10% 03-01-96 215,277.78
15% adj Feb 03-01-96 31,370.77
25,000,000.00 10.500% 02-01-96 206,423.61
15.500% adj Jan 02-02-96 50,492.65
25,000,000.00 10.250% 01-01-96 220,659.72
15.250% adj Dec. 01-01-96 54,377.90
=============
TOTAL $1,099,835.01
EXHIBIT 23.2
<PAGE>
ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our report
dated November 10, 1995, except with respect to Note 2 and the second paragraph
of Note 22, as to which the date is June 4, 1996, and to all references to our
Firm included in this registration statement.
Arthur Andersen LLP
Indianapolis, Indiana
September 16, 1996
