<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANACOMP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 3577 35-1144230
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
12365 CROSTHWAITE CIRCLE
POWAY, CALIFORNIA 92064
(619) 679-9797
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
GEORGE C. GASKIN, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND ASSISTANT SECRETARY
12365 CROSTHWAITE CIRCLE
POWAY, CALIFORNIA 92064
(619) 679-9797
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
MICHAEL C. RYAN, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6177
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE+ REGISTRATION FEE
<S> <C> <C> <C> <C>
10 7/8% Series D Senior Subordinated Notes due
2004........................................... $135,000,000 100% $135,000,000 $39,825
</TABLE>
+ Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(f).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 17, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE ITS 10 7/8% SERIES D SENIOR SUBORDINATED NOTES DUE 2004, WHICH
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY
AND ALL OF ITS OUTSTANDING 10 7/8% SERIES C SENIOR SUBORDINATED
NOTES DUE 2004
--------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Anacomp, Inc., an Indiana corporation ("Anacomp" or the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer'), to
exchange its 10 7/8% Series D Senior Subordinated Notes due 2004 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement (as defined) of
which this Prospectus is a part, for an equal principal amount of its
outstanding 10 7/8% Series C Senior Subordinated Notes due 2004 (the "Old
Notes"), of which $135 million principal amount is outstanding. The Exchange
Notes and the Old Notes are collectively referred to herein as the "Notes."
On June 18, 1998, the Company consummated the offering of the Old Notes (the
"Old Notes Offering") and used the net proceeds therefrom, along with available
cash, to fund the Company's acquisition (the "Acquisition") of assets
constituting substantially all of the business and operations (the "First Image
Businesses") of First Image Management Company ("First Image"), a division of
First Financial Management Corporation ("FFMC"), a wholly-owned subsidiary of
First Data Corporation ("FDC"), and substantially all the ongoing liabilities of
the First Image Businesses, pursuant to an Asset Purchase Agreement, dated as of
May 5, 1998 (the "First Image Asset Purchase Agreement"), among the Company,
FFMC and FDC. See "The Acquisition and Related Dispositions."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Notes will be issued
and delivered promptly after the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer." Old Notes may be tendered only in integral
multiples of $1,000. The Company has agreed to pay the expenses of the Exchange
Offer.
The Exchange Notes will be obligations of the Company evidencing the same
debt as the Old Notes, and will be entitled to the benefits of the same
indenture, dated as of June 18, 1998 (the "Indenture"), between the Company and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The form and
terms of the Exchange Notes are substantially the same as the form and terms of
the Old Notes except that the Exchange Notes have been registered under the
Securities Act. See "The Exchange Offer."
The Exchange Notes will bear interest from June 18, 1998. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
up until the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders, since the Exchange Notes
will bear interest from the issue date of the Old Notes.
Interest on the Exchange Notes will be payable semi-annually on April 1 and
October 1 of each year, commencing October 1, 1998. The Exchange Notes will
mature on April 1, 2004. Except as described below, the Company may not redeem
the Exchange Notes prior to April 1, 2000. On or after such date, the Company
may redeem the Exchange Notes, in whole or in part, at any time, at the
redemption prices set forth herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, at any time and from time to
time on or prior to April 1, 2000, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate principal amount of the Exchange
Notes with the cash proceeds of one or more Public Equity Offerings (as defined)
at a redemption price equal to 110.875% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any, to the date of redemption,
provided that at least 65% of the aggregate principal amount of the Notes issued
under the Indenture remains outstanding immediately after each such redemption.
Notwithstanding the foregoing, the Company may not make any optional redemption
of the Exchange Notes unless it contemporaneously makes a pro rata redemption of
the Existing Notes (as defined). The Exchange Notes will not be subject to any
sinking fund requirement. Upon the occurrence of a Change of Control (as
defined), the Company will be required to make an offer to repurchase the Notes
at a price of 101% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase. See "Description of
Notes--Optional Redemption" and "--Change of Control."
The Exchange Notes will be unsecured obligations of the Company and will be
subordinated to all existing and future Senior Indebtedness (as defined) of the
Company and will be effectively subordinated to all obligations of any
subsidiaries of the Company as may exist from time to time. The Exchange Notes
will rank PARI PASSU with any existing and future senior subordinated
indebtedness of the Company and will rank senior to all other Subordinated
Obligations (as defined) of the Company. As of June 30, 1998, on a pro forma
basis after giving effect to the Dispositions (as defined), the aggregate
principal amount of the Company's outstanding Senior Indebtedness would have
been approximately $8.9 million (excluding unused commitments of $70.7 million
under the New Revolving Credit Facility (as defined)) and the amount of Senior
Subordinated Indebtedness other than the Old Notes would have been approximately
$196.9 million (net of $3.1 million unamortized discount). See "Description of
Notes."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a Prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities. The Company has agreed that
for a period of 90 days after consummation of the Exchange Offer, it will make
this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
There has been no public market for the Old Notes. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount from
their principal amount. The Company does not intend to list the Exchange Notes
on a national securities exchange or quotation system. There can be no assurance
that an active public market for the Exchange Notes will develop.
----------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
---------------------
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.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Exchange Notes offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company, and the
Exchange Notes offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of certain documents
filed as exhibits to the Registration Statement are not necessarily complete
and, in each case, are qualified by reference to the copy of the document so
filed.
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 and other information with the Commission. Reports,
proxy and information 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 Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material also can be reviewed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval System, which is publicly
available through the Commission's website (http://www.sec.gov).
The principal executive offices of the Company are located at 12365
Crosthwaite Circle, Poway, California 92064, telephone number: (619) 679-9797.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated in this Prospectus by reference and
made a part hereof:
(1) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998;
(3) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998; and
(4) The Company's Form 8-K filed on June 24, 1998 as amended by Form 8-K/A
filed on August 12, 1998;
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to 90 days
after the consummation of the Exchange Offer shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or supersede, to constitute a part of this Prospectus.
The Company will provide, without charge and upon oral or written request,
to each person to whom this Prospectus is delivered, a copy of any or all of the
documents that have been incorporated by reference in this Prospectus (other
than exhibits to such documents). Requests for such documents should be directed
to the Company's General Counsel at the Company's principal executive offices.
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere constitute "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 trends; industry
capacity; 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;
availability of qualified personnel; changes in, or the failure or inability to
comply with, government regulation; and other factors referenced in this
Prospectus. See "Risk Factors." These forward-looking statements speak only as
of the date of this Prospectus. The Company disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY BEFORE INVESTING IN THE EXCHANGE NOTES AND SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS." THE
COMPANY'S FISCAL YEAR ENDS SEPTEMBER 30, AND THUS, FOR EXAMPLE, "FISCAL 1997"
REFERS TO THE FISCAL YEAR ENDED SEPTEMBER 30, 1997. THE TERMS "COMPANY" AND
"ANACOMP" REFER TO ANACOMP, INC. AND ITS SUBSIDIARIES. SEE "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION" FOR A DESCRIPTION OF THE TRANSACTIONS GIVEN
EFFECT BY, AND THE ASSUMPTIONS REFLECTED IN, THE FINANCIAL INFORMATION
DESIGNATED AS "PRO FORMA." IN ADDITION, REFERENCES TO PRO FORMA FINANCIAL
INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 1997 COMBINE ANACOMP'S RESULTS FOR
SUCH PERIOD AND THE IAS BUSINESS'S (AS DEFINED) RESULTS FOR THE YEAR ENDED
DECEMBER 31, 1997.
THE COMPANY
GENERAL
Anacomp is a leading provider of document management services and products
to approximately 17,000 customers (including the IAS Business) in more than 65
countries. The Company offers a broad range of document management solutions for
the storage and distribution of, and access to, computer-generated documents
utilizing micrographics, magnetic media and, to an increasing extent, digital
technologies. The Company's pro forma revenues and EBITDA (as defined) were
$571.5 million and $115.9 million, respectively, for the year ended September
30, 1997 and $428.3 million and $77.6 million, respectively, for the nine months
ended June 30, 1998.
The Company has built a strong reputation as the world's leading
full-service provider of micrographics systems, services and supplies.
Micrographics is the conversion of information stored in digital form or on
paper to microfilm or microfiche. Traditionally, micrographics has provided one
of the most cost-effective means of document storage and retrieval for
information-intensive organizations such as banks, insurance companies,
brokerage firms, healthcare providers and government agencies. The Company is a
worldwide leader in Computer Output Microfilm ("COM"), the largest component of
micrographics, which consists of the high-speed conversion of computer-generated
documents directly from a computer or magnetic tape to microfilm or microfiche.
The Company is a leading manufacturer of COM systems, as well as a leading
provider of COM services for customers that outsource their services.
In order to reduce costs and improve capabilities, organizations are
increasingly seeking outsource alternatives to meet their information processing
and management needs. The Company believes that it is uniquely positioned to
leverage its significant base of loyal, long-term customers to take advantage of
the trends toward outsourcing and the increasing use of new technologies in the
industry. Anacomp believes it can take advantage of this trend by increasing its
customer base through strategic acquisitions and by offering a broader range of
services and products utilizing new technologies to complement its traditional
micrographics business.
On June 18, 1998, the Company acquired the First Image Businesses, the
primary component of which is First Image's image access services, primarily COM
and Compact Disc ("CD") services (the "IAS Business"). The Company disposed of
the remaining components of the First Image Businesses, which are the DPDS
Business (as defined) and the DAS Business (as defined). On August 10, 1998, the
Company consummated the sale of the DAS Business to ACS Shared Services, Inc.
("ACS"), a wholly owned subsidiary of Affiliated Computer Services, Inc.,
effective as of July 1, 1998. On July 31, 1998, the Company consummated the sale
of the DPDS Business to AccuDocs LLC ("AccuDocs") (formerly known as Southern
Micrographix Company LLC). For the year ended December 31, 1997, the IAS
Business revenues and EBITDA were $124.3 million and $32.2 million,
respectively. Based on the net cash purchase price (excluding working capital
adjustments) of the IAS Business of $105 million (net of $45 million of
4
<PAGE>
proceeds from the Dispositions), the effective purchase price multiple for the
IAS Business is 3.3 times the EBITDA contribution of the IAS Business for the
twelve months ended December 31, 1997. The Company believes the Acquisition of
the IAS Business will strengthen its outsource services business, increase its
already significant customer base, and enhance revenues and profitability
through cross-selling opportunities and cost savings associated with
consolidating the businesses. See "The Acquisition and Related Dispositions."
In recent years the Company has increased the breadth of its services and
products by incorporating certain new technologies being utilized in the
document management industry. The Company has established itself as a leading
global provider of CD outsource services through the growth of its ALVA CD
("ALVA") services and through the Company's acquisition in 1997 of Data/Ware
Development, Inc. ("Data/Ware"), a leading manufacturer and supplier of CD
systems for document management applications. ALVA services are offered from a
majority of the Company's service centers throughout the world, and this new
business has enjoyed annual revenue growth exceeding 100% for each of the past
two years. The Company also has recently introduced Computer Output for the
Inter/Intranet ("COFI"), which provides customers with immediate access to
computer-generated documents using standard Internet browsers. In addition,
Anacomp has recently introduced enterprise document management products
developed and marketed with New Dimension Software, Ltd. ("NDS"), a premier
provider of integrated systems and document management software technology.
The Company has an extensive installed base of COM systems located at
end-user operations, which together with the Company's strong customer
relationships provide the Company with what management believes to be a
high-margin, recurring revenue stream from COM systems maintenance and related
supplies. In addition, the Company is the leading provider of half-inch computer
tape (magnetic media) products for large-scale computing systems, with
manufacturing plants in the United States and in Europe.
The common stock of the Company is listed on the Nasdaq National Market
under the symbol "ANCO." As of August 14, 1998, the market capitalization of the
Company was approximately $232.8 million, based on a closing price for the
common stock of $16.375 per share.
DOCUMENT MANAGEMENT INDUSTRY
The document management industry, which the Company believes to be in excess
of $8 billion worldwide, provides services and products utilized in the storage
and distribution of, and access to, computer-generated documents and various
forms of document images. Users of these services and products must balance the
ease of accessibility to information contained in these documents with the cost
of storing and accessing that information.
This balancing, as reflected in the Company's business strategy, adheres to
a paradigm known as the Information Delivery Life Cycle, which describes the
relationship between the age of information contained in a document, the
frequency and speed of its access, and the type of media upon which the document
is stored. In general, as the document ages, customer requirements for frequency
of access and speed of delivery decline. To achieve the greatest degree of
cost-effectiveness and efficiency, organizations migrate their documents across
several different delivery systems over the life of the document.
Historically, document management (storage, distribution and access) was
dominated by micrographics services and products, a segment in which Anacomp has
achieved a sustained leading market position. Recent advances in digital
technologies, which provide more rapid access but at a higher cost, have
provided customers with information management alternatives to micrographics.
Over the next several years, the Company believes that micrographics technology
will continue to retain certain cost and functional advantages over alternative
storage media, which should keep micrographics competitive in a wide range of
applications. Over the longer term, however, the Company believes that
micrographics technology will be viewed predominately as a reliable and
cost-effective method for long-term document archival.
5
<PAGE>
Companies are increasingly faced with the competing challenges of reducing
the costs, while improving the capabilities, of their information processing and
management operations. Moreover, these challenges are being faced at a time when
technology is advancing rapidly, which greatly increases the complexity of
selecting and implementing the appropriate solutions. As a result, organizations
increasingly are seeking outsourcing alternatives to reduce their overall cost
and eliminate the complexity associated with constantly changing technology
choices and implementation requirements.
The Company's business strategy is to capitalize on these industry trends by
leveraging its market position and competitive strengths to provide new services
and products while maintaining its leading position in the COM segments of the
market.
COMPETITIVE STRENGTHS
LONG-TERM CUSTOMER RELATIONSHIPS
The Company has developed long-term relationships (in excess of five years)
with many of its customers. Among the Company's current long-term customers are
Aetna Inc., AT&T Corp., Automatic Data Processing, Inc., BankAmerica Corp., Banc
One Corp., Citicorp, Deutsche Bank AG, Electronic Data Systems, FMR Corp.,
General Electric Company, International Business Machines Corp. ("IBM") and
Travelers Group, Inc. No single customer accounted for 10% or more of the
Company's revenues in fiscal 1997. The Company believes that it has developed
this long-term customer base by consistently meeting or exceeding customer
document and information management needs and expectations. The Company manages
these customer relationships through its worldwide sales force of approximately
200 individuals and through its extensive distributor networks.
LEADING MARKET POSITION
The Company is a leader in certain businesses within the document management
industry, including COM systems, COM maintenance and supplies, COM services,
certain half-inch magnetic media products and digital-based
compact-disc-recordable ("CD-R") document management services and products. The
Company's market position and customer base provide the necessary platform to
grow these businesses and to introduce new and complementary document management
services and products.
UNDERSTANDING OF CUSTOMERS' DOCUMENT MANAGEMENT REQUIREMENTS
Through its long-term customer relationships, Anacomp has developed an
understanding of its customers' unique document management requirements as well
as the particular document management requirements in its customers' industries.
This understanding has enabled the Company to recognize and meet the changing
needs of its customers. In addition, the Company believes that because of this
understanding, its customers trust Anacomp to properly and securely process and
manage their critical documents and information.
BROAD RANGE OF SERVICES AND PRODUCTS
In the last two years, the Company has introduced new services and products
designed to further broaden its offerings across the entire Information Delivery
Life Cycle. In addition to enhancing its traditional COM services and products,
the Company has become a leading provider of document management CD solutions
through the development of its ALVA services and through the acquisition of
Data/Ware and its CD systems business line. The Company is also introducing
complementary services related to its existing offerings, including COFI
outsource services, document management consulting services, enterprise-scale
electronic delivery software products in partnership with NDS, and new magnetic
media products and related outsource services and equipment.
6
<PAGE>
FIRST IMAGE ACQUISITION
The Company believes the Acquisition of the IAS Business will strengthen its
outsource services business, increase its already significant customer base, and
enhance revenues and profitability through cross-selling opportunities and cost
savings associated with consolidating the businesses. The addition of the IAS
Business will increase the Company's production capacity and expand the
geographic coverage of its services. The Company believes it will be able to
capitalize on cross-selling opportunities by leveraging the additional customer
base with new service and product offerings.
EXPERIENCED MANAGEMENT TEAM
The Company's management team has an average of 17 years of experience in
the information technology, document management and related industries and is
committed to executing the Company's business strategy. The Company continues to
recruit managers and other professionals from other successful companies and to
promote from within when appropriate.
BUSINESS STRATEGY
The Company has developed a strategic plan entitled "Strategy 2000."
Strategy 2000 was developed over a six-month period concluding in November 1997.
The planning process included over 30 individuals from the Company, including
senior management and marketing, sales, technical and operations personnel
worldwide. Strategy 2000 sets forth the following four key strategies for the
Company:
PROVIDE CUSTOMERS WITH SOLUTIONS TO THEIR DOCUMENT MANAGEMENT REQUIREMENTS
Anacomp has a large long-term customer base with diverse document management
requirements, and Anacomp desires to be the provider of choice for all of these
requirements. By understanding the document management requirements of and
working closely with its customers, Anacomp constantly identifies additional
services and products it can offer to its customers. The Company intends to
continue to broaden its range of services and products as it endeavors to
capture all of its customers' business for all the document management services
and products that its customers require.
INCREASE MARKET POSITION AND PROFITABILITY IN TRADITIONAL BUSINESSES
The Company has established leading positions in certain segments of the
document management industry with its traditional businesses (COM and magnetic
media). Although these segments and businesses are mature, Anacomp believes that
there remain opportunities to increase its market position in these segments and
increase the contribution of these businesses to the Company's net sales and
EBITDA. The Company will seek to increase its market position through strategic
acquisitions and by leveraging its customer base for its other services and
products. In addition, Anacomp continually strives to leverage its existing
infrastructure and make strategic investments to achieve incremental operating
efficiencies that would lead to increased profitability.
DEVELOP A LEADING POSITION IN ELECTRONIC ARCHIVAL AND DELIVERY SOLUTIONS
With the rapid evolution and acceptance of the Internet worldwide, the
Company believes it is presented with an opportunity to develop a leading
position in the emerging electronic archival (long-term storage) and document
delivery (access) services and products segment. As the Internet emerges as a
widely-accepted, standardized, low-cost medium for distribution of, and access
to, documents and information, Anacomp will seek to leverage its extensive
expertise and experience in document management to become a leading provider of
a new generation of solutions utilizing this medium. The Company is pursuing
these opportunities with initiatives such as its COFI offering and its offerings
with NDS and is actively developing new offerings.
7
<PAGE>
PURSUE STRATEGIC ACQUISITIONS
The Company will continue to pursue strategic acquisitions to expand its
current capabilities and offerings. All of Anacomp's acquisitions will be
focused in one or more segments of the document management industry that will be
designed to increase its position in current segments, add complementary
services and products to its existing businesses, or add offerings in new
businesses.
THE ACQUISITION AND RELATED DISPOSITIONS
The Company acquired the First Image Businesses from FFMC pursuant to the
First Image Asset Purchase Agreement. First Image is a division of FFMC that
conducts the three First Image Businesses: (i) the IAS Business; (ii) document
print and distribution services such as laser print and mail and demand
publishing services (the "DPDS Business"); and (iii) document acquisition
services such as outsourced health care and insurance claims entry and data
capture services (the "DAS Business").
Concurrently with the closing of the Old Notes Offering, the Company
acquired substantially all of the assets used or held for use by First Image in
connection with the First Image Businesses (except for certain excluded assets)
and assumed substantially all the ongoing liabilities of the First Image
Businesses (except for certain excluded liabilities). The cash purchase price
(excluding working capital adjustments) for the First Image Businesses was $150
million.
The portion of the cash purchase price (excluding working capital
adjustments) of the First Image Businesses allocable to the IAS Business is $105
million (net of $45 million of proceeds from the Dispositions), which is 3.3
times the EBITDA contribution of the IAS Business for the twelve months ended
December 31, 1997.
The Acquisition was accounted for as a purchase. The excess of the purchase
price over the estimated fair value of net assets acquired ("goodwill")
approximates $100 million and is being amortized over a 15-year period on a
straight-line basis. For tax purposes, goodwill will also be amortized over a
15-year period on a straight-line basis and a majority of such goodwill is
expected to be deductible under current law.
On August 10, 1998, the Company consummated the sale of the DAS Business to
ACS, effective as of July 1, 1998. ACS acquired substantially all of the assets,
and assumed substantially all of the liabilities, of the DAS Business at a
purchase price of $21.5 million in cash subject to post-closing working capital
adjustments (the "DAS Disposition").
On July 31, 1998, the Company consummated the sale of the DPDS Business to
AccuDocs. AccuDocs acquired substantially all of the assets, and assumed
substantially all of the liabilities, of the DPDS Business at a purchase price
of $23.5 million in cash subject to post-closing working capital adjustments
(the "DPDS Disposition"). The Company and AccuDocs have agreed that AccuDocs
will be the Company's exclusive vendor for print and mail services in the United
States for an initial period of three years.
The DPDS Disposition and the DAS Disposition are referred to collectively as
the "Dispositions."
RECENT DEVELOPMENTS
The Company has entered into a new $80 million senior secured revolving
credit facility (the "New Revolving Credit Facility") to replace the Company's
existing $80 million senior secured term loan and revolving credit facility (the
"Senior Debt Refinancing"). The New Revolving Credit Facility is secured by
substantially all of the Company's assets and 65% of the capital stock of the
Company's foreign subsidiaries and contains financial covenants and other
restrictions on the Company. The Company believes that the New Revolving Credit
Facility enables it to access working capital at more favorable interest rates
while providing greater cash management flexibility through both the utilization
of excess
8
<PAGE>
cash balances and the elimination of mandatory repayments prior to maturity. See
"Description of the New Revolving Credit Facility."
On January 21, 1998, the Company announced an agreement to develop and
market enterprise document management products with NDS, a premier provider of
integrated systems and document management software technology. This partnership
combines NDS expertise in systems automation and document management across
multiple operating systems and network platforms with Anacomp's strengths in
high-volume document output and records management, indexing, storage and
access.
In fiscal 1998, the Company introduced its new COFI services. COFI provides
immediate access to computer-generated documents using a standard Internet
browser (Netscape or Microsoft Explorer) for COFI services customers. The
indexed, viewable documents are stored on an Anacomp Web server or on the
customer's internal (Intranet) Web server, providing internal or external
customers with immediate access to information contained in these documents from
their electronic desktop using standard Internet browser technology.
9
<PAGE>
THE EXCHANGE OFFER
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THE EXCHANGE OFFER................ $1,000 principal amount of Exchange Notes will be issued
in exchange for each $1,000 principal amount of Old
Notes validly tendered pursuant to the Exchange Offer.
As of the date hereof, $135 million in aggregate
principal amount of Old Notes are outstanding. The
Company will issue the Exchange Notes to tendering
holders of Old Notes promptly after the Expiration Date.
RESALES........................... Based on an interpretation by the staff of the
Commission set forth in Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter"), Exxon Capital
Holdings Corporation, SEC No-Action Letter (available
May 13, 1988) (the "Exxon Capital Letter") and similar
letters, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise
transferred by any person receiving such Exchange Notes,
whether or not such person is the holder (other than any
such holder or other person which is (i) a broker-dealer
that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of
market-making or other trading activities, or (ii) an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act (collectively, "Restricted
Holders")) without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that (a) such Exchange Notes are acquired in
the ordinary course of business of such holder or other
person (b) neither such holder nor such other person is
engaged in or intends to engage in a distribution of
such Exchange Notes and (c) neither such holder nor
other person has any arrangement or understanding with
any person to participate in the distribution of such
Exchange Notes. If any person were to be participating
in the Exchange Offer for the purposes of participating
in a distribution of the Exchange Notes in a manner not
permitted by the Commission's interpretation, such
person (a) could not rely upon the Morgan Stanley
Letter, the Exxon Capital Letter or similar letters and
(b) must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction. Each
broker or dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old
Notes were acquired by such broker or dealer as a result
of market-making or other activities, must acknowledge
that it will deliver a Prospectus in connection with any
sale of such Exchange Notes. See "Plan of Distribution."
EXPIRATION DATE................... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which case the
term
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND OLD NOTES............. The Exchange Notes will bear interest from June 18,
1998. Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the right to
receive any payment in respect of interest on such Old
Notes accrued to the date of issuance of the Exchange
Notes.
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in
general to proceedings which have been instituted or
laws which have been adopted that might impair the
ability of the Company to proceed with the Exchange
Offer. As of the date of this Prospectus, none of these
events had occurred, and the Company believes their
occurrence to be unlikely. If any such conditions exist
prior to the Expiration Date, the Company may (a) refuse
to accept any Old Notes and return all previously
tendered Old Notes, (b) extend the Exchange Offer or (c)
waive such conditions. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING OLD
NOTES........................... Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes to be exchanged
and any other required documentation to the Exchange
Agent (as defined) at the address set forth herein and
therein. Tendered Old Notes, the Letter of Transmittal
and accompanying documents must be received by the
Exchange Agent by 5:00 p.m. New York City time, on the
Expiration Date. See "The Exchange Offer--Procedures for
Tendering." By executing the Letter of Transmittal, each
holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course
of business of the person receiving such Exchange Notes,
whether or not such person is the holder, that neither
the holder nor any such other person is engaged in or
intends to engage in a distribution of the Exchange
Notes or has an arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes, and that neither the holder nor any such
other person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company.
SPECIAL PROCEDURES FOR BENEFICIAL
HOLDERS......................... Any beneficial holder whose Old Notes are registered in
the name of his broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender in the
Exchange Offer should contact such registered holder
promptly and instruct such registered holder to tender
on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must,
prior to completing and executing the Letter of
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the
Old Notes in such holder's name or obtain a properly
completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
See "The Exchange Offer--Procedures for Tendering."
GUARANTEED DELIVERY PROCEDURES.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes and a properly completed
Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS................. Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE NOTES...... Subject to certain conditions, the Company will accept
for exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly after the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS.................. The exchange of Old Notes for Exchange Notes pursuant to
the Exchange Offer will not be a taxable event for
federal income tax purposes. A holder's holding period
for Exchange Notes will include the holding period for
Old Notes. For a discussion summarizing certain U.S.
federal income tax consequences to holders of the
Exchange Notes, see "Certain U.S. Federal Income Tax
Considerations."
EXCHANGE AGENT.................... IBJ Schroder Bank & Trust Company is serving as exchange
agent (the "Exchange Agent") in connection with the
Exchange Offer. The mailing address of the Exchange
Agent is IBJ Schroder Bank & Trust Company, P.O. Box 84,
Bowling Green Station, New York, New York, 10274-0084,
Attention: Reorganization Operations Department.
Deliveries by hand or overnight courier should be
addressed to IBJ Schroder Bank & Trust Company, One
State Street, Securities Processing Window SC-1, New
York, New York 10004. The Exchange Agent's telephone
number is (212) 858-2657 and facsimile number is (212)
858-2611.
USE OF PROCEEDS................... The Company will not receive any proceeds from the
Exchange Offer. See "Use of Proceeds." The Company has
agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement (as
defined). No underwriter is being used in connection
with the Exchange Offer.
</TABLE>
12
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Offer constitutes an offer to exchange up to $135 million
aggregate principal amount of the Exchange Notes for up to an equal aggregate
principal amount of Old Notes. The Exchange Notes will be obligations of the
Company evidencing the same indebtedness as the Old Notes, and will be entitled
to the benefit of the same Indenture. The form and terms of the Exchange Notes
are substantially the same as the form and terms of the Old Notes except that
the Exchange Notes have been registered under the Securities Act. See
"Description of Notes."
COMPARISON WITH OLD NOTES
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<S> <C>
FREELY TRANSFERABLE............... The Exchange Notes will be freely transferable under the
Securities Act by holders who are not Restricted
Holders. Restricted Holders are restricted from
transferring the Exchange Notes without compliance with
the registration and prospectus delivery requirements of
the Securities Act. The Exchange Notes will be identical
in all material respects (including interest rate,
maturity and restrictive covenants) to the Old Notes,
with the exception that the Exchange Notes will be
registered under the Securities Act. See "The Exchange
Offer--Terms of the Exchange Offer."
REGISTRATION RIGHTS............... The holders of Old Notes currently are entitled to
certain registration rights pursuant to the Exchange and
Registration Rights Agreement, dated June 18, 1998 (the
"Registration Rights Agreement"), between the Company
and NatWest Capital Markets Limited, the initial
purchaser of the Old Notes ("NatWest"), including the
right to cause the Company to register the Old Notes
under the Securities Act if the Exchange Offer is not
consummated prior to the Exchange Offer Termination Date
(as defined). See "The Exchange Offer-- Conditions."
However, pursuant to the Registration Rights Agreement,
such registration rights will expire upon consummation
of the Exchange Offer. Accordingly, holders of Old Notes
who do not exchange their Old Notes for Exchange Notes
in the Exchange Offer will not be able to reoffer,
resell or otherwise dispose of their Old Notes unless
such Old Notes are subsequently registered under the
Securities Act or unless an exemption from the
registration requirements of the Securities Act is
available.
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
MATURITY DATE..................... April 1, 2004.
INTEREST PAYMENT DATES............ April 1 and October 1, commencing October 1, 1998.
OPTIONAL REDEMPTION............... Except as described below and under "--Change of
Control," the Company may not redeem the Exchange Notes
prior to April 1, 2000. On or after such date, the
Company may redeem
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
the Exchange Notes, in whole or in part, at any time, at
the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time to
time on or prior to April 1, 2000, the Company may,
subject to certain requirements, redeem up to 35% of the
aggregate principal amount of the Exchange Notes with
the cash proceeds of one or more Public Equity Offerings
at a redemption price equal to 110.875% of the principal
amount to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption, provided
that at least 65% of the aggregate principal amount of
the Exchange Notes issued under the Indenture remains
outstanding immediately after each such redemption.
Notwithstanding the foregoing, the Company may not make
any optional redemption of the Exchange Notes unless
contemporaneously with such optional redemption it
redeems Existing Notes the aggregate principal amount of
which bears the same relationship to the aggregate
principal amount of the Existing Notes outstanding
immediately prior to such optional redemption as the
aggregate principal amount of the Exchange Notes being
redeemed bears to the aggregate principal amount of the
Exchange Notes outstanding immediately prior to such
optional redemption. See "Description of Notes--Optional
Redemption."
RANKING AND SUBORDINATION......... The Exchange Notes will be unsecured obligations of the
Company and will be subordinated to all existing and
future Senior Indebtedness of the Company and will be
effectively subordinated to all obligations of any
subsidiaries of the Company as may exist from time to
time. The Exchange Notes will rank PARI PASSU with any
existing and future senior subordinated indebtedness of
the Company and will rank senior to all other
Subordinated Obligations of the Company. As of June 30,
1998, on a pro forma basis, the aggregate principal
amount of the Company's outstanding Senior Indebtedness
would have been approximately $8.9 million (excluding
unused commitments of $70.7 million under the New
Revolving Credit Facility) and the amount of Senior
Subordinated Indebtedness other than the Old Notes would
have been approximately $196.9 million (net of $3.1
million unamortized discount). See "Description of
Notes--Ranking" and "--Subordination."
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control, the Company
will be required to make an offer to repurchase the
Exchange Notes at a price of 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Notes--Change of Control."
CERTAIN COVENANTS................. The Indenture contains certain covenants, including,
without limitation, covenants with respect to the
following matters, (a) limitation on indebtedness, (b)
limitation on restricted payments, (c) limitation on
restrictions on distributions from restricted
subsidiaries, (d) limitation on sale of assets and
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14
<PAGE>
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<S> <C>
restricted subsidiary stock, (e) limitation on
transactions with affiliates, (f) limitation on liens,
(g) limitation on sale/leaseback transactions, (h)
limitation on issuance and sale of capital stock of
restricted subsidiaries and (i) limitation on mergers,
consolidations or sales of all or substantially all of
the Company's assets. See "Description of Notes--Certain
Covenants" and "--Limitation on Merger, Consolidation or
Sale of Assets."
</TABLE>
RISK FACTORS
Prospective purchasers of the Exchange Notes should consider carefully all
of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors set forth under "Risk Factors" for risks involved
with an investment in the Exchange Notes.
15
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the fiscal years ended September 30, 1995,
1996 and 1997, which were derived, except as otherwise noted, from the
consolidated financial statements of the Predecessor Company (as defined) and
the Reorganized Company (as defined) audited by Arthur Andersen LLP, and
selected unaudited consolidated historical operating, financial and balance
sheet data as of June 30, 1998 and for the nine months ended June 30, 1997 and
1998, which were derived from unaudited interim condensed consolidated financial
statements of the Reorganized Company, and, in the opinion of management,
include all adjustments necessary for a fair presentation of the financial
condition and results of operations for the unaudited interim periods. The
following should be read in conjunction with, and is qualified in its entirety
by reference to, "Selected Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and the related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------------ -------------------------------------
1995(1) 1996(1)(2) 1997
--------- ----------- -----------
1997 1998
------------------------ ------------------------
PRO PRO
HISTORICAL FORMA(3)(4) HISTORICAL FORMA(3)(4)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues........................... $ 591,189 $ 486,140 $ 462,510 $ 571,453 $ 345,014 $ 356,428 $ 428,283
Cost of sales and services......... 417,335 331,122 304,514 367,880 227,017 236,507 278,425
Selling, general and
administrative(5)................ 132,459 93,514 90,731 120,922 66,051 80,864 96,639
Amortization of reorganization
asset............................ -- 25,663 75,780 75,780 56,937 56,235 56,235
Special and restructuring
charges(6)....................... 169,584 -- -- -- -- 8,494 8,494
--------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)............ (128,189) 35,841 (8,515) 6,871 (4,991) (25,672) (11,510)
Interest expense(7)................ 70,938 39,629 35,896 41,789 27,974 24,440 31,220
Reorganization items(8)............ -- 92,839 -- -- -- -- --
Net income (loss)(9)............... $(238,326) $ 142,961 $ (67,811) $ (46,000) $ (53,997) $ (54,829) $ (47,648)
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges
(10)............................. N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
<S> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(11)............................................................... $ 15,739
Reorganization value in excess of identifiable assets(12)................................... 107,621
Excess of purchase price over net assets of businesses acquired and other intangibles,
net....................................................................................... 122,356
Total assets................................................................................ 475,719
Total current liabilities(13)............................................................... 118,319
Total debt(14).............................................................................. 393,881
Stockholders' equity (deficit).............................................................. $ (37,414)
</TABLE>
(FOOTNOTES COMMENCE ON THE FOLLOWING PAGE)
16
<PAGE>
(1) Although the Company's Third Amended Joint Plan of Reorganization (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 ("SOP
90-7"). 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 "Reorganized Company" (starting May 31, 1996) are not
comparable to those of the "Predecessor Company" (prior to May 31, 1996).
(2) Results reflect the combination of historical results for the eight months
ended May 31, 1996 for the Predecessor Company and for the four months ended
September 30, 1996 for the Reorganized Company, and thus, this information,
as presented, does not comply with U.S. generally accepted accounting
principles ("GAAP") applicable to companies upon emergence from bankruptcy,
which calls for separate reporting for the Reorganized Company and the
Predecessor Company.
(3) The pro forma data give effect to the Old Notes Offering, and the
application of the net proceeds therefrom, the Acquisition, the
Dispositions, the Senior Debt Refinancing and the Prior Refinancings (as
defined) as if they had occurred at the beginning of the applicable
statement of operations periods.
(4) Pro forma 1997 operating data includes results for Anacomp's fiscal year
ended September 30, 1997 and for the IAS Business's fiscal year ended
December 31, 1997. Pro forma 1998 operating data includes results for
Anacomp's nine months ended June 30, 1998 and the IAS Business for the eight
months ended May 31, 1998. The results for the IAS Business for the one
month ended June 30, 1998 were included in Anacomp's historical operating
results for the nine months ended June 30, 1998.
(5) Includes amortization of intangible assets.
(6) For the year ended September 30, 1995, special and restructuring charges
include special charges of $136.9 million that represent a $108 million
write-off of goodwill and $28.9 million of charges associated with software
costs which are not recoverable, as well as restructuring charges of $32.7
million. Includes restructuring charges of $8.5 million for the nine months
ended June 30, 1998.
(7) Reflects interest expense, including debt discount and fee amortization and
debt premium accretion.
(8) 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.
(9) Includes an extraordinary gain, net of taxes, resulting from the discharge
of indebtedness of $52.4 million for the year ended September 30, 1996.
Includes an extraordinary loss, net of taxes, resulting from extinguishment
of debt, of $11.0 million, $11.7 million and $1.9 million for the fiscal
year ended September 30, 1997 and the nine months ended June 30, 1997 and
1998, respectively. These extraordinary items have been excluded from the
pro forma amounts.
(10) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense on indebtedness,
amortization of deferred debt issuance costs, accretion of the original
issue discount and premium 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 years ended September 30,
1995 and 1997, the pro forma year ended September 30, 1997, the nine months
ended June 30, 1997 and 1998, and the pro forma nine months ended June 30,
1998, income (loss) before income taxes and extraordinary items was
inadequate to cover fixed charges. The amount of coverage deficiency was
$203.3 million, $41.4 million, $22.6 million, $30.9 million, $49.2 million
and $39.8 million, respectively. For the year ended September 30, 1996, this
ratio may not be meaningful due to the gains recorded associated with the
adoption of fresh start accounting and discharge of indebtedness.
(11) Includes $4.3 million of restricted cash.
(12) 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 period beginning May 31, 1996.
(13) Total current liabilities exclude current portion of long-term debt.
(14) Total debt includes current portion of long-term debt and unaccreted debt
premium, net of unamortized debt discount.
17
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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.
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. As of June 30, 1998, the Company and its
consolidated subsidiaries had an aggregate of $393.9 million of outstanding
indebtedness. The Indenture permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. See
"Capitalization" and "Description of Notes."
The Company's high degree of leverage could have important consequences to
the holders of the Exchange Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) certain of the Company's borrowings are at variable rates of
interest (including the New Revolving Credit Facility), which expose the Company
to the risk of increased interest rates; (iv) the New Revolving Credit Facility
is secured and matures prior to the maturity of the Exchange Notes; (v) the
Company may be substantially more leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage; and (vi) the
Company's substantial degree of leverage may limit its flexibility to adjust to
changing market conditions, reduce its ability to withstand competitive
pressures and make it more vulnerable to a downturn in general economic
conditions or its business. See "Description of the New Revolving Credit
Facility" and "Description of Notes."
ABILITY TO SERVICE DEBT
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
planned expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its indebtedness in the future. In the absence of such operating
results and resources, the Company could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet its debt
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Company could realize therefrom. In
addition, because the New Revolving Credit Facility bears interest at floating
rates, an increase in interest rates could adversely affect, among other things,
the Company's ability to meet its debt service obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of the New
Revolving Credit Facility."
The ability of the Company to service its indebtedness will be dependent
upon the future performance of the Company. In addition, the Company believes
that its ability to repay portions of its long-term indebtedness (including the
Notes) will be dependent on the ability of the Company to refinance its
indebtedness. The future performance of the Company and the ability to refinance
indebtedness each will be subject to general economic and market conditions and
to financial, competitive, business and other factors, including factors beyond
the Company's control.
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ADVERSE EFFECT OF GROWTH OF ALTERNATE TECHNOLOGIES
Revenues for the Company's micrographics services and products, including
COM service revenues, COM system revenues, maintenance service revenues and
micrographics supplies revenues, have been adversely affected for each of the
past five fiscal years (see "--Declines in Revenues and Profits") and could in
the future be substantially adversely affected by, among other things, the
increasing use of digital technology. COM revenues represented 74% of the
Company's fiscal 1997 revenues and approximately 73% of revenues for the first
nine months of fiscal 1998, 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 COM system) and the utilization of micrographics 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 document
storage, distribution and access to primarily archival use. The Company believes
this is at least part of the reason for the declines in recent 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 document management industry also has resulted in
price competition in certain of the Company's businesses, particularly COM
services.
Therefore, the Company has been and expects to continue to be impacted
adversely by the decline in the demand for COM services, the high fixed costs
and declining market for COM systems and the attendant reduction in supplies.
The Company's revenues for maintenance of COM systems have declined in part
because of efficiencies associated with the Company's XFP 2000 COM systems, but
are expected to continue to decline as a result of lesser use and fewer sales of
COM systems. The growth of alternate technologies has created consolidation in
the micrographics segment of the document management industry. To the extent
consolidation in the micrographics segment has the effect of causing major
providers of micrographics services and products to cease providing such
services and products, the negative trends in the segment, such as competition
from alternate technologies described above, may accelerate.
SUBORDINATION; ASSET ENCUMBRANCES
The Notes are unsecured senior subordinated obligations of the Company and
will be expressly subordinated in right of payment to all existing and future
Senior Indebtedness, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable under the New Revolving
Credit Facility. As of June 30, 1998, approximately $53.9 million of Senior
Indebtedness was outstanding, and the Company had availability of $24.7 million
under the New Revolving Credit Facility. The Company can also incur additional
Senior Indebtedness under the terms of the Indenture. By reason of such
subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment with
respect to, or the acceleration of, any Senior Indebtedness, the holders of such
Senior Indebtedness and any other creditors who are holders of Senior
Indebtedness and creditors of subsidiaries must be paid in full before the
holders of the Exchange Notes may be paid. In addition, the holders of any of
the Company's senior subordinated indebtedness outstanding on or before the
Issue Date, as well as any future senior subordinated indebtedness, would be
entitled to share ratably with the holders of the Exchange Notes in any proceeds
distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company. This may
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<PAGE>
have the effect of reducing the amount of proceeds paid to holders of the
Exchange Notes. In addition, no payments may be made with respect to the
principal of (and premium, if any) or interest on the Exchange Notes if a
payment default exists with respect to Senior Indebtedness and, under certain
circumstances, no payments may be made with respect to the principal of (and
premium, if any) or interest, on the Exchange Notes for a period of up to 179
days if a non-payment default exists with respect to Senior Indebtedness. In
addition, the Indenture permits subsidiaries of the Company to incur debt
provided certain conditions are met. See "Description of Notes."
The Company has granted the lenders under the New Revolving Credit Facility
security interests in 65% of the outstanding shares of capital stock of the
Company's material foreign subsidiaries. There is no grant of a security
interest in the assets of such subsidiaries. The Company also is contractually
obligated to grant a security interest in the assets of and in 65% of the
outstanding shares of capital stock of any future foreign subsidiaries. In the
event of a default on secured indebtedness, whether as a result of the failure
to comply with a payment or other covenant, a cross-default, or otherwise, the
parties granted such security interests will have a prior secured claim on the
capital stock of such subsidiaries and the assets of the Company. If such
parties should attempt to foreclose on their collateral, the Company's financial
condition and the value of the Notes will be materially adversely affected. See
"Description of the New Revolving Credit Facility."
LIMITATION ON CHANGE OF CONTROL
The Indenture requires the Company, in the event of a Change of Control in
respect of which it has not elected to redeem the notes, to repurchase any
Exchange Notes that holders thereof desire to have repurchased at 101% of the
principal amount thereof, plus accrued interest to the Change of Control
repurchase date. See "Description of Notes--Change of Control."
There can be no assurance that the Company will have funds available to
redeem or repurchase the Notes upon the occurrence of a Change of Control. In
particular, a Change of Control may cause an acceleration of the New Revolving
Credit Facility and other Senior Indebtedness, if any, of the Company, in which
case the Senior Indebtedness would be required to be repaid in full before
redemption or repurchase of the Notes. See "Description of Notes--Change of
Control" and "Description of the New Revolving Credit Facility." The inability
to repay such Senior Indebtedness, if accelerated, or to redeem or repurchase
all of the Notes upon the occurrence of a Change in Control would constitute an
event of default under the Indenture.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture and the indenture (the "Existing Indenture") related to the
10 7/8% Senior Subordinated Notes due 2004, Series B (the "Existing Notes")
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, impose restrictions
on the ability of a subsidiary to pay dividends or make certain payments to the
Company, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. In addition, the New Revolving Credit Facility contains other and
more restrictive covenants and prohibits the Company from prepaying its other
indebtedness (including the Exchange Notes). See "Description of Notes--Certain
Covenants" and "Description of the New Revolving Credit Facility." The New
Revolving Credit Facility requires the Company to maintain specified financial
ratios and satisfy certain financial condition tests. The Company's ability to
meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those tests. A
breach of any of these covenants could result in a default under the New
Revolving Credit Facility, the Indenture and/or the Existing Indenture. Upon the
occurrence of an event of default under the New Revolving Credit Facility, the
lenders could elect to declare all amounts outstanding under the New Revolving
Credit Facility, together with accrued interest, to be immediately due and
payable. If the Company were unable to
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repay those amounts, the lenders could proceed against the collateral granted to
them to secure that indebtedness. If the lenders under the New Revolving Credit
Facility accelerate the payment of the indebtedness, there can be no assurance
that the assets of the Company would be sufficient to repay in full such
indebtedness and the other indebtedness of the Company, including the Notes. See
"Description of the New Revolving Credit Facility."
DECLINES IN REVENUES
As a result of the rapidly changing nature of the document management
industry, the Company has experienced declining or flat revenues in each of the
last five fiscal years. Revenues for fiscal 1997 decreased $23.6 million from
fiscal 1996, which was due to the discontinuance and downsizing of selected
business lines and the expected general downward trend in both the micrographics
supplies and magnetics business lines. For further discussion by business line
of recent trends in revenues and operating margins, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
AVAILABILITY AND PRICE OF POLYESTER AND CERTAIN OTHER SUPPLIES
Certain third parties are the sole suppliers of some of the Company's raw
materials and products. The Company purchases all of its duplicate microfilm and
most of its magnetic media base polyester products from SKC America, Inc.
("SKC"). In addition to SKC, the Eastman Kodak Company ("Kodak") supplies to the
Company on an exclusive basis film and a proprietary, patented film canister
used in the Company's XFP 2000 COM system and also supplies to the Company
substantially all of the Company's requirements for original microfilm for
earlier-generation COM systems. 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
"Business--Raw Materials and Suppliers."
ACQUISITIONS
The Company has used acquisitions in the past to seek to increase revenues
and strengthen market positions, as the Company is seeking to do with the
Acquisition. Although the Company has successfully completed a number of
acquisitions, there can be no assurance that the Company will be able to
successfully integrate the IAS Business or any additional companies into its
operations without substantial costs, delays or other problems. In addition,
there can be no assurance that the IAS Business or any additional companies
acquired will be profitable at the time of their acquisition or will achieve
sales and profitability that justify the investment therein. The Company is
expected to depend, in part, on acquisitions to try to increase revenues and
market position, and there can be no assurance that the Company will be able to
effect any such further acquisitions. Future acquisitions could be financed by
internally generated funds, bank borrowings, public offerings or private
placements of equity or debt securities, or a combination of the foregoing.
There can be no assurance that the Company will be able to make acquisitions on
terms favorable to the Company. If the Company completes acquisitions, it will
encounter various associated risks, including the possible inability to
integrate an acquired business into the Company's manufacturing systems,
increased goodwill amortization, diversion of management's attention and
unanticipated problems or liabilities, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
The Company's substantial leverage may hinder its ability to consummate future
acquisitions. See "--Substantial Leverage."
NEW SERVICES AND PRODUCTS
The Company is introducing new document management services and products,
certain of which will incorporate digital technologies. The Company has limited
experience in the manufacture, sale or
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marketing of new services and products, especially those incorporating new
digital technologies. However, the Company is relying on such new services and
products to generate significant cash flows in the future.
These services and products currently are being introduced and, accordingly,
have limited or no revenues to date. The markets for such new services and
products are very competitive, and there can be no assurance that the Company's
services and products will achieve market acceptance. The Company currently is
in the process of reeducating and refocusing its sales force to sell its new
services and products, as well as its more traditional COM services and
products, 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 services and products. In addition, the extent to which
the Company will be able to maintain technological support for such new products
is unclear. 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 approximately 36% of revenues for the first nine
months of fiscal 1998, 35% of revenues for fiscal 1997 and 32% of revenues for
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. 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 currently does not enter into
hedging arrangements, although it may do so in the future. Distributions of
earnings and other payments (including interest) received from the Company's
operating subsidiaries and affiliates may be subject to withholding taxes
imposed by the jurisdictions in which such entities are formed or operating,
which will reduce the amount of after-tax cash the Company can receive from its
foreign subsidiaries.
COMPETITION
The Company competes in highly competitive markets with a significant number
of companies of varying sizes, including divisions or subsidiaries of larger
companies. A number of these competitors have multiple business lines as well as
substantially greater financial and other resources available to them, and there
can be no assurance that the Company can compete successfully with such other
companies. Competitive pressures or other factors could cause the Company's
products to lose market share or result in significant price erosion, which
would have a material adverse effect on the Company's results of operations. See
"Business."
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.
ABSENCE OF A PUBLIC MARKET
The Exchange Notes will be new securities for which there is currently no
public market. The Company does not intend to list the Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchaser has advised the Company that it may, subject to any legal and
regulatory conditions, make a market in the Notes, but it is not obligated to do
so and, if commenced, may discontinue such market making at any time. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
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aggregate principal amount of Old Notes outstanding will decrease, with a
resulting decrease in the liquidity of the market therefor.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act. In general,
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company currently
does not anticipate that it will register the Old Notes under the Securities
Act.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as comtemplated in this Prospectus,
the Company will receive in exchange Old Notes of like principal amount, the
terms of which are identical in all material respects to the Exchange Notes. The
Old Notes surrendered in exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company. The Company
has agreed to bear the expenses of the Exchange Offer pursuant to the
Registration Rights Agreement. No underwriter is being used in connection with
the Exchange Offer.
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CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and capitalization of the Company as of June 30, 1998 on an historical basis and
pro forma to give effect to the Dispositions. This table should be read in
conjunction with the Company's Consolidated Financial Statements and the related
notes thereto and the other information contained in this Prospectus, including
the information set forth in "Unaudited Pro Forma Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
--------------------------
HISTORICAL PRO FORMA
------------- -----------
<S> <C> <C>
Cash and cash equivalents(1)....................................... $ 15,739 $ 15,739
------------- -----------
------------- -----------
Senior Indebtedness:
New Revolving Credit Facility(2)................................. $ 53,862 $ 8,862
Capitalized leases and other..................................... 2,753 2,753
Senior Subordinated Indebtedness:
Existing Notes(3)................................................ 196,892 196,892
Old Notes(4)..................................................... 140,374 140,374
------------- -----------
Total debt................................................... 393,881 348,881
Stockholders' deficit.............................................. (37,414) (37,414)
------------- -----------
Total capitalization......................................... $ 356,467 $ 311,467
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Includes $4.3 million of restricted cash.
(2) Excludes unused available commitments of $25.7 million on a historical basis
and $70.7 million on a pro forma basis.
(3) Net of unamortized original issue discount of approximately $3.1 million.
(4) Reflects a premium of $5.4 million associated with the issuance of the Old
Notes.
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THE ACQUISITION AND RELATED DISPOSITIONS
The Company acquired the First Image Businesses from FFMC pursuant to the
First Image Asset Purchase Agreement with FFMC and FDC (collectively, the
"Sellers"). First Image is a division of FFMC that conducts the three First
Image Businesses: (i) the IAS Business; (ii) the DPDS Business; and (iii) the
DAS Business.
Concurrently with the closing of the Old Notes Offering, the Company
acquired substantially all of the assets used or held for use by First Image in
connection with the First Image Businesses (except for certain excluded assets)
and assumed substantially all of the ongoing liabilities of the First Image
Businesses (except for certain excluded liabilities). The cash purchase price
(excluding working capital adjustments) for the First Image Businesses was $150
million.
IAS BUSINESS
The IAS Business provides a variety of imaging, archival and document
management services. These services, which are substantially the same as
Anacomp's COM services, include the transfer of structured computer data, such
as reports, statements and invoices, onto various media. See "Business--Services
and Products--Outsource Services--COM Services."
For the year ended December 31, 1997, the revenues of the IAS Business were
$124.3 million, with 84% of those revenues coming from COM, the largest segment
of the IAS Business. Revenues also were derived from laser print services which
are used to transform computer-generated output onto paper, and a smaller
portion of revenues were derived from transforming computer-generated output
onto relatively newer products, such as CDs. Finally, the IAS Business provides
equipment and supplies related to these services, including microfiche readers,
film and chemicals.
The IAS Business operates 42 production centers geographically dispersed
throughout the United States and has approximately 750 employees. Like Anacomp,
the IAS Business has focused on maintaining strong client relationships, and has
an annual client retention rate of approximately 90%. The IAS Business also
utilizes innovative technology, such as on-line ordering and status reporting,
in its sales and marketing efforts. In connection with the Acquisition of the
IAS Business, the Company plans to close down certain production centers with
multiple market presence and reduce personnel related costs accordingly.
DPDS BUSINESS
The DPDS Business, with seven production facilities throughout the United
States, provides document management services specializing in printing,
inserting and mailing financial documents and is divided into Print and Mail,
Demand Publishing and Direct Mail, with estimated annual revenues of $33.9
million, $14.2 million and $7.8 million, respectively, for the year ended
December 31, 1997. Print and Mail provides a full range of services to clients,
including programming, form design, data receipt and processing, printing,
insertion and sorting services. Demand Publishing provides publishing and
printing services for documents requiring frequent revisions, with services
including high quality, high speed printers, color copies, diskette duplication
and an in-house binding service. Direct Mail offers its clients a range of
value-added services, including high-volume production services, creative
package design, database management, laser printing services, lettershop
services and fulfillment.
DAS BUSINESS
The DAS Business provides data capture, data entry, imaging, retrieval, and
optical character recognition services mainly to healthcare, government and
financial institutions. The six production facilities, five of which are in
Kentucky, generated approximately $41.7 million in revenues for the year ended
December 31, 1997. The DAS Business specializes in solutions for the healthcare
and insurance industries, providing complete client solutions including mail
receipt, data delivery, image capture, document scanning and archival and
retrieval functions. The DAS Business also processes various
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applications for several major credit card companies and for the Department of
Education and the Immigration and Naturalization Service.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
The Company entered into the First Image Asset Purchase Agreement on May 5,
1998 with FFMC and FDC. The First Image Asset Purchase Agreement required the
Company to purchase, on a going concern basis, the First Image Businesses at an
initial purchase price of $150 million. The purchase price was subject to
adjustment following the Acquisition Closing Date (as defined) to reflect the
difference between actual net working capital at the Acquisition Closing Date
and an agreed working capital target as noted above.
ASSETS AND LIABILITIES ASSUMED
Upon closing the Acquisition, the Company assumed substantially all of the
assets, properties and rights of First Image, of every kind and description,
wherever located, whether real, personal or mixed, tangible or intangible, which
were held by First Image on the closing date of the Acquisition (the
"Acquisition Closing Date") except for certain excluded assets as specified in
the First Image Asset Purchase Agreement. The Company also expressly assumed
substantially all of the liabilities of First Image on a going concern basis
except for certain excluded liabilities as specified in the First Image Asset
Purchase Agreement.
EMPLOYMENT MATTERS
Effective upon closing, the employment by the Sellers or their affiliates of
employees engaged in the First Image Businesses (collectively, the "Transferred
Employees") terminated, and such employees ceased to participate in any employee
benefit plans maintained by or for the benefit of the Sellers or their
affiliates. The Company has offered employment to all persons whose employment
was so terminated. The Company shall be solely responsible for the payment of
any severance pay to any Transferred Employees, except for certain employees
specified in the First Image Asset Purchase Agreement; PROVIDED, HOWEVER, that
the Sellers shall reimburse the Company for up to $300,000 of severance pay
which becomes payable to Transferred Employees within six months after the
Acquisition Closing Date. The Company assumed responsibility and liability for
any penalties or liabilities arising under the Worker Adjustment and Retraining
Notification Act of 1988 with respect to the termination of any Transferred
Employees on or after the Acquisition Closing Date. The Company is required to
permit Transferred Employees to participate in employee benefit plans, vacation,
holiday and other fringe benefit plans ("Company Plans") providing benefits
which are competitive in the industry. As soon as is practicable after the
Acquisition Closing Date, but effective as of the Acquisition Closing Date and
for a period of one year thereafter, the Company shall provide a severance pay
program which is comparable to the First Image Business's severance pay program
or shall permit Transferred Employees to participate in the Company's severance
plan. The Company agreed to take responsibility for and cause to be paid in the
normal course of business the vacation pay of all Transferred Employees. The
Company is responsible and liable for any claim arising under any state worker's
compensation or similar law which is based upon any occurrence after the
Acquisition Closing Date. The Company is free to amend the terms of employment
of any Transferred Employee accepting employment with the Company (including the
terms of any benefit or compensation plan or scheme) as the terms of such
employment, plan or scheme permit.
COVENANT NOT TO COMPETE AND NON-SOLICITATION PROVISION
The Sellers are not permitted to engage in certain restricted competitive
activities for a period of three years after the Acquisition Closing Date. The
Sellers are not permitted to solicit customers of the First Image Businesses for
a period of three years after the Acquisition Closing Date. The Sellers are not
permitted to solicit any Transferred Employee for a period of 18 months after
the Acquisition Closing Date.
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INDEMNIFICATION OF THE COMPANY BY THE SELLERS
The Sellers have indemnified the Company and certain specified affiliates of
the Company from and against any and all losses and expenses incurred in
connection with or arising from (i) any breach by FFMC or FDC of any of its
covenants or warranties contained in the First Image Asset Purchase Agreement;
(ii) the inaccuracy of any of FFMC's or FDC's representations or warranties
contained in the First Image Asset Purchase Agreement; (iii) the inaccuracy of
any certificate delivered by or on behalf of FFMC or FDC pursuant to the First
Image Asset Purchase Agreement; or (iv) any liability specifically retained by
FFMC or FDC. However, the indemnification obligations of FFMC and FDC (except as
such obligations relate to certain specified provisions of the First Image Asset
Purchase Agreement) are subject to the following limitations: (a) FFMC and FDC
will indemnify the Company only to the extent the aggregate amount of loss
suffered by the Company exceeds $2 million; (b) FFMC and FDC will indemnify the
Company only if any individual claim involves a loss of $25,000 or more; and (c)
the indemnification liability of FFMC and FDC to the Company shall not exceed
20% of the adjusted purchase price. Except as such obligations relate to certain
specified provisions of the First Image Asset Purchase Agreement, the
indemnification obligations of FFMC and FDC terminate 18 months after the
Acquisition Closing Date.
INDEMNIFICATION OF THE SELLERS BY THE COMPANY
The Company has indemnified the Sellers and certain specified affiliates of
the Sellers from and against any and all losses and expenses incurred in
connection with or arising from: (i) any breach by the Company of any of its
covenants or warranties contained in the First Image Asset Purchase Agreement;
(ii) the inaccuracy of any of the Company's representations or warranties
contained in the First Image Asset Purchase Agreement; (iii) the inaccuracy of
any certificate delivered by or on behalf of the Company pursuant to the First
Image Asset Purchase Agreement; (iv) any liability specifically assumed by the
Company; or (v) any third-party claims relating to the operation of the First
Image Businesses following the Acquisition Closing Date for which the Company is
not entitled to indemnification from the Sellers. Except as such obligations
relate to certain specified provisions of the First Image Asset Purchase
Agreement, the indemnification obligations of the Company terminate 18 months
after the Acquisition Closing Date.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The First Image Asset Purchase Agreement contains customary representations
and warranties from FFMC and FDC concerning, among other things, the due
authorization and valid existence of FFMC and FDC, the ownership of the
transferred assets, the ability of FFMC and FDC to transfer the assets, the
accuracy of all financial information provided to the Company in anticipation of
the Acquisition, taxes, the availability of the transferred assets for use by
the Company, the legality of the use of the transferred assets, the status of
governmental permits, the transferred real property, the assigned leases, the
transferred personal property, the transferred intellectual property, the
condition of the transferred assets, condemnation, receivables and inventory,
employment issues, the status of contracts, environmental matters, the absence
of claims or actions pertaining to the First Image Businesses, insurance,
customers and supplies and the absence of undisclosed liabilities. In addition
to the foregoing representations and warranties, the First Image Asset Purchase
Agreement contains customary covenants by FFMC and FDC concerning, among other
things, access to the purchased assets, notification, securing of consents and
approvals of regulatory bodies, securing of consents to transfers of contracts
from third parties, actions prior to the Acquisition Closing Date, cooperation
regarding tax computations and filings, non-competition and non-solicitation,
and certain employment matters. The Company also made customary representations,
warranties and covenants under the First Image Asset Purchase Agreement.
RELATED DISPOSITIONS
On August 10, 1998, the Company consummated the sale of the DAS Business to
ACS, effective as of July 1, 1998. ACS acquired substantially all of the assets,
and assumed substantially all of the liabilities, of
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<PAGE>
the DAS Business at a cash purchase price of $21.5 million (excluding
post-closing working capital adjustments).
On July 31, 1998, the Company consummated the sale of the DPDS Business to
AccuDocs. AccuDocs acquired substantially all of the assets, and assumed
substantially all of the liabilities, of the DPDS Business at a purchase price
of $23.5 million in cash subject to post-closing working capital adjustments.
The Company and AccuDocs have agreed that AccuDocs will be the Company's
exclusive vendor for print and mail services in the United States for an initial
period of three years.
FIRST IMAGE YEAR 2000 PROGRAM
Since the Acquisition, the Company has begun conducting a review of the IAS
Business as part of the Company's overall Year 2000 compliance program. The
Company's review will cover both the products and services sold and distributed
by the IAS Business, as well as the IAS Business internal hardware and software.
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Statement of Operations for the twelve
months ended September 30, 1997 for the Company and December 31, 1997 for First
Image and for the nine months ended June 30, 1998 for both the Company and First
Image has been prepared giving effect to the Offering, the application of the
net proceeds therefrom, the Prior Refinancings, the Senior Debt Refinancing, the
Acquisition, and the Dispositions as if they had occurred at the beginning of
the applicable statement of operations periods. A pro forma balance sheet has
not been prepared, as the First Image data is included in Anacomp's historical
consolidated balance sheet as of June 30, 1998, incorporated by reference into
this document.
In February 1997, the Company refinanced its existing 11 5/8% Senior Secured
Notes due 2002 with a senior secured term loan and revolving credit facility,
reducing its outstanding borrowings from $97.9 million to $55 million. In March
1997, the Company refinanced its existing 13% Senior Subordinated Notes due 2002
($160 million face value) with the Existing Notes ($200 million face value).
These two refinancings are referred to collectively as the "Prior Refinancings."
The Unaudited Pro Forma Consolidated Financial Information does not purport
to be indicative of the results that would have been obtained had such
transactions in fact been completed as of the date and for the periods presented
or that may be obtained in the future.
29
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997 FOR THE COMPANY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 FOR FIRST IMAGE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE ADJUSTMENTS
SENIOR DEBT FOR THE
HISTORICAL HISTORICAL REFINANCING ACQUISITION
THE PRIOR FIRST AND THE AND THE
COMPANY REFINANCINGS SUBTOTAL IMAGE(1) OFFERING DISPOSITIONS PRO FORMA
----------- ------------ --------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 462,510 $ 462,510 $ 221,983 $ (15,404) 14) $ 571,453
(97,636) 15)
Operating costs and
expenses:
Costs of sales and
services............. 304,514 304,514 151,957 (15,404) 14) 367,880
(73,187) 15)
Selling, general and
administrative
expenses............. 90,731 90,731 55,254 (16,069) 15) 112,104
(6,147) 16)
(19,660) 17)
7,995 (18
Amortization of
reorganization
asset................ 75,780 75,780 75,780
----------- ------------ --------- ------------- ----------- ----------- -----------
Total operating costs and
expenses............... 471,025 -- 471,025 207,211 -- (122,472) 555,764
----------- ------------ --------- ------------- ----------- ----------- -----------
Income (loss) from
operations before
interest, other income,
income taxes and
extraordinary item..... (8,515) -- (8,515) 14,772 -- 9,432 15,689
Interest income.......... 4,346 (475)(3) 3,871 (1,045)(9) 2,826
Interest expense and fee
amortization........... (35,896) (176)(4) (31,631) (84) 5,484 (10 82 (15 (41,789)
7,460(5) (3,871) 11) 3,234 (19
(4,686)(6) (1,044) 12)
24,003(7) (13,959) 13)
(22,336)(8)
Other income (expense)... (1,285) (1,285) 1,915 630
----------- ------------ --------- ------------- ----------- ----------- -----------
Income (loss) before
taxes and extraordinary
item................... (41,350) 3,790 (37,560) 16,603 (14,435) 12,748 (22,644)
Provision (benefit) for
income taxes(2)........ 15,500 1,592 17,092 8,345 (6,063) 3,982 23,356
----------- ------------ --------- ------------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... $ (56,850) $ 2,198 $ (54,652) $ 8,258 $ (8,372) $ 8,766 $ (46,000)
----------- ------------ --------- ------------- ----------- ----------- -----------
----------- ------------ --------- ------------- ----------- ----------- -----------
Per share income (loss)
before extraordinary
item................... $ (4.23) $ (3.42)
----------- -----------
----------- -----------
</TABLE>
30
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997 FOR THE COMPANY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 FOR FIRST IMAGE
(DOLLARS IN THOUSANDS)
(1) Includes the results for First Image IAS Business for the twelve months
ended December 31, 1997.
(2) Assumes an effective tax rate of approximately 42% on all adjustments.
(3) Reflects adjustment to interest income based on amount of cash outstanding
subsequent to the Prior Refinancings at an assumed interest rate of 5%.
(4) Represents adjustment to historical amortization of deferred debt costs as
if the senior secured term loan and revolving credit facilities extinguished
in June 1998 had been in place during the entire period.
(5) Represents elimination of historical interest expense related to the 11 5/8%
Senior Secured Notes due 2002 extinguished in February 1997 and the senior
secured term loan and revolving credit facility extinguished in June 1998.
(See note 6)
(6) Represents twelve months of interest expense related to the senior secured
term loan and revolving credit facility extinguished in June 1998 as if it
had been outstanding for the entire period (based on amount outstanding as
of June 30, 1998 of $53,862 and an interest rate of 8.7%).
(7) Reflects elimination of historical interest expense, fee amortization, and
debt discount amortization related to the Company's 13% Senior Subordinated
Notes due 2002 extinguished in March 1997 and the Series B Senior
Subordinated Notes due 2004 outstanding during the period. (See note 8)
(8) Reflects interest expense, fee amortization, and debt discount amortization
on the Company's Series B Senior Subordinated Notes due 2004 as if these
notes had been outstanding for the entire period.
(9) Reflects downward adjustment of interest income (at an estimated interest
rate of 5%) based on actual cash on hand at June 30, 1998 as if the cash
amount had been on hand from the beginning of the period.
(10) Reflects elimination of pro forma amortization of deferred debt costs and
pro forma interest expense related to the senior secured term loan and
revolving credit facility extinguished in June 1998 (eliminated interest
established in notes 4 and 6 above in connection with Prior Refinancings).
(11) Reflects twelve months of interest expense associated with the New
Revolving Credit Facility based on the actual amount outstanding as of June
30, 1998 of $53,862 with an interest rate of 7.1875%.
(12) Reflects twelve months amortization of (i) $1,014 of debt issuance costs
associated with the New Revolving Credit Facility, amortizable over 60
months and (ii) $4,873 of debt issuance costs associated with the Notes,
amortizable over 70 months.
(13) Reflects interest expense on the $135,000 face amount of the 10.875%
Exchange Notes issued at a 4% premium ($5,400) to yield a 9.9% effective
interest rate after consideration of the accretion of the premium.
(14) Reflects elimination of equipment and supplies sales from the Company to
First Image.
(15) Reflects elimination of revenues, expenses and interest expense for the
twelve months ended September 30, 1997 associated with the DPDS Business and
the DAS Business, which have been disposed of subsequent to June 30, 1998.
(16) Reflects elimination of First Image corporate costs allocable to the DPDS
Business and DAS Business. Costs were allocated based on the divisions'
percentage of total revenue.
(17) Reflects elimination of First Image historical depreciation and
amortization for the twelve months ended September 30, 1997. (See note 18)
(18) Reflects pro forma depreciation of property and equipment and amortization
of goodwill for the twelve months ended September 30, 1997 resulting from
the acquisition of First Image. Acquisition costs allocated to property and
equipment were based on management's estimate of the fair value thereof. The
remaining residual purchase price was allocated to goodwill. Property and
equipment are being depreciated over five years and goodwill is being
amortized over fifteen years.
(19) Reflects elimination of interest expense as a result of the application of
$45,000 of proceeds from the disposition of the DPDS Business, DAS Business
and associated working capital settlements related to the acquisition and
dispositions of the First Image Businesses to repay amounts outstanding
under the New Revolving Credit Facility.
31
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE ADJUSTMENTS
HISTORICAL SENIOR DEBT FOR THE
------------------------ REFINANCING ACQUISITION
THE FIRST IMAGE AND THE AND THE
COMPANY BUSINESSES(1) OFFERING DISPOSITIONS PRO FORMA
---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................. $ 356,428 $ 146,031 -- $ (5,980)(9) $ 428,283
(68,196) 10)
Operating costs and expenses:
Costs of sales and services............. 236,507 94,720 -- (5,980)(9) 278,425
(46,822) 10)
Selling, general and administrative
expenses.............................. 80,864 38,798 -- (12,857) 10) 96,639
(5,080) 11)
(10,525) 12)
5,439 (13
Amortization of reorganization asset.... 56,235 -- 56,235
Restructuring charges 8,494 8,494
---------- ------------ ----------- ----------- -----------
Total operating costs and expenses........ 382,100 133,518 -- (75,825) 439,793
---------- ------------ ----------- ----------- -----------
Income (loss) from operations before
interest, other income, income taxes and
extraordinary item...................... (25,672) 12,513 -- 1,649 (11,510)
Interest income........................... 1,802 (12) -- 37 (10 1,810
(17) 14)
Interest expense and fee amortization..... (24,440) 713(3) 2,426 (15 (31,220)
3,421(4)
815(5)
(2,903)(6)
(783)(7)
(10,469)(8)
Other income (loss)....................... (843) 1,915 -- -- 1,072
---------- ------------ ----------- ----------- -----------
Income (loss) before taxes and
extraordinary item...................... (49,153) 14,416 (9,206) 4,095 (39,848)
Provision (benefit) for income taxes(2)... 3,819 7,230 (3,867) 618 7,800
---------- ------------ ----------- ----------- -----------
Income (loss) before extraordinary item... $ (52,972) $ 7,186 $ (5,339) $ 3,477 $ (47,648)
---------- ------------ ----------- ----------- -----------
---------- ------------ ----------- ----------- -----------
Per share income (loss) before
extraordinary item...................... $ (3.81) $ (3.50)
---------- -----------
---------- -----------
</TABLE>
32
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(1) Includes the results of the First Image IAS Business for the eight months
ended May 31, 1998. The results for the IAS Business for the one month ended
June 30, 1998 are included in the historical results for the Company.
(2) The pro forma provision for income taxes in calculated based on a tax rate
of approximately 40% after consideration of all adjustments and the addback
for nondeductible amortization.
(3) Reflects elimination of amortization of debt issuance costs under the senior
secured term loan and revolving credit facilities extinguished in June 1998.
(4) Reflects elimination of interest expense under the senior secured term loan
and revolving credit facilities extinguished in June 1998.
(5) Reflects elimination of interest expense incurred in June 1998 under the New
Revolving Credit Facility and Old Notes. (See notes 6 and 8)
(6) Reflects nine months of interest expense associated with the New Revolving
Credit Facility based on the amount outstanding as of June 30, 1998 of
$53,862 with an interest rate of 7.1875%.
(7) Reflects nine months amortization of (i) $1,014 of debt issuance costs
associated with the New Revolving Credit Facility, amortizable over 60
months and (ii) $4,873 of debt issuance costs associated with the Notes,
amortizable over 70 months.
(8) Reflects interest expense on the $135,000 face amount of the 10.875%
Exchange Notes issued at a 4% premium ($5,400) to yield a 9.9% effective
interest rate after consideration of the accretion of the premium.
(9) Reflects elimination of equipment and supplies sales from the Company to
First Image.
(10) Reflects elimination of revenues, expenses and interest income for the nine
months ended June 30, 1998 associated with the DPDS Business and the DAS
Business, which have been disposed of subsequent to June 30, 1998.
(11) Reflects elimination of First Image corporate costs allocable to the DPDS
Business and DAS Business. Costs were allocated based on the divisions'
percentage of total revenue.
(12) Reflects elimination of First Image historical depreciation and
amortization for the nine months ended June 30, 1998. (See note 13)
(13) Reflects pro forma depreciation of property and equipment and amortization
of goodwill for the nine months ended June 30, 1998 resulting from the
acquisition of First Image. Acquisition costs allocated to property and
equipment were based on management's estimate of the fair value thereof. The
remaining residual purchase price was allocated to goodwill. Property and
equipment are being depreciated over five years, and goodwill is being
amortized over fifteen years.
(14) Reflects downward adjustment of interest income (at an estimated interest
rate of 5%) based on actual cash on hand at June 30, 1998 as if the cash
amount had been on hand from the beginning of the period.
(15) Reflects elimination of interest expense as a result of the application of
$45,000 of proceeds from the disposition of the DPDS Business, the DAS
Business and associated working capital settlements related to the
acquisition and dispositions of the First Image Businesses to repay amounts
outstanding under the New Revolving Credit Facility.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the three fiscal years ended September 30,
1995, for the eight months ended May 31, 1996, for the four months ended
September 30, 1996 and for the fiscal year ended September 30, 1997, and
selected consolidated historical balance sheet data as of September 30, 1993
through 1997, which were derived, except as otherwise noted, from the
consolidated financial statements of the Predecessor Company and the Reorganized
Company audited by Arthur Andersen LLP, and selected unaudited consolidated
historical operating, financial and balance sheet data as of June 30, 1998 and
for the nine months ended June 30, 1997 and 1998, which were derived from
unaudited interim condensed consolidated financial statements of the Reorganized
Company, and, in the opinion of management, include all adjustments necessary
for a fair presentation of the financial condition and results of operations for
the unaudited interim periods. The following should be read in conjunction with,
and is qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) REORGANIZED COMPANY (1)
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
<CAPTION>
NINE
EIGHT FOUR MONTHS
MONTHS MONTHS YEAR ENDED
YEAR ENDED SEPTEMBER 30, ENDED ENDED ENDED JUNE 30,
------------------------------- MAY 31, SEPT. 30, SEPT. 30, ---------
1993 1994 1995 1996 1996 1997(2) 1997(2)
--------- --------- --------- --------- ----------- ----------- ---------
(UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................................. $ 590,208 $ 592,599 $ 591,189 $ 334,598 $ 151,542 $ 462,510 $ 345,014
Cost of sales and services............... 375,373 397,203 417,335 229,167 101,955 304,514 227,017
Selling, general and administrative(3)... 126,201 115,819 132,459 63,826 29,688 90,731 66,051
Amortization of reorganization asset..... -- -- -- -- 25,663 75,780 56,937
Special and restructuring charges(4)..... -- -- 169,584 -- -- -- --
--------- --------- --------- --------- ----------- ----------- ---------
Operating income (loss).................. 88,634 79,577 (128,189) 41,605 (5,764) (8,515) (4,991)
Interest expense(5)...................... 68,960 67,174 70,938 26,760 12,869 35,896 27,974
Reorganization items(6).................. -- -- -- 92,839 -- -- --
Income (loss) before extraordinary items
and cumulative effect of accounting
change................................. 11,691 6,955 (238,326) 112,528 (22,009) (56,850) (42,336)
Net income (loss)(7)(8).................. $ 18,591 $ 14,955 $(238,326) $ 164,970 $ (22,009) $ (67,811) $ (53,997)
--------- --------- --------- --------- ----------- ----------- ---------
--------- --------- --------- --------- ----------- ----------- ---------
Income (loss) per share (primary) before
extraordinary items and cumulative
effect of accounting change (net of
preferred stock dividends and discount
accretion)(9).......................... -- -- -- -- $ (2.19) $ (4.23) $ (3.18)
Weighted average shares outstanding(9)... -- -- -- -- 10,034 13,432 13,323
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(10)... 1.27 1.21 N/A N/A N/A N/A N/A
<CAPTION>
<S> <C>
1998
---------
<S> <C>
OPERATING DATA:
Revenues................................. $ 356,428
Cost of sales and services............... 236,507
Selling, general and administrative(3)... 80,864
Amortization of reorganization asset..... 56,235
Special and restructuring charges(4)..... 8,494
---------
Operating income (loss).................. (25,672)
Interest expense(5)...................... 24,440
Reorganization items(6).................. --
Income (loss) before extraordinary items
and cumulative effect of accounting
change................................. (52,972)
Net income (loss)(7)(8).................. $ (54,829)
---------
---------
Income (loss) per share (primary) before
extraordinary items and cumulative
effect of accounting change (net of
preferred stock dividends and discount
accretion)(9).......................... $ (3.81)
Weighted average shares outstanding(9)... 13,921
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(10)... N/A
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) REORGANIZED COMPANY (1)
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(11).......................... $ 24,922 $ 19,871 $ 19,415 $ 47,795 $ 65,493 $ 15,739
Reorganization value in excess of identifiable
assets(12)........................................... -- -- -- 240,344 163,856 107,621
Total assets........................................... 643,548 658,639 421,029 435,421 391,951 475,719
Total current liabilities(13).......................... 152,727 163,091 188,957 121,148 118,489 118,319
Total debt(14)......................................... 439,093 411,847 389,900 248,892 257,484 393,881
Redeemable preferred stock............................. 24,383 24,478 24,574 -- -- --
Stockholders' equity (deficit)......................... 13,799 49,756 (188,243) 58,569 14,520 (37,414)
</TABLE>
(FOOTNOTES COMMENCE ON THE FOLLOWING PAGE)
34
<PAGE>
(1) 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 SOP 90-7. 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 Reorganized
Company are not comparable to those of the Predecessor Company.
(2) Results include receipt of a one-time $3.6 million payment relating to a
long-standing OEM (as defined) agreement with Kodak.
(3) Includes amortization of intangible assets.
(4) For the year ended September 30, 1995, special and restructuring charges
include special charges of $136.9 million that represent a $108 million
write-off of goodwill and $28.9 million of charges associated with software
costs which are not recoverable, as well as restructuring charges of $32.7
million. Includes restructuring charges of $8.5 million for the nine months
ended June 30, 1998.
(5) Reflects interest expense, including debt discount and fee amortization and
debt premium accretion.
(6) 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.
(7) 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 fiscal 1994 net income of $8 million reflecting the
cumulative effect on prior years of this accounting change. Prior to 1993,
the Company recognized tax benefits resulting from net operating loss
carryforwards ("NOLs") as an extraordinary item in the Consolidated
Statement of Operations.
(8) Includes an extraordinary gain, net of taxes, resulting from the discharge
of indebtedness of $52.4 million for the eight months ended May 31, 1996.
Includes an extraordinary loss, net of taxes, resulting from extinguishment
of debt, of $11.0 million, $11.7 million and $1.9 million for the year ended
September 30, 1997 and the nine months ended June 30, 1997 and 1998,
respectively.
(9) 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.
(10) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes, extraordinary items and
cumulative effect of accounting change, plus fixed charges. Fixed charges
consist of interest expense on indebtedness, amortization of deferred debt
issuance costs, accretion of the original issue discount and premium 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 four months ended September 30,
1996, the year ended September 30, 1997 and the nine months ended June 30,
1997 and 1998, income (loss) before income taxes, extraordinary items and
cumulative effect of accounting change was inadequate to cover fixed
charges. The amount of the coverage deficiency was $203.3 million, $17.6
million, $41.4 million, $30.9 million and $49.2 million, respectively. For
the eight months ended May 31, 1996, this ratio may not be meaningful due to
the reorganization gains recorded associated with adoption of fresh start
accounting and discharge of indebtedness.
(11) Includes $9.6 million, $7.4 million and $4.3 million of restricted cash as
of September 30, 1996 and 1997 and June 30, 1998, respectively.
(12) 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 period beginning May 31, 1996.
(13) Total current liabilities exclude current portion of long-term debt.
(14) Total debt includes current portion of long-term debt and unaccreted debt
premium, net of unamortized debt discount.
35
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of Old Notes to the initial purchaser pursuant
to the Purchase Agreement, dated June 12, 1998, between the Company and NatWest,
the holders of the Old Notes became entitled to the benefits of the Registration
Rights Agreement.
Under the Registration Rights Agreement, the Company became obligated to (a)
file a registration statement in connection with a registered exchange offer
within 60 days after June 18, 1998, the date the Old Notes were issued (the
"Issue Date"), and (b) cause the registration statement relating to such
registered exchange offer to become effective within 180 days after the Issue
Date. The Exchange Offer being made hereby, if consummated within the required
time periods, will satisfy the Company's obligations under the Registration
Rights Agreement. The Company understands that there are approximately
beneficial owners of such Old Notes. This Prospectus, together with the Letter
of Transmittal, is being sent to all such beneficial holders known to the
Company.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in the
Morgan Stanley Letter, the Exxon Capital Letter and similar letters, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
person who received such Exchange Notes, whether or not such person is the
holder (other than Restricted Holders) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's or other
person's business, neither such holder nor such other person is engaged in or
intends to engage in any distribution of the Exchange Notes and such holders or
other persons have no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
If any person were to be participating in the Exchange Offer for the
purposes of participating in a distribution of the Exchange Notes in a manner
not permitted by the Commission's interpretation, such person (a) could not rely
upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after consummation of the Exchange Offer, it will
make this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
36
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain conditions set forth herein under
"--Conditions" without waiver by the Company, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes,
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes in connection with the Exchange Offer. See
"--Fees and Expenses."
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will issue a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time.
The Company reserves the right (a) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Notes not previously accepted if any of the conditions set forth herein under
"--Conditions" shall have occurred and shall not have been waived by the Company
(if permitted to be waived by the Company), by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (b) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment and the Company may extend the Exchange Offer for a
period of up to ten business days, depending upon the significance of the
amendment and the manner of disclosure to holders of the Old Notes, if the
Exchange Offer would otherwise expire during such extension period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
37
<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from June 18, 1998, payable
semiannually on April 1 and October 1 of each year, commencing October 1, 1998,
at the rate of 10 7/8% per annum. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued up until the date of the
issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 3 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents. To be validly tendered, such
documents must reach the Exchange Agent on or before 5:00 p.m., New York City
time, on the Expiration Date.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery to the Exchange Agent on or before 5:00 p.m.
New York City time, on the Expiration Date. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such registered holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by 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 (an "Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (a) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (b) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers and a proxy
38
<PAGE>
which authorizes such person to tender the Old Notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or other acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority so to act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth under "-- Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (b) to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such holder or other person, (b)
neither such holder nor such other person is engaged in or intends to engage in
a distribution of the Exchange Notes (c) neither such holder or other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and (d) such holder or other person is not
an "affiliate," as defined under Rule 405 of the Securities Act, of the Company
or, if such holder or other person is such an affiliate, will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after consummation of the Exchange Offer, it will
make this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
39
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Old Notes were issued on June 18, 1998 and there is no public market for
them at present. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the principal amount of outstanding Old Notes will decrease with
a resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (a) whose Old Notes are not
immediately available or (b) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if: (i) the tender is make through an
Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (a) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"), (b)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (c) be signed by the Depositor
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the Depositor withdrawing the tender and (d) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
40
<PAGE>
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Old Notes, if
the Company or the holders of at least a majority in principal amount of Old
Notes reasonably determine in good faith that any of the following conditions
exist: (a) the Exchange Notes to be received by such holders of Old Notes in the
Exchange Offer, upon receipt, will not be tradable by each such holder (other
than a holder which is an affiliate of the Company at any time on or prior to
the consummation of the Exchange Offer) without restriction under the Securities
Act and the Exchange Act and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States, (b) the
interests of the holders of the Old Notes, taken as a whole, would be materially
adversely affected by the consummation of the Exchange Offer or (c) after
conferring with counsel, the Commission is unlikely to permit the making of the
Exchange Offer prior to December 15, 1998.
Pursuant to the Registration Rights Agreement, if an Exchange Offer shall
not be consummated prior to the Exchange Offer Termination Date, the Company
will be obligated to cause to be filed with the Commission a shelf registration
statement with respect to the Old Notes (the "Shelf Registration Statement") as
promptly as practicable after the Exchange Offer Termination Date and thereafter
use its best efforts to have the Shelf Registration Statement declared
effective.
"Exchange Offer Termination Date" means the date on which the earliest of
any of the following events occurs: (a) applicable interpretations of the staff
of the Commission do not permit the Company to effect the Exchange Offer, (b)
any holder of Notes notifies the Company that either (i) such holder is not
eligible to participate in the Exchange Offer or (ii) such holder participates
in the Exchange Offer and does not receive freely transferable Exchange Notes in
exchange for tendered Old Notes or (c) the Exchange Offer is not consummated
within 180 days after the Issue Date.
If any of the conditions described above exist, the Company will refuse to
accept any Old Notes and will return all tendered Old Notes to exchanging
holders of the Old Notes.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Notes should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
BY MAIL BY HAND/OVERNIGHT DELIVERY
<S> <C>
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station Securities Processing Window SC-1
New York, New York 10274-0084 New York, New York 10004
Attention: Reorganization Operations Department
<CAPTION>
TELEPHONE
(212) 858-2657
FACSIMILE
(212) 858-2611
</TABLE>
The Company will indemnify the Exchange Agent and its agents for any loss,
liability or expense incurred by them, including reasonable costs and expenses
of their defense, except for any such loss, liability or expense caused by
negligence or bad faith.
41
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telephone or facsimile.
The Company will not make any payments to brokers, dealers, or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes, and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and expenses, will be paid by the Company, and are estimated in the
aggregate to be approximately $400,000.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes (or Old Notes for principal amounts not tendered or
accepted for exchange) are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes upon
the consummation of the Exchange Offer. The expense of the Exchange Offer will
be amortized by the Company over the term of the Exchange Notes under GAAP.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNLESS EXPRESSLY PROVIDED OTHERWISE, THE FOLLOWING DISCUSSION RELATES SOLELY
TO THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY AND DOES NOT
INCLUDE INFORMATION WITH RESPECT TO ANY OF THE FIRST IMAGE BUSINESSES.
RESULTS OF OPERATIONS
On May 20, 1996 the Company's Plan of Reorganization was confirmed by the
United States Bankruptcy Court and the Company emerged from bankruptcy
proceedings (the "Reorganization"). The Plan of Reorganization resulted in a
reduction of approximately $174 million in principal and accrued interest on the
Company's debt obligations and in liquidation amount and accrued dividends on
its preferred stock. As a result of the Reorganization, the recording of the
restructuring transaction and the implementation of Fresh Start Reporting, the
Company's results of operations after May 31, 1996 (the cutoff date used for
financial reporting purposes) are not comparable to results reported in prior
periods.
To facilitate a meaningful comparison of the Company's quarterly and
year-to-date operating performance in fiscal 1997, 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 prior years'
information presented below does not comply with accounting requirements for
companies upon emergence from bankruptcy, which requirements call for separate
reporting for the newly reorganized company and the predecessor company.
CONSOLIDATED RESULTS OF OPERATIONS
As an aid to understanding the Company's operations on a comparative basis,
the following table has been prepared to set forth certain income statement and
other data for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ---------- ----------
Revenues:
Service provided.......................................................... $ 219,881 $ 189,257 $ 186,590
Equipment and supply sales................................................ 371,308 296,883 275,920
----------- ---------- ----------
591,189 486,140 462,510
Operating costs and expenses:
Costs of services provided................................................ 126,493 104,499 97,932
Costs of equipment and supplies sold...................................... 290,842 226,623 206,582
Selling, general and administrative....................................... 132,459 93,514 90,731
Amortization of reorganization asset...................................... -- 25,663 75,780
Special charges........................................................... 136,889 -- --
Restructuring charges..................................................... 32,695 -- --
----------- ---------- ----------
719,378 450,299 471,025
----------- ---------- ----------
Operating income (loss)..................................................... (128,189) 35,841 (8,515)
Interest expense--net....................................................... 68,938 37,056 31,550
Financial restructuring costs............................................... 5,987 -- --
Other income (expense)...................................................... (212) 6,995 (1,285)
----------- ---------- ----------
Income (loss) before reorganization items, income taxes, extraordinary
credit and cumulative effect of accounting change......................... (203,326) 5,780 (41,350)
Reorganization items........................................................ -- 92,839 --
Income (loss) before income taxes, extraordinary credit and cumulative
effect of accounting change............................................... (203,326) 98,619 (41,350)
Provision for income taxes.................................................. 35,000 8,100 15,500
----------- ---------- ----------
Income (loss) before extraordinary items.................................... (238,326) 90,519 (56,850)
Extraordinary items......................................................... -- 52,442 (10,961)
----------- ---------- ----------
Net income (loss)........................................................... $ (238,326) $ 142,961 $ (67,811)
----------- ---------- ----------
----------- ---------- ----------
EBITDA...................................................................... $ 77,393 $ 84,175 $ 83,662
</TABLE>
43
<PAGE>
FISCAL 1997, 1996 AND 1995
GENERAL. Anacomp reported a net loss of $67.8 million for the year ended
September 30, 1997 as compared to net income of $143 million and a net loss of
$238.3 million for the years ended September 30, 1996 and 1995, respectively.
Included in the fiscal 1997 net loss is non-cash amortization of the Company's
reorganization value asset of $75.8 million and an extraordinary loss on the
extinguishment of debt composed of a 3% call premium and the write-off of
unamortized discount on the Company's existing 13% subordinated notes totaling
$11 million net of income taxes.
Pursuant to a 1990 OEM agreement, Kodak was obligated to purchase an
additional 151 XFP 2000 COM systems by October 1997 or pay a cash penalty to the
Company. The Company and Kodak negotiated an amendment to the OEM agreement,
whereby the Company accepted a $3.6 million cash payment from Kodak, which is
included in fiscal 1997 results, a commitment to purchase an additional 28 XFP
2000 COM systems by the end of calendar 1997, and a one-time purchase of spare
parts. As of September 30, 1997, 12 systems remained to be purchased under this
agreement. Kodak purchased all the remaining XFP 2000 COM systems during the
quarter ended December 31, 1997.
Net income for fiscal 1996 included $25.7 million in non-cash amortization
of the Company's reorganization value asset, a gain of $92.8 million for
reorganization items and an extraordinary gain resulting from the discharge of
indebtedness of $52.4 million. Included in the fiscal 1995 loss are special
charges of $136.9 million, representing a write-off of goodwill of $108 million
and $28.9 million of costs associated with software investments. Also included
in the fiscal 1995 loss is a $29 million deferred tax provision and $32.7
million of restructuring charges.
EBITDA was $83.7 million, or 18.1% of revenues, for the year ended September
30, 1997. This compares to EBITDA of $84.2 million, or 17.3% of revenues, and
$77.4 million, or 13.1% of revenues, for the years ended September 30, 1996 and
1995, respectively. Excluding the Kodak payment of $3.6 million described above,
EBITDA was $80.1 million for fiscal 1997 or 17.3% of revenues.
Total revenues for fiscal 1997 of $462.5 million represent a $23.6 million
decrease from fiscal 1996, which had experienced a decrease from fiscal 1995 of
$105 million. Approximately $9.8 million of the fiscal 1997 decrease is due to
the discontinuance and downsizing of selected business lines, including Image
Conversion Services ("ICS") ($1.5 million), readers and reader/printers ($5.5
million), source document film ($.5 million) and micrographics accessories ($2.3
million). The remaining $13.8 million decrease in revenues is due primarily to
the expected general downward trend in both the micrographics supplies and
magnetics business lines, offset by revenue contributions from the Company's
acquisitions and new digital services and products. Approximately $60.1 million
of the fiscal 1996 decrease is due to the discontinuance or downsizing of
certain business lines including ICS ($20 million), flexible diskette media
($20.2 million), reader and reader/printer products ($12.7 million) and source
document film ($7.2 million).
Costs of services provided as a percentage of services revenue was 52% in
fiscal 1997, compared to 55% and 58% for fiscal 1996 and 1995, respectively. The
decrease is due primarily to cost reduction efforts in maintenance services
initiated by new management. Costs of equipment and supplies sold as a
percentage of equipment and supplies sales, excluding the one-time $3.6 million
payment noted above, was 76% for fiscal 1997 and 1996, compared to 78% for
fiscal 1995.
Selling, general and administrative expenses were 20% of revenues in fiscal
1997, excluding the one-time $3.6 million payment noted above, compared to 19%
in fiscal 1996. The slight increase was primarily the result of amortization and
transition costs associated with the Company's fiscal 1997 acquisition activity.
Selling, general and administrative expenses were 22% of revenues in fiscal
1995.
44
<PAGE>
SERVICES AND PRODUCTS. The following table shows Anacomp's revenues for
each of its business lines for the last three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
----------------------- ----------------------- -----------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outsource Services...................................... $ 132,144 22% $ 103,733 21% $ 103,595 22%
Technical Services...................................... 86,175 15 82,105 17 77,123 17
Systems................................................. 51,276 9 32,794 7 36,739 8
Micrographics Supplies.................................. 190,621 32 150,449 31 131,615 29
Magnetic Media.......................................... 128,353 22 112,187 23 102,823 22
Other................................................... 2,620 0 4,872 1 10,615 2
---------- --- ---------- --- ---------- ---
Total............................................... $ 591,189 100% $ 486,140 100% $ 462,510 100%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>
Outsource Services. Outsource services revenues increased $1.3 million in
fiscal 1997, compared to fiscal 1996 (excluding the effect of the ICS sale). COM
service volumes increased by 9% while average selling prices decreased by 13%.
Service center acquisitions and several large customer gains have contributed to
both the increase in volumes and the decrease in average selling prices. Gross
margins as a percentage of revenue decreased by 2% due to the aforementioned
impact of lower average selling prices. Outsource services revenues were down
$8.4 million in fiscal 1996 compared to fiscal 1995 (excluding the effect of the
ICS sale), primarily due to an 11% decrease in volume. Decreases in average
selling prices during fiscal 1996 also adversely affected outsource services
gross margins as a percentage of revenues, which decreased 1% from fiscal 1995
to fiscal 1996. ALVA services grew by $2.5 million in fiscal 1997 and now
comprise approximately 4% of total outsource services revenue as compared to 1%
in fiscal 1996.
Technical Services. Technical services (primarily field maintenance)
revenues decreased $5 million in fiscal 1997, compared to fiscal 1996 and $4
million from fiscal 1995 to fiscal 1996, in part due to the effect of replacing
older generation COM systems with the XFP, which has a significantly greater
capacity than the older COM systems. Gross margins as a percentage of revenue
improved 7% over the prior year in each of fiscal 1997 and 1996, primarily as a
result of the cost reduction efforts mentioned above.
Systems. Systems revenues, which is composed of both COM and digital
systems, increased $3.9 million in fiscal 1997 primarily as a result of
contributions from the Company's acquisition of Data/Ware in January 1997.
Systems gross margins as a percentage of revenues increased by 12% due to the
change in product mix with a greater portion of sales represented by refurbished
systems which have higher margins.
COM systems revenues in fiscal 1997 decreased by $5.4 million compared to
fiscal 1996, which had experienced an $18.5 million decrease from fiscal 1995.
Included in COM systems revenues for fiscal 1995 are $3.5 million in sales of
equipment for use in Anacomp service centers under sale and leaseback
arrangements. The Company sold or leased 135 XFP 2000 units in fiscal 1997
compared to 122 and 156 in fiscal 1996 and 1995, respectively. The decrease in
revenue is attributable to an increase in 1997 in the number of units shipped
under operating lease arrangements, and a decrease in the number of systems
shipped under straight sales arrangements along with a change in the mix and
pricing of new and used systems. Fiscal 1997 and 1996 gross margins as a
percentage of revenues improved several percentage points due to the change in
product mix.
Digital systems revenues in fiscal 1997 were $9.3 million with the second
quarter acquisition of Data/ Ware contributing $6.4 million in revenues. There
were no digital systems sold during fiscal 1996 or 1995.
Micrographics Supplies. Micrographics supplies revenues decreased $18.8
million in fiscal 1997 compared to fiscal 1996 consistent with the projected
market trends for reader and reader/printers, original COM film, duplicate film
and other accessories. Gross margins as a percentage of revenue were comparable
between periods.
45
<PAGE>
Micrographics supplies revenues decreased $40.2 million from fiscal 1996 to
1995 principally as a result of the discontinuance and downsizing of business
lines, as well as the projected market trends noted above. Micrographics
supplies gross margins as a percent of revenue increased 5% in fiscal 1996
compared to fiscal 1995 as a result of changes in product mix due primarily to
the sale and downsizing of business lines.
Magnetic Media. Magnetic media revenues decreased $9.4 million in fiscal
1997 compared to fiscal 1996. The major product categories experiencing a
decrease in revenue include 3480 tape cartridges ($5.9 million), open reel tape
($7.7 million) and TK 50/52 tape ($2 million). These decreases were partially
offset by the new contributions of $5.8 million from metal particle tape
products. Gross margins as a percentage of revenue in fiscal 1997 increased
slightly from fiscal 1996. Magnetic media revenues decreased $16.2 million in
fiscal 1996 compared to fiscal 1995. The decrease was due to the closure of the
Omaha, Nebraska factory, which produced flexible diskette media, as well as
reduced unit sales of open reel tape. Magnetic media gross margins had remained
level in fiscal 1996 and 1995.
INTEREST EXPENSE. Interest expense and fee amortization of $35.9 million
for fiscal 1997 decreased $3.7 million over the prior year due to the Company's
refinancing efforts in fiscal 1997 and its improved debt structure as a result
of the Reorganization in fiscal 1996. Interest expense and fee amortization of
$39.6 million for fiscal 1996 decreased $31.3 million compared to fiscal 1995.
The decrease relates to the discontinuance of interest accrued on the
Predecessor Company's old subordinated debt during the bankruptcy proceedings,
as well as reduced interest expense on the new debt instruments.
INCOME TAXES. The provision for income taxes in fiscal 1997 includes $5.4
million on earnings of Anacomp's foreign subsidiaries and $4.2 million of
domestic taxes after considering the impact of the extraordinary loss. Of the
$4.2 million net domestic tax provision, approximately $.7 million is currently
payable.
The provision for income taxes in fiscal 1996 includes $6.1 million on
earnings of Anacomp's foreign subsidiaries and $2 million of domestic income
taxes primarily related to the non-cash charge in lieu of taxes of $1.3 million
along with the alternative minimum tax and state and local taxes. The effective
rate as a percentage of income before reorganization items, extraordinary
credit, and cumulative effect of accounting change (8.2%) is lower than the U.S.
statutory rate because of non-taxable reorganization income partially offset by
increases resulting from non-deductible amortization.
Included in the provision for income taxes in fiscal 1995 is a deferred tax
provision of $29 million. The deferred tax provision includes U.S. tax on
undistributed foreign earnings of $9 million and a write-off of net deferred tax
assets of $20 million. This write-off results from the uncertainty regarding the
financial restructuring that was in progress and, accordingly, the uncertainty
regarding the ultimate benefit to be derived from Anacomp's tax loss
carryforwards. The remaining components of the provision for income taxes in
fiscal 1995 were taxes of $4.8 million on earnings of Anacomp's foreign
subsidiaries and a tax reserve adjustment of $1.2 million.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1997, Anacomp completed a refinancing of
substantially all of its debt obligations which resulted in annualized interest
expense savings of approximately $9 million. On June 15, 1998, Anacomp entered
into the $80 million New Revolving Credit Facility that replaced the existing
$80 million term loan and revolving credit facility. On June 18, 1998, Anacomp
completed the acquisition of the First Image Businesses for a cash purchase
price of $150 million (excluding working capital adjustments). A substantial
portion of the Acquisition was financed through the issuance of the Old Notes.
The Old Notes were sold at 104% of the face amount to yield proceeds of $140.4
million. In connection with the purchase of the First Image Businesses,
subsequent to June 30, 1998, the Company disposed of the DAS Business and the
DPDS Business for net proceeds of $45 million, which was used to reduce the
amounts outstanding under the New Revolving Credit Facility. After application
of the net
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proceeds of the Dispositions, the Company had available for borrowing $70.7
million under the New Revolving Credit Facility.
The Company's total outstanding debt was approximately $393.9 million as of
June 30, 1998. The Company will have no required principal payments on the New
Revolving Credit Facility or the Notes until June 2003 and April 2004,
respectively. The New Revolving Credit Facility has reduced interest expense as
a result of lower interest rates which will now be indexed against the Company's
total debt to EBITDA ratio.
Anacomp's working capital at September 30, 1997, excluding the current
portion of long-term debt, was $41.4 million, compared to $26.4 million at
September 30, 1996. Net cash provided by operating activities increased to $57.8
million for the fiscal year ended September 30, 1997, compared to $49.8 million
in the comparable prior period. Net cash used in investing activities was $32.8
million in the current period, compared to net cash provided by investing
activities of $3.9 million in the comparable prior period. This change was
primarily the result of the Company using $22.4 million of cash for acquisitions
in the current period while the Company generated $13.6 million in cash from the
sale of the ICS Division in the prior period. Also, the Company increased its
capital expenditures for property, plant and equipment by $4.6 million during
the current period.
Net cash used in financing activities decreased to $5.1 million for the
fiscal year ended September 30, 1997, compared to $35.5 million in the
comparable prior period. The Company's successful rights offering of
approximately 3.6 million shares of common stock provided approximately $24.5
million in cash in fiscal 1997. Fiscal 1996 financing activities include a $13
million repayment of debt with the proceeds from the sale of the ICS Division
and $24.9 million in principal reductions on debt.
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. However, the Company believes that cash on
hand, cash generated from operations and availability under the New Revolving
Credit Facility will be sufficient to fund its debt service requirements,
acquisition strategies and working capital requirements in the foreseeable
future.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued a
pronouncement related to the calculation and disclosure of earnings per share
information. This pronouncement is effective for periods ending after December
15, 1997 and, consequently, no adjustments are reflected in the consolidated
financial statements for the year ended September 30, 1997. Adoption of this
pronouncement would not have a significant impact on earnings per share
information reported for the year ended September 30, 1998.
In June 1997, FASB issued two additional pronouncements related to reporting
comprehensive income and disclosure of segment information. These two
pronouncements are effective for periods beginning after December 15, 1997. The
Company has not yet determined the additional disclosures specified by this
pronouncement on the Consolidated Financial Statements for the year ended
September 30, 1998.
YEAR 2000
Anacomp has undertaken a comprehensive "Year 2000" program for the products
that it sells or distributes in the marketplace. Under this program, the Company
has sought to assess all of its critical software and hardware products to
determine what remediation, if any, is any, is necessary for the proper
functioning of these systems in the year 2000 and beyond. The Company is also
working with its outside
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vendors to ensure that they will continue to support the products that the
vendors supply to Anacomp for resale, including the performance by the vendors
of any required Year 2000 remediation.
Anacomp is also in the process of analyzing the software and hardware
systems that it uses internally to determine if there are any Year 2000 issues.
Where necessary, the Company is updating its internal systems and working with
the vendors of any products from whom the Company still receives support.
Based upon its assessment to date, Anacomp believes that it will be able to
complete all required remediation of its supported and internal products in a
timely fashion, and that the effort and the cost of such remediation will not
have a material effect upon the Company's results of operations, liquidity or
capital resources. The Company expenses these cost as they are incurred.
Nevertheless, there can be no assurance that the Company will be able to
complete all of such remediation in the required time frame, or that the Company
will be able to identify all Year 2000 issues before problems manifest
themselves. Further, it is possible that the future that level of expenses in
the Company's remediation efforts could rise significantly. Finally, there can
be no assurance that, if left unremedied, the products that the Company sells or
distributes would remain competitive in the marketplace or the products that the
Company uses internally would not have a material effect upon the ability of the
Company to report its financial results.
Anacomp has set a goal of completing its Year 2000 program, including all
required remediation work, by December 31, 1998, both for the services and
products that it supports and for the products that it uses internally. The
Company is hopeful, however, that it will complete its program for certain of
its services and products before that internal deadline.
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BUSINESS
UNLESS OTHERWISE SPECIFICALLY NOTED, THE FOLLOWING IS A DESCRIPTION OF
ANACOMP'S BUSINESS WITHOUT GIVING EFFECT TO THE ACQUISITION.
GENERAL
Anacomp is a leading provider of document management services and products
to approximately 17,000 customers (including the IAS Business) in more than 65
countries. The Company offers a broad range of document management solutions for
the storage and distribution of, and access to, computer-generated documents
utilizing micrographics, magnetic media and, to an increasing extent, digital
technologies. The Company's pro forma revenues and EBITDA were $571.5 million
and $115.9 million, respectively, for the year ended September 30, 1997 and
$428.3 million and $77.6 million, respectively, for the nine months ended June
30, 1998.
The Company has built a strong reputation as the world's leading
full-service provider of micrographics systems, services and supplies.
Micrographics is the conversion of information stored in digital form or on
paper to microfilm or microfiche. Traditionally, micrographics has provided one
of the most cost-effective means of document storage and retrieval for
information-intensive organizations such as banks, insurance companies,
brokerage firms, healthcare providers and government agencies. The Company is a
worldwide leader in COM, the largest component of micrographics, which consists
of the high-speed conversion of computer-generated documents directly from a
computer or magnetic tape to microfilm or microfiche. The Company is a leading
manufacturer of COM systems, as well as a leading provider of COM services for
customers that outsource their services.
In order to reduce costs and improve capabilities, organizations are
increasingly seeking outsource alternatives to meet their information processing
and management needs. The Company believes that it is uniquely positioned to
leverage its significant base of loyal, long-term customers to take advantage of
the trends toward outsourcing and the increasing use of new technologies in the
industry. Anacomp believes it can take advantage of this trend by increasing its
customer base through strategic acquisitions and by offering a broader range of
services and products utilizing new technologies to complement its traditional
micrographics business.
On June 18, 1998, the Company acquired the First Image Businesses, the
primary component of which is First Image's IAS Business. The Company disposed
of the remaining components of the First Image Businesses, which are the DPDS
Business and the DAS Business. On August 10, 1998, the Company consummated the
sale of the DAS Business to ACS, effective July 1, 1998. On July 31, 1998, the
Company consummated the sale of the DPDS Business to AccuDocs. For the year
ended December 31, 1997, the IAS Business revenues and EBITDA were $124.3
million and $32.2 million, respectively. Based on the net purchase price of the
IAS Business of $105 million (net of $45 million of proceeds from the
Dispositions), the effective purchase price multiple for the IAS Business is 3.3
times the EBITDA contribution of the IAS Business for the twelve months ended
December 31, 1997. The Company believes the Acquisition of the IAS Business will
strengthen its outsource services business, increase its already significant
customer base and enhance revenues and profitability through cross-selling
opportunities and cost savings associated with consolidating the businesses. See
"The Acquisition and Related Dispositions."
In recent years the Company has increased the breadth of its services and
products by incorporating certain new technologies being utilized in the
document management industry. The Company has established itself as a leading
global provider of CD outsource services through the growth of its ALVA services
and through the Company's acquisition in 1997 of Data/Ware, a leading
manufacturer and supplier of CD systems for document management applications.
ALVA services are offered from a majority of the Company's service centers
throughout the world, and this new business has enjoyed annual revenue growth
exceeding 100% for each of the past two years. The Company also has recently
introduced COFI, which provides customers with immediate access to
computer-generated documents using standard Internet
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browsers. In addition, Anacomp has recently introduced enterprise document
management products developed and marketed with NDS, a premier provider of
integrated systems and document management software technology.
The Company has an extensive installed base of COM systems located at
end-user operations, which together with the Company's strong customer
relationships provide the Company with what management believes to be a
high-margin, recurring revenue stream from COM systems maintenance and related
supplies. In addition, the Company is the leading provider of half-inch computer
tape (magnetic media) products for large-scale computing systems, with
manufacturing plants in the United States and in Europe.
The common stock of the Company is listed on the Nasdaq National Market
under the symbol "ANCO." As of August 14, 1998, the market capitalization of the
Company was approximately $232.8 million, based on a closing price for the
common stock of $16.375 per share.
DOCUMENT MANAGEMENT INDUSTRY
The document management industry, which the Company believes to be in excess
of $8 billion worldwide, provides services and products utilized in the storage
and distribution of, and access to, computer-generated documents and various
forms of document images. Users of these services and products must balance the
ease of accessibility to information contained in these documents with the cost
of storing and accessing that information.
This balancing, as reflected in the Company's business strategy, adheres to
a paradigm known as the Information Delivery Life Cycle, which describes the
relationship between the age of information contained in a document, the
frequency and speed of its access, and the type of media upon which the document
is stored. In general, as the document ages, customer requirements for frequency
of access and speed of delivery decline. To achieve the greatest degree of
cost-effectiveness and efficiency, organizations migrate their documents across
several different delivery systems over the life of the document.
[LOGO]
Historically, document management (storage, distribution and access) was
dominated by micrographics services and products, a segment in which Anacomp has
achieved a sustained leading market position. Recent advances in digital
technologies, which provide more rapid access but at a higher cost, have
provided customers with information management alternatives to micrographics.
Over the next several years, the Company believes that micrographics technology
will continue to retain certain cost and functional advantages over alternative
storage media, which should keep micrographics competitive in a wide range of
applications. Over the longer term, however, the Company believes that
micrographics
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technology will be viewed predominately as a reliable and cost-effective method
for long-term document archival.
Companies are increasingly faced with the competing challenges of reducing
the costs, while improving the capabilities, of their information processing and
management operations. Moreover, these challenges are being faced at a time when
technology is advancing rapidly, which greatly increases the complexity of
selecting and implementing the appropriate solutions. As a result, organizations
increasingly are seeking outsourcing alternatives to reduce their overall cost
and eliminate the complexity associated with constantly changing technology
choices and implementation requirements.
The Company's business strategy is to capitalize on these industry trends by
leveraging its market position and competitive strengths to provide new services
and products while maintaining its leading position in the COM segments of the
market.
COMPETITIVE STRENGTHS
LONG-TERM CUSTOMER RELATIONSHIPS
The Company has developed long-term relationships (in excess of five years)
with many of its customers. Among the Company's current long-term customers are
Aetna Inc., AT&T Corp., Automatic Data Processing, Inc., BankAmerica Corp., Banc
One Corp., Citicorp, Deutsche Bank AG, Electronic Data Systems, FMR Corp.,
General Electric Company, IBM, and Travelers Group, Inc. No single customer
accounted for 10% or more of the Company's revenues in fiscal 1997. The Company
believes that it has developed this long-term customer base by consistently
meeting or exceeding customer document and information management needs and
expectations. The Company manages these customer relationships through its
worldwide sales force of approximately 200 individuals and through its extensive
distributor networks.
LEADING MARKET POSITION
The Company is a leader in certain businesses within the document management
industry, including COM systems, COM maintenance and supplies, COM services,
certain half-inch magnetic media products and digital-based CD-R document
management services and products. The Company's market position and customer
base provide the necessary platform to grow these businesses and to introduce
new and complementary document management services and products.
UNDERSTANDING OF CUSTOMERS' DOCUMENT MANAGEMENT REQUIREMENTS
Through its long-term customer relationships, Anacomp has developed an
understanding of its customers' unique document management requirements as well
as the particular document management requirements in its customers' industries.
This understanding has enabled the Company to recognize and meet the changing
needs of its customers. In addition, the Company believes that because of this
understanding, its customers trust Anacomp to properly and securely process and
manage their critical documents and information.
BROAD RANGE OF SERVICES AND PRODUCTS
In the last two years, the Company has introduced new services and products
designed to further broaden its offerings across the entire Information Delivery
Life Cycle. In addition to enhancing its traditional COM services and products,
the Company has become a leading provider of document management CD solutions
through the development of its ALVA services and through the acquisition of
Data/Ware and its CD systems business line. The Company is also introducing
complementary services related to its existing offerings, including COFI
outsource services, document management consulting
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services, enterprise-scale electronic delivery software products in partnership
with NDS, and new magnetic media products and related outsource services and
equipment.
FIRST IMAGE ACQUISITION
The Company believes the Acquisition of the IAS Business will strengthen its
outsource services business, increase its already significant customer base, and
enhance revenues and profitability through cross-selling opportunities and cost
savings associated with consolidating the businesses. The addition of the IAS
Business will increase the Company's production capacity and expand the
geographic coverage of its services. The Company believes it will be able to
capitalize on cross-selling opportunities by leveraging the additional customer
base with new service and product offerings.
EXPERIENCED MANAGEMENT TEAM
The Company's management team has an average of 17 years of experience in
the information technology, document management and related industries and is
committed to executing the Company's business strategy. The Company continues to
recruit managers and other professionals from other successful companies and to
promote from within when appropriate.
BUSINESS STRATEGY
The Company has developed a strategic plan entitled "Strategy 2000."
Strategy 2000 was developed over a six-month period concluding in November 1997.
The planning process included over 30 individuals from the Company, including
senior management and marketing, sales, technical and operations personnel
worldwide. Strategy 2000 sets forth the following four key strategies for the
Company:
PROVIDE CUSTOMERS WITH SOLUTIONS TO THEIR DOCUMENT MANAGEMENT REQUIREMENTS
Anacomp has a large long-term customer base with diverse document management
requirements, and Anacomp desires to be the provider of choice for all of these
requirements. By understanding the document management requirements of and
working closely with its customers, Anacomp constantly identifies additional
services and products it can offer to its customers. The Company intends to
continue to broaden its range of services and products as it endeavors to
capture all of its customers' business for all the document management services
and products that its customers require.
INCREASE MARKET POSITION AND PROFITABILITY IN TRADITIONAL BUSINESSES
The Company has established leading positions in certain segments of the
document management industry with its traditional businesses (COM and magnetic
media). Although these segments and businesses are mature, Anacomp believes that
there remain opportunities to increase its market position in these segments and
increase the contribution of these businesses to the Company's net sales and
EBITDA. The Company will seek to increase its market position through strategic
acquisitions and by leveraging its customer base for its other services and
products. In addition, Anacomp continually strives to leverage its existing
infrastructure and make strategic investments to achieve incremental operating
efficiencies that would lead to increased profitability.
DEVELOP A LEADING POSITION IN ELECTRONIC ARCHIVAL AND DELIVERY SOLUTIONS
With the rapid evolution and acceptance of the Internet worldwide, the
Company believes it is presented with an opportunity to develop a leading
position in the emerging electronic archival (long-term storage) and document
delivery (access) services and products segment. As the Internet emerges as a
widely-accepted, standardized, low-cost medium for distribution of, and access
to, documents and information, Anacomp will seek to leverage its extensive
expertise and experience in document management to become a leading provider of
a new generation of solutions utilizing this medium. The Company is
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pursuing these opportunities with initiatives such as its COFI offering and its
offerings with NDS and is actively developing new offerings.
PURSUE STRATEGIC ACQUISITIONS
The Company will continue to pursue strategic acquisitions to expand its
current capabilities and offerings. All of Anacomp's acquisitions will be
focused in one or more segments of the document management industry that will be
designed to increase its position in current segments, add complementary
services and products to its existing businesses, or add offerings in new
businesses.
SERVICES AND PRODUCTS
Anacomp operates in a single industry generally known as the document
management industry, and it offers a wide range of services and products within
this industry. These solutions can be grouped into five major business lines:
outsource services, technical services, systems, micrographics supplies and
magnetic media.
The table below shows Anacomp's revenues for each of its business lines for
the last three fiscal years. The information is presented on a traditional
comparative basis for the year ended September 30, 1996 and 1995, to facilitate
a meaningful comparison to fiscal 1997. Consequently, the fiscal 1996 and 1995
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>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
----------------------- --------------------- ---------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outsource Services....................................... $ 132,144 22% $ 103,733 21% $ 103,595 22%
Technical Services....................................... 86,175 15 82,105 17 77,123 17
Systems.................................................. 51,276 9 32,794 7 36,739 8
Micrographics Supplies................................... 190,621 32 150,449 31 131,615 29
Magnetic Media........................................... 128,353 22 112,187 23 102,823 22
Other.................................................... 2,620 0 4,872 1 10,615 2
---------- --- ---------- --- ---------- ---
Total................................................ $ 591,189 100% $ 486,140 100% $ 462,510 100%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>
OUTSOURCE SERVICES
The principal outsource services delivered by Anacomp are COM and ALVA
services, which are delivered through the Company's 48 service centers
throughout the world. Outsource services are sold by Anacomp's direct sales
forces in the United States, Canada, Brazil and Europe. The Company has recently
acquired several small COM and CD service centers as part of its strategy to
increase its presence in specific geographics areas. The Company also has
recently introduced COFI services which deliver electronic documents to the
user's desktop using the internet and/or the organization's intranet.
The Company has a large customer base which has proved to be loyal to the
Company in the past. The Company's outsource services customers include banks,
insurance companies, brokerage firms, healthcare providers and government
agencies. No one customer accounted for more than 10% of the Company's outsource
services revenues in fiscal 1997. The typical service contract is exclusive,
lasts one year or more with a one-year, automatic renewal period and provides
for usage-based monthly fees, subject to increase on 30 days' notice. The
Company believes that approximately 75% of the Company's COM and ALVA services
customers are subject to contracts and estimates approximately 90% of such
contracts are renewed annually.
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COM SERVICES. COM services, the delivery of microfilm-based outsourcing
services, represents the largest component of Anacomp's outsource services and
constitutes the primary component of the IAS Business. On a daily basis,
Anacomp's service centers receive thousands of electronic transmissions and
magnetic tapes from customers. This information (both text and graphics) is
converted to 16 mm microfilm or to microfiche, which is a four by six-inch film
medium capable of storing up to 1,000 pages of computer generated documents.
Turnaround for a typical COM services job ranges from two hours to 36 hours,
depending on specific circumstances and requirements, and the centers generally
operate 24 hours a day every day of the year.
As an adjunct to COM services, Anacomp also provides External Facilities
Management ("XFM") services to selected customers. Under an XFM arrangement,
Anacomp operates and manages a customer's COM system(s) and production at
Anacomp's facilities.
ALVA SERVICES. Although still a relatively small percentage of the
Company's revenues, Anacomp has quickly become a significant provider of CD
outsource services since entering this emerging market in fiscal 1995.
Competition in this segment is highly fragmented, and Anacomp believes it is the
largest U.S. provider of CD outsource services.
Anacomp's ALVA services provide customers with an easy, high-capacity
document storage, distribution and access solution for applications requiring
frequent and high-speed document access. End-user documents, such as invoices
and statements, are indexed and stored on CD-R. In addition to indexed
information within documents, ALVA includes sophisticated Windows-based software
for accessing and viewing the documents and information. ALVA production systems
are available at a majority of the Company's service centers in the United
States and at selected locations internationally.
The Company believes that its ALVA solution has significant advantages over
competing products, primarily due to the Company's network of service centers,
its extensive knowledge of applications and indexing expertise, and ALVA's
flexible and easy-to-use human interface.
COFI WEB SERVICES. Anacomp provides COFI services from several of its
service centers in the United States, providing for the immediate access to
computer-generated documents using a standard internet browser (such as Netscape
or Microsoft Explorer) for its COFI services customers. The indexed, viewable
documents are stored on an Anacomp Web Server or on the customer's internal Web
Server, providing internal or external customers with immediate access to
information contained in these documents from their electronic desktop using
standard internet browser technology.
TECHNICAL SERVICES (FIELD MAINTENANCE)
Anacomp's technical services is traditional field maintenance services.
Technical services are sold by Anacomp's direct sales forces worldwide.
The Company provides round-the-clock maintenance and support services
through over 400 highly trained service employees in the United States, Brazil,
Canada and Europe which serve approximately 1,900 of the nearly 4,000 COM
systems believed to be in use worldwide. Its technical services reach is further
expanded by its distributors in those regions where Anacomp does not maintain a
direct, operational presence. In the United States, over 300 field service
engineers and managers provide geographic coverage through ten regions.
Internationally, maintenance services are provided either by Anacomp employees
operating in the Company's foreign subsidiaries or by employees of dealers and
distributors.
Anacomp believes that it maintains virtually all of its own installed base
of COM systems, as well as a large percentage of those built by other
manufacturers. In addition, the Company provides maintenance services for
micrographics-related devices and, increasingly, equipment outside of the
micrographics segment (such as high-speed laser printers, tape subsystems and
optical and CD jukeboxes). Since many customers tend to use the maintenance
services of the supplier that installed the system, maintenance
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revenues traditionally have been a function of new COM system sales and the size
of the installed base. Anacomp believes that it is the leading provider of COM
systems maintenance in the United States and Europe.
As sales of COM systems mature, the Company's strategy is to leverage its
maintenance infrastructure by expanding the technical services it provides for
equipment beyond the micrographics segment. Recent additions to the Company's
maintenance base include tape subsystems and automated tape libraries, tape
cleaning and conversion equipment, and optical and CD storage systems
(jukeboxes). The Company added maintenance of high-speed laser printers to its
offering with the acquisition of small laser printer maintenance providers in
December 1997 and May 1998.
SYSTEMS
The principal systems products delivered by Anacomp are COM systems, CD
systems, and COLD systems, document imaging and report distribution software.
The Company sells these products through its direct sales forces in the United
States, Canada, Brazil and Europe and through distributors in Latin America,
parts of Europe and Asia. No single customer accounted for more than 10% of the
Company's systems sales in fiscal 1997.
COM SYSTEMS. Anacomp is the world's leading manufacturer and distributor of
COM systems, offering a complete line of COM processors, duplicators, sorters
and related software. Anacomp's installed base of COM systems and related sales
of COM technical services and supplies to its installed base provide the Company
with what management believes to be a recurring revenue stream that constitutes
a significant portion of its annual revenues.
The Company's XFP 2000 is the most advanced COM system on the market and has
enabled the Company to capture what it believes to be a significant number of
all new COM systems sold or leased. The XFP 2000 is faster and more reliable
than previous COM systems and, through its laser technology, has the capability
to generate precise reproductions of any image. The Company sold or leased 135
XFP 2000 COM systems in fiscal 1997 compared to 122 in 1996.
In fiscal 1996, Anacomp introduced DragonCOM, a version of the XFP 2000 for
the Asian market, which is capable of processing Chinese, Korean, Taiwanese,
Japanese and other ideographic languages utilizing the popular IBM AFP
architecture. The Company is marketing DragonCOM to customers in Asia through an
agreement with Kodak and directly through its sales force in this region. Kodak
has a remaining contractual commitment to purchase 17 additional DragonCOM
systems over the next 15 months.
Anacomp also has developed and currently markets several software
enhancements to the XFP 2000, including products that emulate IBM and The Xerox
Corporation ("Xerox") laser print output 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 laser printers. 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.
Anacomp recently introduced its Image Direct application for the XFP 2000,
which enables users to output document images directly to microfilm from desktop
workstations. The initial release of Image Direct supports TIFF images, the most
popular bitmap format in use today; additional format compatibility is expected
in future releases.
Principal customers for the Company's COM systems include document-intensive
organizations such as banks, insurance companies, brokerage firms, healthcare
providers and all levels of government agencies, as well as non-Anacomp COM
service centers. While the majority of COM systems are sold outright, customers
are increasingly selecting leasing plans and monthly usage options.
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In international markets, the Company sells COM systems through wholly owned
operating subsidiaries and, in countries in which the Company does not have a
subsidiary, through distributors and agents. Kodak is a significant distributor
of the Company's products in the Asia-Pacific market. International sales
accounted for approximately 52% of the Company's fiscal 1997 COM system
revenues, with sales in Asia, Germany and France accounting for approximately
17%, 10% and 9%, respectively; however, no single country was responsible for
10% or more of the Company's total revenues in fiscal 1997.
The Company's primary competitors in the sale of COM systems are
Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation ("MTC").
Competition is based principally on product features, as well as on such factors
as product quality, service and price. The Company believes the worldwide
installed base of COM systems is in excess of 4,000 units, which offers a
continuing replacement market opportunity for the Company's XFP 2000.
CD SYSTEMS. Anacomp became a leading provider of document output to CD
systems for mainframe and client/server computing environments through its
acquisition in fiscal 1997 of Data/Ware. The Company's flagship Data/Ware
products, the Enterprise Authoring System ("EAS") and the Server/ Enterprise
Authoring System ("S/EAS"), provide companies with internal solutions for the
highly automated output of documents to CDs.
The Company's CD systems are sold by its direct sales force worldwide and
also by distributors in Latin America and Asia. Because of the similarity
between the Company's CD and COM systems relating to target markets,
applications and sales cycle, the Company believes it can leverage its extensive
COM knowledge and customer relationships to grow sales of CD systems. In
addition, the Company has begun maintenance services for its Data/Ware CD
systems, creating a recurring revenue stream for installed units.
The Company's primary competitors in the sale of high-volume CD output
systems are Young Minds, Inc. ("Young Minds"), Rimage Corporation, and, to a
lesser extent, IBM. IBM's product primarily competes in mid-range applications.
In the high-volume CD system market, the Company believes that it and Young
Minds have the leading market positions. The Company also has a significant
installed base of well-known clients with document output to CD systems.
ELECTRONIC DELIVERY SOLUTIONS. Anacomp is working actively to bring to
market a wide range of electronic document delivery solutions. The Company
provides COLD and document imaging solutions through its recent acquisition of
Com-Informatic, the leading COM services provider in Switzerland and also a
premier developer of advanced COLD and document imaging products for the
European market.
The Company markets an integrated system for document management that it
obtains from NDS under the brand name Enterprise Output Management ("EOM").
Launched by the Company in late January 1998, EOM provides document management
solutions for mainframe/host and client/server computing environments that allow
organizations with significant document storage, distribution and access
requirements to expedite access regardless of the document's location. As the
name indicates, EOM provides for the storage, on-line distribution and access to
electronically generated reports (often voluminous), thereby enabling users to
avoid paper storage of such reports and to distribute all or selected portions
of reports throughout an organization. The EOM system also enables access to
these reports through a standard internet browser facility.
In addition, the Company recently purchased Cambridge Technology Group,
Inc., developers of SPAR (Securities, Processing, Accounting and Reporting), an
advanced securities-related, multi-currency application for the international
trust/custody market. The Company intends to sell SPAR by leveraging its global
sales and support infrastructures, as well as its extensive experience and
contacts with financial customers. The Company plans to acquire other document
enabled vertical applications synergistic with its current business as
opportunities arise.
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Although there are numerous competitors providing a variety of electronic
document delivery solutions, the Company believes it can be among the first to
offer a complete range of solutions, both analog and digital, that address all
of a customer's document management needs.
MICROGRAPHICS SUPPLIES
Anacomp sells the most comprehensive line of micrographics supplies in the
world, including original silver halide film, duplicate film, chemicals for
microfilm processing, paper and toners for reader/printers, micrographics lamps
and bulbs and other consumables. These products are sold through Anacomp's
direct sales forces and through distributor channels.
The Company supplies wet and dry original silver halide film used in its XFP
series of COM systems and wet and dry original silver 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. The microfilm products for the XFP 2000 are
manufactured for the Company by Kodak in what the Company considers to be a
proprietary package. The Company also believes it can maintain its market
position in XFP 2000 film sales going forward because of the complexity of the
manufacturing process and the Company's patents on its proprietary canister.
Anacomp is the world's largest distributor and seller of duplicate
microfilm, which is used to create one or more additional copies of original
microfiche and microfilm masters. Anacomp's primary competitor in the duplicate
microfilm market is Rexham Graphics Ltd. ("Rexham"). For fiscal 1997, the
Company believes that Kodak accounted for approximately 32%, and First Image
accounted for approximately 12%, of the Company's shipments of duplicate
microfilm.
The Company sells original microfilm for Anacomp's COM systems and for other
manufacturers' COM systems, with film sold for Anacomp's systems representing
the vast majority of original microfilm sales. Anacomp competes in sales of
non-proprietary original COM microfilms with other manufacturers, including
Agfa, Fuji Photo Film U.S.A., Inc. ("Fuji") and Kodak. 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. Anacomp
believes that it sells its consumable supplies directly to more than 90% of its
worldwide installed base. In fiscal 1996, the Company acquired the assets of one
of its competitors, COM Products, Inc. ("CPI"), which provided the Company with
a more diverse customer base. In fiscal 1997, the Company acquired the assets of
Comstor Technology, Inc., a provider of spare parts, refurbished COM systems and
supplies for the COM segment.
International sales in fiscal 1997 accounted for 42% of the Company's total
micrographics supplies revenues. In foreign locations, 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. In Europe, the Company's primary competitors for micrographics
supplies are Agfa, A. Messerli AG and Rexham. Its primary competitors in Asia
are Kodak and Fuji.
MAGNETIC MEDIA
Anacomp manufactures, sells and distributes a broad range of magnetic media
products such as open reel tape, 3480/3490E tape cartridges, TK 50/52
CompacTape, voice logging, instrumentation and transfer (magnetic stripe) tape.
In addition, the Company distributes and sells 3590 tape cartridges, DLT tape
cartridges, CompacTape and quarter-inch, 4mm and 8mm back-up tape cartridges.
The Company is the world's largest manufacturer of chromium dioxide
half-inch tape products (open reel tape, 3480, 3490E and TK 50/52), widely used
by organizations for the near-line and off-line storage of business data. These
products are manufactured at Company facilities in Graham, Texas and Brynmawr,
Wales. The Company has entered into partnerships to enable it to participate in
the next generation of magnetic media products, particularly half-inch metal
particle tape (3590 cartridges), and it plans to make
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modest investments in this area. The Company also plans to expand the magnetic
media-related services it offers to its customers; such services include label
initialization, library planning, media cleaning and conversion and disaster
recovery.
Anacomp primarily sells its magnetics products through its worldwide
distributor and dealer network and, to a lesser extent, through the Company's
direct sales force. The Company markets these products under the "Memorex,"
"Dysan," "Graham" and "StorageMaster" brand names, and it also is a leading OEM
for many of the magnetic media products it manufactures.
The Company has the leading manufacturing and market position for the
products it makes. The Company has no significant competitors with respect to
the manufacture of open reel tape, and its worldwide manufacturing and market
position for 3480 and 3490E cartridges are estimated at 38% and 35%,
respectively. The Company's major competitors for half-inch tape cartridges are
Imation Enterprises Corporation and Emtech Magnetics GmbH (formerly BASF
Magnetics GmbH).
The Company has recently introduced magnetic media services offerings and
markets magnetic media related equipment for certification, reproduction and
cleaning.
OTHER--CONSULTING SERVICES
Recently, Anacomp identified professional and consulting services as
important potential growth areas. As a result, the Company acquired a small,
professional consulting services business in January 1998, named Work Smart,
Incorporated. The Company's business strategy calls for professional services to
be offered as an adjunct to Company-provided services and products and for
consulting services to be a stand-alone business offering customers a
sophisticated level of guidance regarding document management strategies and
solutions.
ELECTRONIC DELIVERY INTEGRATION INITIATIVES
Since June 1996, Anacomp has initiated several strategic initiatives to
expand its range of services and products in the electronic delivery market. Its
three main initiatives are centered on document delivery using CD-R technology,
document delivery using the internet or an organization's intranet system, and
document delivery and archival using mainframe and/or high-performance
server-based software solutions.
Delivery of documents on CD-R involves the transforming, indexing, storing,
distributing and providing access to documents stored on standard, inexpensive
CDs. The Company believes the CD-R segment of the market is rapidly growing
because CDs are extremely effective for the distribution of large volumes of
electronically stored documents. The Company offers electronic delivery on CD
through its ALVA services and its high-volume EAS and S/EAS CD production
systems that it acquired from Data/ Ware. Anacomp offers its ALVA services
through its network of outsource services centers in the United States and
Europe and its EAS and S/EAS CD production systems through its worldwide direct
and indirect sales channels. The ALVA services revenues have grown approximately
183% and 120% during fiscal 1997 and the nine months ended June 30, 1998,
respectively, as compared to their prior comparable periods. The Company
recently has changed the organization of the sales channels with dedicated focus
on sales of the EAS and S/EAS systems, which the Company believes will improve
revenue growth in that area.
Delivery of documents using the internet or an organization's intranet
system involves the transforming, indexing, storing, distributing and access to
documents stored on standard Webservers and accessible by using standard Web
browsers. The Company believes that electronic delivery through the Web and the
internet or intranet is a rapidly growing segment for the delivery of electronic
documents to end-users. Anacomp offers such electronic delivery through its COFI
outsource services facilities which deliver documents to the customer's desktop
using low cost, standard browser facilities. Although the COFI
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outsource service is a new product for the Company and is still small in terms
of revenue generation, the Company believes that revenue from this service will
grow rapidly.
Document delivery and archival using mainframe and/or high-performance
servers based on software solutions delivers documents to a customer's desktop
or high-speed printers. This method of delivery and archival involves the
transforming, indexing, storing, distributing and providing access to documents
stored on large scale mainframes or server systems. Anacomp offers electronic
delivery using enterprise-wide computing systems and networks through its EOM
system, in conjunction with the Company's technology partner, NDS. The Company
introduced its EOM system as a product in late January 1998 and is marketing the
product to its current customer base and to customers of the Company's
competitors in the COM segment of the market.
DESCRIPTION OF IAS BUSINESS
The IAS Business provides a variety of imaging, archival and document
management services. These services, which are substantially the same as
Anacomp's COM services business, include the transfer of structured computer
data, such as reports, statements and invoices, onto various media. See
"--Services and Products--Outsource Services--COM Services."
For the year ended December 31, 1997, the revenues of the IAS Business were
$124.3 million, with 84% of those revenues coming from COM, the largest segment
of the IAS Business. Additional revenues come from laser print services which
are used to transform computer-generated output onto paper, and a smaller
portion of revenues were derived from transforming computer-generated output
onto relatively newer products, such as CDs. Finally, the IAS Business provides
equipment and supplies related to these services, including microfiche readers,
film and chemicals.
The IAS Business operates 42 production centers geographically dispersed
throughout the United States and has over 750 employees. Like Anacomp, the IAS
Business has focused on maintaining strong client relationships, and has an
annual client retention rate of approximately 90%. The IAS Business also
utilizes innovative technology, such as on-line ordering and status reporting,
in its sales and marketing efforts.
INTEGRATION OF IAS BUSINESS
The Acquisition of the IAS Business will result in significant opportunities
for operational efficiencies when combined with Anacomp's existing services and
facilities. The Company and the IAS Business operate outsource service centers
in 23 of the same cities or metropolitan areas in the United States, which will
afford the Company opportunities for consolidation savings and efficiencies. The
consolidation plan will consolidate 46 or more service centers into 23 locations
over the duration of the consolidation schedule. In cities with an IAS Business
service center location and without an Anacomp center, the Company will continue
to operate those centers or perform a natural consolidation into existing
Anacomp centers as trends in the market dictate.
The corporate operations of the IAS Business will be relocated to Anacomp's
Poway offices and will be incorporated into the existing Anacomp corporate
operations upon closing of the Acquisition, which will allow for consolidation
savings. Achievement of the consolidation plan will require investment in
production and communications capital equipment to increase overall capacity and
will require leasehold improvements to accommodate the combined operations.
These investments in capacity and leasehold improvements have been factored into
the consolidation plan.
During the last five fiscal years, Anacomp has provided the following
services and products to First Image which will become subsumed within the
combined entity after the Acquisition. Since October 1993, Anacomp has been the
exclusive provider of field maintenance services for the COM systems maintained
in First Image's service centers, which resulted in revenues of $7.3 million for
Anacomp in fiscal 1997. For
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the period September 1994 to September 1997, Anacomp was the exclusive provider
of the duplicate microfilm used in First Image's service centers, accounting for
$5.1 million of Anacomp's revenues in fiscal 1997. First Image had purchased a
portion of its COM film requirements from Anacomp since September 1993, and such
purchases were $2 million in fiscal 1997. From time to time, First Image has
purchased XFP 2000 COM systems both directly from Anacomp and from Kodak
pursuant to resales of systems purchased by Kodak from Anacomp pursuant to the
OEM agreement. Anacomp had direct sales of XFP 2000 COM systems to First Image
of $.3 million in fiscal 1997. First Image purchased $.7 million of other
micrographics related equipment and supplies from Anacomp in fiscal 1997. In
addition, in June 1994, Anacomp purchased from First Image its resale business
that sold micrographics equipment and supplies to end-users.
ENGINEERING, RESEARCH AND DEVELOPMENT
Anacomp's engineering costs associated specifically with research and
development programs were $4.8 million in fiscal 1997, compared to $3.7 million
in fiscal 1996, and $2.2 million in fiscal 1995. The Company expects its current
research and development efforts to increase as it introduces new electronic and
applications solutions. Costs associated with these efforts will be tempered by
the Company's plan to acquire the rights to core technologies whenever possible.
Major projects in fiscal 1997 included: the substantial completion of the
Company's DragonCOM system, a version of the XFP 2000 for the Asian market that
is capable of processing double-byte ideographic languages; efforts to improve
the speed and expand the functionality of the Company's Image Direct COM
document imaging initiative; continued development of the Company's "Pegasys"
initiative to automate the Company's service centers and to develop advanced
transmission capabilities for these centers; terminated efforts to develop a
customer service application; various engineering efforts inherited as a result
of the Company's acquisition of Data/Ware, including research into emerging DVD
technology as it relates to document storage; ALVA extensions and its new COFI
initiative.
The Company also owns various patents and licenses covering aspects of its
business lines and its production processes, as well as proprietary trade secret
information relating to its services and products. While Anacomp believes that
the protection provided by these patents, licenses and proprietary information
is important, the Company also believes that equally significant is the
knowledge and experience of its employees, and their abilities to develop and
market the Company's services and products and to provide a value-added benefit
to customers.
RAW MATERIALS AND SUPPLIERS
Polyester is the principal raw material used in the manufacture of both
microfilm and magnetic media products. Costs for polyester remained generally
stable in fiscal 1997, as a result of a relative balance between supply and
demand. There can be no assurance, however, that the current trend will
continue.
SKC is Anacomp's sole supplier of duplicate microfilm, the result of a
ten-year supply agreement between the companies entered into in 1993 as part of
SKC's purchase of Anacomp's Sunnyvale, California duplicate microfilm production
facilities. SKC's duplicate film production is primarily to serve Anacomp, and
SKC also provides Anacomp with polyester for a large percentage of its magnetic
media products. In connection with the supply agreement, SKC also provided
Anacomp with a $25 million trade credit facility, which was reduced to $15
million in fiscal 1997, and further reduced to $5 million in the first half of
fiscal 1998. In addition, under an amendment to the supply agreement executed in
1996, Anacomp agreed to certain price increases, retroactive to 1994, and agreed
to make the following deferred payments to SKC related to the retroactive price
increases: $400,000 in 1997; $600,000 in 1998; $800,000 in 1999; $800,000 in
2000; and $1,000,000 in 2001.
Pursuant to the SKC Agreement, the Company is required to purchase a
substantial portion of its polyester requirements from SKC for its magnetic
media products. While the Company could purchase
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certain of these magnetics polyester products from suppliers 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.
Anacomp's XFP 2000 COM system utilizes a proprietary, patented original film
canister, and the original film used in that canister is supplied exclusively by
Kodak. Anacomp also purchases from Kodak substantially all of its requirements
for original microfilm for earlier-generation COM systems manufactured by
Anacomp and others, although Anacomp has from time to time purchased original
microfilm utilized in those older COM systems from other suppliers.
BANKRUPTCY REORGANIZATION
By early 1995, revenues from the Company's traditional micrographics
business had been declining for the last several fiscal years. In response to
this trend in its traditional business, the Company sought to increase revenue
through opportunities related to the development of new micrographics and
digital services and products, and investments 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 senior secured
notes, which would have deferred an aggregate of $153 million in scheduled
principal payments in fiscal 1995 through 1998. The Company, however, was unable
to complete the refinancing, which when combined with weaker than anticipated
second quarter results, resulted in the Company's having insufficient cash
available to make certain scheduled principal and interest payments due on its
indebtedness.
As a result, on January 5, 1996, the Company filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy
Court for the District of Delaware. 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.
EMPLOYEES
As of July 31, 1998, Anacomp employed approximately 3,400 people (excluding
employees of the DAS and DPDS Businesses) at multiple facilities and offices in
the United States, Canada, Brazil, Japan and Europe, including 84 service
centers in the United States.
As of July 31, 1998, the Company employed approximately 200 salespeople
(excluding employees of the DAS and DPDS Businesses) worldwide. The Company
maintains sales forces focused on each of the major components of the Company's
business.
FACILITIES
The Company maintains corporate offices in Poway, California (metropolitan
San Diego). Headquarters operations, COM and CD systems manufacturing,
engineering, customer service, marketing, technical services operations,
finance, accounting and MIS facilities are all located in Poway, California. The
Company's magnetics manufacturing facilities are located in Graham, Texas and
Brynmawr, Wales.
All of the Company's facilities have received international recognition for
quality standards and have earned International Standards Organization 9002
certification.
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The following table indicates the square footage of the Company's facilities
(including the IAS Business):
<TABLE>
<CAPTION>
OPERATING OTHER CORPORATE
FACILITIES FACILITIES FACILITIES TOTAL
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
United States:
Leased.......................................................... 1,233,075 90,953 215,612 1,539,640
Owned........................................................... 147,420 15,630 -- 163,050
---------- --------- ----------- ----------
1,380,495 106,583 215,612 1,702,690
International:
Leased.......................................................... 139,590 19,092 -- 158,682
Owned........................................................... 167,478 -- -- 167,478
---------- --------- ----------- ----------
307,068 19,092 -- 326,160
---------- --------- ----------- ----------
Total......................................................... 1,687,563 125,675 215,612 2,028,850
---------- --------- ----------- ----------
---------- --------- ----------- ----------
</TABLE>
Other facilities consist primarily of leased space of abandoned facilities.
Approximately 140,500 square feet of the other facilities have been sublet to
others. 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.
During October 1997, the Company renegotiated a significant lease for its
Poway, California facility. Pursuant to the amended lease, the Company expanded
the space it occupies to include the entire facility (338,485 square feet). The
new lease became effective January 1, 1998, and has an initial term of ten
years, at the end of which time it may be renewed for successive five-year
terms. The expanded space is being utilized primarily for the consolidation and
relocation of the Company's Indianapolis, Indiana corporate offices.
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.
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MANAGEMENT
The current directors and executive officers of the Company and their ages
and positions are listed in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Ralph W. Koehrer....................... 53 President, Chief Executive Officer and Director
Frederick F. Geyer..................... 48 Executive Vice President--Services and Products
Donald L. Viles........................ 52 Executive Vice President and Chief Financial Officer
William C. Ater........................ 58 Senior Vice President, Chief Administrative Officer and Secretary
Jeffrey R. Cramer...................... 44 Senior Vice President and General Manager--Technical Services
Business
William E. Farrant..................... 43 Senior Vice President--Service Center Support
George C. Gaskin....................... 39 Senior Vice President, General Counsel and Assistant Secretary
Mary Jane Grinstead.................... 48 Senior Vice President and General Manager--Electronic Systems
Business
Hasso Jenss............................ 54 Senior Vice President and General Manager--COM Systems Business
Richard V. Keele....................... 49 Senior Vice President--Product Development
Thomas J. Magazzine.................... 52 Senior Vice President and General Manager--Consulting Services
Stephen C. Manske...................... 53 Senior Vice President
Kevin M. O'Neill....................... 44 Senior Vice President--Strategy, Business and Product Development
Gary M. Roth........................... 56 Senior Vice President and General Manager--Magnetics Business
Emery E. Skarupa....................... 46 Senior Vice President--Manufacturing and Materials
Donald W. Thurman...................... 52 Senior Vice President and General Manager--Outsourcing Services
Business
Peter Williams......................... 45 Senior Vice President and General Manager--International Business
Thomas L. Brown........................ 42 Vice President and Treasurer
Richard D. Jackson..................... 61 Co-Chairman of the Board and Director
Lewis Solomon.......................... 64 Co-Chairman of the Board and Director
Talton R. Embry........................ 51 Director
Darius W. Gaskins, Jr.................. 58 Director
Jay P. Gilbertson...................... 38 Director
George A. Poole, Jr.................... 67 Director
</TABLE>
The business experience of each director and executive officer for the past
five years is described below. The current directors of the Company were elected
February 9, 1998, and will 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.
RALPH W. KOEHRER was elected President, Chief Executive Officer and Director
(effective May 1, 1997) on April 29, 1997 and President and Chief Operating
Officer (effective January 6, 1997) on December 10, 1996. Prior to joining the
Company, Mr. Koehrer was with Automatic Data Processing, Inc. ("ADP") for 11
years, most recently as Corporate Vice President of ADP and as President of
ADP's Information and Processing Services division.
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FREDERICK F. GEYER joined Anacomp in January 1998 as Executive Vice
President--Services and Products. Before joining Anacomp, Dr. Geyer was with
Texas Instruments where Dr. Geyer served as Senior Vice President for digital
imaging from August 1996 to December 1997. Prior to that, Dr. Geyer worked for
Kodak where, during his tenure, his responsibilities included hardware/software
design and development, marketing and sales for digital imaging products, and
start-up of an optical storage business.
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.
WILLIAM C. ATER was elected Senior Vice President on August 13, 1997 and
Chief Administrative Officer in February 1988. He has served as Secretary since
March 1985.
JEFFERY R. CRAMER was elected Senior Vice President--Technical Services
Business on August 13, 1997. Mr. Cramer joined Anacomp in July 1996 with the
Company's acquisition of CPI, and served as Senior Vice President--Business
Development from February to August 1997. Mr. Cramer had served as President of
CPI since March 1987.
WILLIAM E. FARRANT was elected Senior Vice President--Service Center Support
on February 9, 1998. Mr. Farrant had previously served as Vice President--U.S.
Group Operations from October 1994 to January 1998. Prior to that, Mr. Farrant
was Director--Product Management from December 1992 to October 1994.
GEORGE C. GASKIN was elected Senior Vice President, General Counsel and
Assistant Secretary on November 17, 1997 and had served as Vice President--Legal
and Assistant Secretary since June 3, 1996. From June 1990 to June 1996, Mr.
Gaskin served as Corporate Counsel and Assistant Secretary.
MARY JANE GRINSTEAD was elected Senior Vice President and General
Manager--Electronic Systems Business on May 4 1998 and had served as Senior Vice
President--North America West since November 1997, after joining Anacomp as
Senior Vice President--U.S. West in August 1997. Ms. Grinstead had previously
served as Senior Vice President of Distribution and Operations of Ardis, a
subsidiary of Motorola Corp., since prior to five years ago.
HASSO JENSS was elected Senior Vice President and General Manager--COM
Systems Business on February 9, 1998 and had served as Senior Vice President and
General Manager--Europe since August 1997. From October 1995 to August 1997, Mr.
Jenss served as President--European Group. Mr. Jenss served as Vice
President--European Micrographics from November 1993 to September 1995. Prior to
that, Mr. Jenss served from October 1989 to October 1993 as Managing Director of
Anacomp's German subsidiary.
RICHARD V. KEELE was elected Senior Vice President--Product Development on
May 4, 1998 and had served as Senior Vice President and General Manager--CDS
Cluster since August 1997. Mr. Keele joined Anacomp in January 1997 with the
Company's acquisition of Data/Ware, and was elected President--Data/ Ware Group
in February 1997. Mr. Keele had previously served as President of Data/Ware
since prior to five years ago.
THOMAS J. MAGAZZINE was elected Senior Vice President and General
Manager--Consulting Services on May 4, 1998, having joined Anacomp with its
acquisition of WorkSmart in January 1998. Prior to joining Anacomp, Mr.
Magazzine had been President and Chief Executive Officer of WorkSmart since
1996. Before launching WorkSmart, Mr. Magazzine founded GTE Vantage Solutions in
1990, a company which implemented information technologies for process-level
reengineering. Mr. Magazzine has more than 25 years experience in information
management.
STEPHEN C. MANSKE was elected Senior Vice President on May 4, 1998 and had
served as Senior Vice President--COFI Cluster since November 1997. Mr. Manske
had previously served as Senior Vice President--Business Development from June
1996 to August 1997. Prior to that, Mr. Manske was Vice
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President--Emerging Technologies from August 1993 to June 1996, and
Director--Advanced Technologies Development from July 1989 to August 1993.
KEVIN M. O'NEILL was elected Senior Vice President--Strategy, Business and
Product Development on May 4, 1998, and had served as Senior Vice
President--Business Development and Strategy since August 1997, after serving as
Senior Vice President--Global Marketing since June 1996. Mr. O'Neill had served
as Vice President--Global Marketing from 1995 until June 1996. From 1994 to
1995, Mr. O'Neill served as Vice President of Marketing, Strategic Resellers
Group. Mr. O'Neill had previously served as Senior Director, Marketing & Product
Development for Fujitsu-ICL Systems, Inc. since prior to five years ago.
GARY M. ROTH was elected Senior Vice President and General
Manager--Magnetics Business on November 17, 1997 and had served as
President--International Group since October 1995. Previously, Mr. Roth served
as Vice President--Americas/Asia Division from November 1992 to September 1995.
From October 1991 to October 1992, Mr. Roth served as Manager--LAAP/Canada
Operations. From October 1988 to October 1991, Mr. Roth served as Vice
President--Data Systems Division.
EMERY E. SKARUPA was elected Senior Vice President--Manufacturing and
Materials on August 13, 1997. Mr. Skarupa joined the Company in November 1993 as
Director of Purchasing and was elected Vice President--Materials in May 1996.
Mr. Skarupa had previously served as Director of Materials for Abex Aerospace, a
division of Abex Corp., since January 1991.
DONALD W. THURMAN was elected Senior Vice President and General
Manager--Outsourcing Services Business on May 4, 1998 and had served as Senior
Vice President and General Manager--North America East since November 1997. Mr.
Thurman served as Senior Vice President--U.S. East from August 1997 to November
1997, and as Region Vice President--U.S. Group from October 1996 to August 1997.
From November 1993 to October 1995, Mr. Thurman was Senior Vice President of
Marketing and Business Development for First Image. Mr. Thurman served as
General Manager of The Software Factory from January to November 1993 and
previously served as Senior Vice President of the Company from January 1990 to
January 1993.
PETER WILLIAMS was elected Senior Vice President and General
Manager--International Business on November 17, 1997 and had served as
President--Magnetics Group since October 1995. Previously, Mr. Williams served
as General Manager--Magnetics European Group from 1993 to September 1995. Prior
to that, Mr. Williams served from 1990 to 1993 as Vice President, Wales
Operations--Magnetics.
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--Financial Reporting and Analysis for the Company from March 1991.
RICHARD D. JACKSON has served as a director since June 4, 1996. Mr. Jackson
was elected Vice Chairman of the Board of Directors on June 4, 1996 and
Co-Chairman of the Board effective May 1, 1997. Mr. Jackson has been a
consultant since 1995. Mr. Jackson joined FFMC 1993 as Chief Operating Officer
and Senior Executive Vice President and was elected Vice Chairman in February
1995, a position Mr. Jackson held until August 1995. From 1990 to 1993, Mr.
Jackson served as Vice Chairman and Chief Executive Officer of the Georgia
Federal Bank. Mr. Jackson also serves as a director of Schweitzer-Maudit
International, Inc. and Simione Central Holdings, Inc.
LEWIS SOLOMON has served as a director since June 4, 1996 and was elected
Lead Director on that date. Mr. Solomon was elected Co-Chairman of the Board
effective May 1, 1997. Mr. Solomon has been Chairman of G&L Investments for the
past five years. Mr. Solomon also serves as a director of Anadigics, Inc.,
Computer Products, Inc. and Microelectronic Packaging, Inc.
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<PAGE>
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 ("Magten"), which is an investment advisory firm, since 1978. Mr.
Embry is also a director of Combined Broadcasting, Inc. and BDK Holdings, Inc.
On September 9, 1993, Magten and Talton R. Embry, without admitting or
denying the allegations in a complaint by the 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, as amended, and the
Investment Company Act of 1940, as amended. 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 April 28, 1995, a Revco Drug Stores, Inc. ("Revco") shareholder, suing
derivatively on behalf of Revco, filed a complaint in U.S. District Court for
the Southern District of New York which named Magten, Talton R. Embry (a former
director and Co-Chairman of Revco), certain of Magten's clients, and Revco as
defendants. The complaint alleges that Magten's clients violated the "short
swing profits" law, Section 16(b) of the Exchange Act, by selling shares issued
by Revco in a July 1994 offering within six months of that offering. Magten's
attorney's filed a motion for summary judgment because the allegedly violative
conduct is expressly exempted from the "short swing profits" law. On February 6,
1996, the District Court dismissed the action in its entirety. On February 22,
1996, the plaintiff appealed the District Court's decision. On January 7, 1997,
the Second Circuit Court of Appeals affirmed the District Court's opinion
dismissing the derivative action brought in connection with the purchase and
sale of Revco Stock.
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 as well as
a founding partner of CFGW, a consulting firm founded in 1993. Mr. Gaskins also
serves as a director of Rhone Industries, Inc. (formerly UNR Industries, Inc),
Northwestern Steel and Wire Company and Sapient, Inc.
JAY P. GILBERTSON has served as a director since June 4, 1996. Mr.
Gilbertson was elected President, Chief Financial Officer and Co-Chief Operating
Officer of HBO & Company on November 11, 1997. Mr. Gilbertson has been the Chief
Financial Officer of HBO & Company since 1993. From 1991 to 1993, he served as
Corporate Controller of HBO & Company.
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<PAGE>
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 U.S. Home Corporation and The Bibb Company.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth as to the Company's
Chief Executive Officer and the other four most highly compensated executive
officers (collectively, the "Named Executive Officers") all compensation awarded
to, earned by, or paid to the Named Executive Officers for all services rendered
in all capacities to the Company and its subsidiaries for the fiscal years ended
September 30, 1997, 1996 and 1995 except as otherwise specifically noted.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG
TERM
COMPEN-
SATION
ANNUAL COMPENSATION -----------
----------------------------------
OTHER AWARDS
ANNUAL -----------
FISCAL COMPEN- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION(1) OPTIONS(7) COMPENSATION
- ---------------------------------------- ----------- ---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
P. Lang Lowrey, III..................... 1997 $ 500,000 $ 268,000 $ 88,888(2) 60,000 $ 1,000,000(8)
Chairman of the Board, 1996 450,000 742,152 136,557(3) 40,000 --
Chief Executive Officer 1995 289,692 87,750 -- 375,000 --
(until April 30, 1997) and
President (until January 5,
1997)
Ralph W. Koehrer........................ 1997 200,077 109,878 152,201(4) 157,500 0
President (since January 6, 1996 -- -- -- -- --
1997) and Chief Executive 1995 -- -- -- -- --
Officer (since May 1, 1997)
Thomas R. Simmons....................... 1997 206,500 86,993 47,063(5) -- 64,920(9)(10)(11)
Senior Vice President and 1996 206,500 41,595 -- 25,000 3,303(10)(11)
General Manager--CED 1995 206,500 66,374 -- -- 1,680(11)
Cluster (until January 15,
1998)
Donald L. Viles......................... 1997 168,000 105,731 -- -- 1,000(10)
Executive Vice President and 1996 157,446 45,980 -- 25,000 1,000(10)
Chief Financial Officer 1995 167,846 5,000 -- -- --
Gary M. Roth............................ 1997 156,615 108,472 -- -- 1,000(10)
Senior Vice President and 1996 140,000 29,150 -- 25,000 1,000(10)
General Manager--Magnetics Cluster 1995 133,000 65,835 -- 42,595 --
Ray L. Dicasali......................... 1997 166,380 84,974 -- -- --
Senior Vice President and 1996 75,389 12,500 80,817(6) 25,000 --
Chief Technology Officer (until June 1995 -- -- -- -- --
30, 1998)
</TABLE>
- ------------------------
(1) Except as noted below, 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 1997, 1996 and 1995
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<PAGE>
(2) Includes $47,456 in relocation expenses and $34,827 in income tax assistance
for certain relocation expense reimbursements and $6,605 for tax planning.
(3) Includes $63,894 in temporary relocation expenses and $62,410 in income tax
assistance for certain relocation expense reimbursements.
(4) Includes $1,093 in relocation expenses, $1,108 in income tax assistance for
certain relocation expense and $150,000 for a relocation bonus.
(5) Includes $1,000 for tax planning and $46,063 in income from the exercise of
a stock option.
(6) Includes $36,952 in relocation expenses, $31,365 in income tax assistance
for certain relocation expense reimbursements and $12,500 for a relocation
bonus.
(7) All stock option grants prior to June 4, 1996 were canceled as of that date.
(8) Represents severance payment (see "--Employment Contracts--P. Lang Lowrey
III").
(9) Includes $35,000 in loan forgiveness and $26,900 in income tax assistance
for loan forgiveness.
(10) These figures include a $1,000 contribution per year made by the Company to
the Anacomp Savings Plus Plan for fiscal 1997 and fiscal 1996 for each of
Messrs. Simmons, Viles and Roth.
(11) Includes $2,020, $2,303 and $1,680 in imputed interest in fiscal 1997, 1996
and 1995, respectively, 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.
STOCK OPTION PLANS
On July 22, 1996, the Board of Directors approved the Anacomp, Inc. 1996
Restructure Recognition Stock Incentive Plan (the "Recognition Plan"). The
Company has reserved 1,047,750 shares of common stock for issuance to employees
and officers pursuant to stock options or restricted stock. The exercise price
per common share under an option granted pursuant to the Recognition Plan is
determined by the Compensation Committee of the Board of Directors (the
"Committee"), which administers the Recognition Plan. Options lapse after ten
years or upon termination of employment. common stock granted as restricted
stock will be subject to restrictions on transferability and any other
restrictions as the Committee may impose.
On February 3, 1997, the Company's shareholders approved the Anacomp, Inc.
1997 Qualified Employee Stock Purchase Plan (the "Stock Purchase Plan"). The
Stock Purchase Plan allows qualified employees to purchase shares of common
stock at the lower of 85% of the fair market value at the date of purchase or
85% of the fair market value on the first day of the offering period. A maximum
of 500,000 shares of common stock is available for purchase under the Stock
Purchase Plan. No employee may be granted an option under the Stock Purchase
Plan or any other qualified employee stock purchase plan that would permit such
employee's rights to accrue at a rate which exceeds $25,000 of fair market value
(determined at the offering date) of the common stock for each calendar year in
which the option is outstanding. The administrator of the Stock Purchase Plan
establishes a book entry account in the name of each participant to which
deductions from the participant's payroll are credited. Rights and options
granted under the Stock Purchase Plan are not transferable and are exercisable
only by the participant during his or her lifetime.
On February 3, 1997, the Company's shareholders approved the Anacomp, Inc.
1996 Long-Term Incentive Plan (the "1996 Incentive Plan"). The Company has
reserved 1,400,000 shares of common stock for issuance to employees, officers
and directors pursuant to stock options, stock appreciation rights ("SARs"),
restricted stock awards and other stock-based awards. The maximum number of
shares of common stock with respect to one or more options and/or SARs that may
be granted under the 1996 Incentive Plan during any one calendar year or to any
one participant is 500,000 shares; the maximum fair
68
<PAGE>
market value of any awards other than options or SARs during any one calendar
year is $2 million. The exercise price per common share under an option granted
pursuant to the 1996 Incentive Plan is determined by the Committee, which
administers the 1996 Incentive Plan. Options lapse after ten years or three
months after termination of employment. Upon exercise of a SAR granted under the
Incentive Plan, the participant shall receive the excess, if any, of the fair
market value of one share of common stock on the date of exercise over the grant
price of the SAR, as determined by the Committee, which shall not be less than
the fair market value of one share on the date of grant. Common stock granted as
restricted stock will be subject to restrictions on transferability and any
other restrictions the Committee may impose. The Committee is also authorized to
grant any other awards that are payable in, valued by reference or otherwise
based on or related to shares of common stock.
Pursuant to the 1996 Long-Term Incentive Plan, the Company granted to the
Named Executive Officers the options set forth in the table below. According to
the report of a consulting firm, the options issued to Messrs. Lowrey and
Koehrer in fiscal 1997 were at or below the middle range of stock option
incentive opportunities for chief executive officers of companies in the
executive compensation peer group. The Committee believes that the 1996
Long-Term Incentive Plan aligns the interests of executive officers with those
of shareholders and, thus, promotes the creation and protection of shareholder
value.
As of December 1, 1997, the Company adopted the Anacomp, Inc. 1996
Non-Employee Director Stock Option Plan (the "1996 Non-Employee Director Plan").
The Company has reserved 25,000 shares of common stock for issuance to
non-employee directors pursuant to non-transferable stock options. During a
certain period designated by the Compensation Committee, non-employee directors
may elect to receive their annual retainer in options in lieu of cash. The
purchase price per share under each option shall be 100% of the fair market
value per share on the option grant date. Each quarter, a non-employee director
electing to receive options will receive options to purchase 625 shares of
common stock. Each option shall vest six months after the option grant date. If
the remaining shares available for grant under the 1996 Non-Employee Director
Plan is at any time less than sufficient to grant the full number of options to
each non-employee director who elects to receive options, then the number of
options shall be apportioned equally among such non-employee directors, and the
Non-Employee Director Plan will automatically terminate as of that quarterly
grant date. Otherwise, the 1996 Director Plan shall terminate upon its tenth
anniversary or upon earlier termination by the Board of Directors.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF STOCK PRICE
NUMBER OF % OF TOTAL GRANT- APPRECIATION
SECURITIES OPTIONS DATE FOR 10-YEAR OPTION
UNDERLYING GRANTED TO EXERCISE MARKET TERM(4)(5)
OPTIONS EMPLOYEES IN PRICE PRICE EXPIRATION ----------------------------
GRANTED FISCAL YEAR PER SHARE PER SHARE DATE 0% 5%
----------- --------------- ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
P. Lang Lowrey, III... 60,000(1) 6.39% $ 7.95 $ 7.95 10/01/06 $ 453,000 $1,037,874
Ralph W. Koehrer...... 85,000(2) 9.05 8.4375 8.4375 01/06/07 600,312 1,428,884
72,500(3) 7.72 12.3750 12.3750 05/01/07 226,562 933,285
Thomas R. Simmons..... -- -- -- -- -- -- --
Donald L. Viles....... -- -- -- -- -- -- --
Gary M. Roth.......... -- -- -- -- -- -- --
Ray L. Dicasali....... -- -- -- -- -- -- --
<CAPTION>
10%
------------
<S> <C>
P. Lang Lowrey, III... $1,935,180
Ralph W. Koehrer...... 2,700,068
2,017,530
Thomas R. Simmons..... --
Donald L. Viles....... --
Gary M. Roth.......... --
Ray L. Dicasali....... --
</TABLE>
- ------------------------
(1) All the options granted vest on September 30, 2000.
(2) All the options granted vest on January 6, 2000.
(3) Of the options granted, one-third vest May 1, 1998, one-third vest on May 1,
1999 and one-third vest on May 1, 2000.
(4) The figures shown are potential future undiscounted values based on actual
term and annual compounding at the applicable rate. Potential realizable
value equals stock price at end of option terms less exercise price, times
the number of options granted.
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<PAGE>
(5) If the assumed annual rate of stock price appreciation of 0%, 5% or 10% per
year should occur, the market value per share of common stock at the end of
the ten-year option term would be $15.50, $25.2479 or $40.2030, as the case
may be.
The following table sets forth information regarding all options exercised
during fiscal 1997 or held at September 30, 1997 by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-
ACQUIRED VALUE OPTIONS AT FY-END MONEY OPTIONS AT FY-END
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
------------- --------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
P. Lang Lowrey, III.................. -- $ -- 10,000/ 90,000 $ 75,500/$679,500
Ralph W. Koehrer..................... -- -- 0/157,500 0/ 826,875
Thomas R. Simmons.................... 6,250 46,063 0/ 18,750 0/ 203,813
Donald L. Viles...................... -- -- 6,250/ 18,750 67,938/ 203,813
Gary M. Roth......................... -- -- 6,250/ 18,750 67,938/ 203,813
Ray L. Dicasali...................... -- -- 6,250/ 18,750 67,938/ 203,813
</TABLE>
- ------------------------
(1) Based on the September 30, 1997 closing price of $15.50 on the Nasdaq
National Market.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held eight meetings in the fiscal year
ended September 30, 1997. No incumbent director attended less than 75% of the
meetings held by the Board of Directors and the committees on which he served.
The Board of Directors of the Company has an Audit Committee, a Compensation
Committee and an Executive Committee. The Board of Directors does not have a
nominating committee but has assigned the functions of such a committee to the
Compensation Committee.
The members of the Company's Audit Committee during fiscal 1997 were Messrs.
Poole (Chairman), Gilbertson and Solomon. The Audit Committee met six times
during fiscal 1997. The principal duties assigned to the Audit Committee are to
recommend to the Board of Directors the accounting firm to be selected as
independent accountants of the Company and to meet with the Company's
independent accountants after completion of the annual audit and their rendering
of their opinion as a result thereof, to discuss their comments thereon and the
Company's accounting methods and procedures as the Audit Committee deems
appropriate.
The members of the Company's Compensation Committee during fiscal 1997 were
Messrs. Embry (Chairman), Gaskins and Jackson. The Compensation Committee met
five times during fiscal 1997. The Compensation Committee determines the
compensation and benefits of the Chief Executive Officer and other executive
officers of the Company. It is also responsible for evaluating the performance
of existing members of the Board of Directors and for making recommendations on
new candidates for membership on the Board of Directors. The Compensation
Committee also oversees the Company's stock option, employee stock purchase and
other stock-based plans.
The executive compensation policy of the Company, which is endorsed by the
Committee, provides that a significant portion of the annual compensation of
each executive officer relates to, and is contingent upon, the individual
executive officer's performance. Accordingly, under the Committee's guidance, a
significant portion of an executive officer's annual compensation is "at risk,"
at target levels during fiscal 1997 comprising approximately 35% (40% for the
Chief Executive Officer) of total cash compensation.
The members of the Company's Executive Committee during fiscal 1997 were
Messrs. Jackson (Chairman), Lowrey (until April 30, 1997), Koehrer (from May 1,
1997) and Solomon from May 1, 1997. The Executive Committee met 17 times during
fiscal 1997. The Executive Committee has and may exercise all the powers of the
Board of Directors during the intervals between meetings of the Board of
Directors.
70
<PAGE>
It is also responsible for reviewing possible acquisitions, mergers, joint
ventures, partnerships and other entries into new technologies.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $1,250 for each
directors and committee meeting attended in person, $1,000 for each such meeting
attended by telephone, $625 for each committee meeting attended on the same day
as a board meeting and an annual retainer of $12,500. Employee directors receive
no fees. Each of the non-employee directors was granted options in November 1996
to purchase 5,000 shares of common stock for such director's first year of
service and in February 1997 to purchase 20,000 shares of common stock. In
addition, effective June 4, 1996, the non-employee members of the Executive
Committee received a retainer of $40,000 per year, payable $10,000 each quarter.
With their election as Co-chairmen effective May 1, 1997, the retainer increased
to $60,000 per year payable $15,000 per quarter. Each of the Co-Chairmen also
received an additional option to purchase 25,000 shares of common stock. Each of
the directors may elect to receive his annual retainer in options to purchase
common stock in lieu of cash.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors was,
during fiscal 1997, an officer or employee of the Company or any of its
subsidiaries, or was formerly an officer of the Company or any of its
subsidiaries, or had any relationships requiring disclosure by the Company.
EMPLOYMENT CONTRACTS
Each of the Named Executive Officers is a party to an employment agreement
with the Company. Set forth below is a brief description of each such agreement.
P. LANG LOWREY, III resigned as Chairman of the Board, Chief Executive
Officer and Director effective April 30, 1997. Mr. Lowrey entered into a
consulting agreement with the Company, effective as of May 1, 1997, with a term
through September 30, 2000, which among other things, terminated the Amended and
Restated Employment Agreement, effective October 1, 1996, between Mr. Lowrey and
the Company and provided for the payment of a $1 million severance allowance to
Mr. Lowrey. Pursuant to his consulting agreement, Mr. Lowrey will provide
consulting services to the Company under the direction of the Chief Executive
Officer on a full-time basis through September 30, 1997 and for up to 80 hours
per month in fiscal 1998. Mr. Lowrey's compensation plan for fiscal 1998 is
composed of (a) a base consulting fee of $150,000 (b) a maximum annual bonus
opportunity of $100,000 and (c) employee benefits. Mr. Lowrey also entered into
a covenant not to compete with the Company for a period of one year following
any termination of the consulting agreement and not to solicit the Company's
customers for a period of two years following any termination of the consulting
agreement.
Mr. Lowrey's compensation as Chief Executive Officer until his resignation
effective April 30, 1997, was structured in accordance with the executive
compensation policy discussed above. As Chief Executive Officer, Mr. Lowrey's
compensation was determined pursuant to an employment agreement, effective as of
October 1, 1996, that provided for a base salary and target bonus set at the
middle range based on the review of the executive compensation peer group.
Pursuant to the employment agreement, Mr. Lowrey was paid a $1 million severance
allowance upon his resignation. In order to provide for a smooth transition,
effective May 1, 1997, Mr. Lowrey entered into a consulting agreement with the
Company that provided for, among other things, the termination of his employment
agreement and compensation as provided in his employment agreement for the
remainder of the fiscal year.
RALPH W. KOEHRER entered into an Employment Agreement with the Company,
effective as of October 1, 1997, which expires on September 30, 2000 and is
automatically renewable thereafter for additional one-year terms. Mr. Koehrer
also entered into a covenant not to compete with the Company
71
<PAGE>
while an employee, or as a consultant to the Company after any termination of
employment, and not to solicit the Company's customers for a period of two years
following any termination of employment.
Mr. Koehrer's compensation plan for fiscal 1998 is composed of (a) a base
salary of $400,000; (b) an area profit bonus of $66,667 paid quarterly based on
actual quarterly performance versus quarterly quota for the Company's adjusted
net income; (c) an area revenue bonus of $106,667 paid quarterly based on actual
quarterly performance versus quarterly quota for the Company's total revenue;
(d) an asset management bonus of $40,000 paid quarterly based on the Company's
attaining its quarterly asset management targets; and (e) a corporate EBITDA
bonus of $53,333 paid quarterly based on the Company's attaining its quarterly
EBITDA goals. With the exception of the asset management bonus, all bonuses may
be greater if goals are exceeded or less if goals are not attained.
Prior to his election as Chief Executive Officer effective May 1, 1997, Mr.
Koehrer's compensation as President and Chief Operating Officer was structured
in accordance with the executive compensation policy discussed above and
pursuant to an employment agreement, effective as of January 6, 1997. Upon his
election as Chief Executive Officer, Mr. Koehrer's employment agreement was
amended to increase his base salary and target bonus to a level less than that
paid to the former chief executive officer, which the Company believes is in the
middle range based on the review of the executive compensation peer group.
Mr. Koehrer also has been granted options under the 1996 Long-Term Incentive
Plan to acquire 85,000 shares of common stock at an exercise price of $8.4375
per share (the fair market price on January 6, 1997) and 72,500 shares of common
stock at an exercise price of $12.50 per share (the fair market price on April
29, 1997). Pursuant to his agreement, Mr. Koehrer was awarded options to acquire
an additional 42,500 shares of common stock at an exercise price of $13.50 (the
fair market price on November 17, 1997).
Mr. Koehrer'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, in either case if
the surviving or transferee company does not agree to be bound by the terms of
the employment agreement, or in the event of a change in control of the Company,
Mr. Koehrer may elect to treat his employment agreement as terminated and
receive a Severance Allowance of the lesser of $1 million or his prior 24-months
compensation, which shall be in addition to the regular compensation and
benefits that he is entitled to receive up to the date on which his employment
terminates. In addition, Mr. Koehrer is entitled to receive such severance
allowance and the accelerated vesting of options under a variety of other
circumstances, but excluding termination for cause or his voluntary resignation
upon 90 days advance notice.
THOMAS R. SIMMONS resigned as Senior Vice President and General Manager-CED
cluster effective January 15, 1998. Mr. Simmons entered into a two-year
consulting agreement with the Company, effective January 16, 1998, which expires
January 15, 2000. Pursuant to his consulting agreement, Mr. Simmons will provide
consulting services up to 60 hours per month at a monthly compensation rate of
$17,208 for the period beginning January 16, 1998 through January 15, 1999, and
for the period beginning January 16, 1999 through January 15, 2000, Mr. Simmons
will provide consulting services up to five hours per month at a monthly
compensation rate of $2,500; provided, however, that if Mr. Simmons obtains
full-time employment during the first year of his consulting agreement, the
monthly compensation rate will be reduced to $2,500. Mr. Simmons entered into a
covenant not to compete with the Company for the duration of his consulting
agreement, as well as a confidentiality agreement and a non-disclosure
agreement. During most of fiscal 1997, Mr. Simmons had held the title of
President, U.S. Group.
DONALD L. VILES entered into an employment agreement with the Company,
effective February 15, 1996, which expires on September 30, 1998 and is
automatically renewable thereafter for additional one-year terms. Mr. Viles also
entered into a covenant not to compete with the Company for a period of one year
following any termination of employment and not to solicit the Company's
customers for a period of two years following any termination of employment.
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<PAGE>
Mr. Viles' compensation plan for fiscal 1998 is composed of (a) a base
salary of $168,000, (b) an area profit bonus of $22,615 paid quarterly based on
the actual quarterly performance versus the quarterly quota for the Company's
adjusted net income, (c) an area revenue bonus of $36,185 paid quarterly based
upon the actual quarterly versus the quarterly quota for the Company's total
revenue, (d) an asset management bonus of $13,569 paid quarterly based on the
Company's asset management targets and (e) a corporate EBITDA bonus up to
$18,092 paid quarterly based on the Company's quarterly EBITDA goal. With the
exception of the asset management bonus, all bonuses may be greater if goals are
exceeded or less if goals are not attained.
Mr. Viles' 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 or a discontinuation of the Company's business,
Mr. Viles will receive a severance allowance equal to his prior 24-months
compensation if he elects to treat any such occurrence as a termination of his
agreement. Mr. Viles is also entitled to such severance allowance if he is
terminated by mutual agreement or without cause by the Company or if he deems a
termination to have occurred due to a demotion, transfer or reduction in
compensation.
GARY M. ROTH entered into an employment agreement with the Company effective
October 1, 1992 which originally expired on September 30, 1995 but has been
automatically renewed thereafter for additional one-year terms. Mr. Roth has
also entered into a covenant not to solicit the Company's customers for a period
of two years following any termination of employment. During fiscal 1997, Mr.
Roth held the title of President--International Group. He assumed his current
position on October 1, 1997.
Mr. Roth's compensation plan for fiscal 1998 is composed of (a) a base
salary of $174,850; (b) an area profit bonus of $23,538 paid quarterly based on
actual quarterly performance versus quarterly quota for divisional EBIT; (c) an
area revenue bonus of $37,660 paid quarterly based on actual quarterly
performance versus quarterly quota for divisional revenue; (d) an asset
management bonus of $14,123 paid quarterly based on the Company's attaining its
quarterly asset management targets; and (e) a corporate EBITDA bonus of $18,830
paid quarterly based on the Company's attaining its quarterly EBITDA goals. With
the exception of the asset management bonus, all bonuses may be greater if goals
are exceeded of less if goals are not attained.
Mr. Roth's 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. Roth will receive a severance allowance
equal to his prior twelve months' compensation if he is substantially terminated
without cause or if he deems a termination to have occurred due to a demotion,
transfer or reduction in compensation. Mr. Roth is also entitled to such
severance allowance if he is terminated without cause by the Company or if he
deems a termination to have occurred due to demotion, transfer or reduction in
compensation.
RAY L. DICASALI'S employment with the Company ceased on June 30, 1998. The
Company is paying Mr. Dicasali over 52 weeks an amount equal to his base salary
and total bonus for the prior twelve months as severance pay.
FREDERICK F. GEYER entered into an employment agreement with the Company,
effective January 5, 1998, which expires January 4, 2000 and is automatically
renewable thereafter for additional one-year terms. Dr. Geyer also entered into
a covenant not to compete with the Company for a period of one year following
any termination of employment and not to solicit the Company's customers for a
period of two years following any termination of employment.
Dr. Geyer's compensation plan for fiscal 1998 is composed of (a) a base
salary of $300,000, (b) an area profit bonus of $37,500 paid quarterly based on
actual quarterly performance versus quarterly quota for the Company's adjusted
net income; (c) an area revenue bonus of $60,000 paid quarterly based on actual
quarterly performance versus quarterly quota for the Company's total revenue;
(d) an asset management bonus of $22,500 paid quarterly based on the Company's
attaining its quarterly asset management targets; and (e) a corporate EBITDA
bonus of $30,000 paid quarterly based on the Company's attaining its
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quarterly EBITDA goals. With the exception of the asset management bonus, all
bonuses may be greater if goals are exceeded or less if goals are not attained.
Dr. Geyer's 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 or a discontinuation of the Company's business,
Dr. Geyer will receive a severance allowance equal to his prior 24-months
compensation if he elects to treat any such occurrence as a termination of his
agreement. Dr. Geyer is also entitled to such severance allowance if he is
terminated by mutual agreement or without cause by the Company 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. Koehrer, Viles and
Roth and Dr. Geyer provide for certain payments in the event of a termination of
employment or a change of control of the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1998,
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 OF STOCK
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
- ------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Magten Asset Management Corp. ....................................................... 4,607,509(1) 31.9%
35 East 21st Street
New York, New York 10010
Merrill Lynch & Co., Inc. ........................................................... 1,407,670(2) 9.8
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
State Street Research & Management Company........................................... 1,036,505(3) 7.2
One Financial Center
Boston, Massachusetts 02111
Franklin Resources, Inc. ............................................................ 825,565(4) 5.7
777 Mariners Island Boulevard
San Mateo, California 94403
Pioneering Management Corporation.................................................... 806,620 5.6
60 State Street
Boston, Massachusetts 02109
P. Lang Lowrey, III.................................................................. 0 *
Ralph W. Koehrer..................................................................... 32,167(5) *
Talton R. Embry...................................................................... 0(6) *
Darius W. Gaskin, Jr. ............................................................... 14,063(7) *
Jay P. Gilbertson.................................................................... 10,000(8) *
Richard D. Jackson................................................................... 21,789(9) *
George A. Poole, Jr.................................................................. 15,625(10) *
Lewis Solomon........................................................................ 29,772(11) *
Thomas R. Simmons.................................................................... 0 *
Donald L. Viles...................................................................... 14,358(12) *
Gary M. Roth......................................................................... 7,500(13) *
Ray M. Dicasali...................................................................... 40,000(14) *
All directors and executive officers as a group (24 persons)......................... 317,694(15) 2.2
</TABLE>
- ------------------------
* Less than 1%.
(1) Magten may be deemed to be the beneficial owner of shares owned by its
investment advisory clients. Magten has shared voting power (with its
investment advisory clients and Mr. Embry) and shared dispositive power
(with its investment advisory clients and Mr. Embry) with respect to
3,669,566 and 4,607,509 respectfully, shares of the common stock. All of
such shares, which in the aggregate represent 33.1% 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, Hughes Master Retirement Trust and Los Angeles Fire and Police
Pension Systems--Fund 2525.
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(2) Merrill Lynch & Co., Inc. has shared voting power and shared dispositive
power with respect to 1,407,670 shares of the common stock, for which
Merrill Lynch & Co., Inc. disclaims beneficial ownership.
(3) Includes 34,111 shares issuable upon the exercise of the Company's Common
Share Warrants. State Street Research & Management Company is a
wholly-owned subsidiary of Metropolitan Life Insurance Company. State
Street Research & Management Company and Metropolitan Life Insurance
Company disclaim beneficial ownership of all of the above shares.
(4) Franklin Resources, Inc. has sole voting power and shared dispositive power
with respect to 825,565 shares of the common stock, for which Franklin
Resources, Inc. disclaims beneficial ownership.
(5) Includes 24,167 shares issuable upon the exercise of stock options.
(6) 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 (1) 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 153,083 shares of common stock held by such trusts and sole
voting and investment power with respect to 2,612 shares of common stock
held by his minor children. Mr. Embry disclaims beneficial ownership of all
of the above shares.
(7) Includes 12,063 shares issuable upon the exercise of stock options.
(8) Represents 10,000 shares issuable upon the exercise of stock options.
(9) Includes 18,959 shares issuable upon the exercise of stock options.
(10) Includes 10,625 shares issuable upon the exercise of stock options.
(11) Includes 19,772 shares issuable upon the exercise of stock options.
(12) Includes 42 shares issuable upon the exercise of the Company's Common Share
Warrants and 12,500 shares issuable upon the exercise of stock options.
(13) Represents 7,500 shares issuable upon the exercise of stock options.
(14) Represents 40,000 shares issuable upon the exercise of stock options.
(15) Includes 67 shares issuable upon the exercise of the Company's Common Share
Warrants and 233,921 shares issuable upon the exercise of stock options.
Excludes shares beneficially owned by Mr. Embry, as to which Mr. Embry
disclaims beneficial ownership. See Note (6) above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships and related transactions that require disclosure.
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DESCRIPTION OF NOTES
The Notes are issued under the Indenture. The following summary, which
describes certain material provisions of the Indenture and the Notes, does not
purport to be complete, and is subject to the detailed provisions of, and is
qualified in its entirety by reference to, the provisions of the Indenture and
the Notes, including the definition therein of certain terms. A copy of the
Indenture may be obtained from the Company. The terms of the Notes include those
set forth in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in
effect on the date of the Indenture. Wherever particular provisions or
definitions in the Indenture or the Notes are referred to in this Prospectus,
such provisions or definitions are incorporated by reference. The definitions of
certain capitalized terms used in the following summary are set forth in
"Certain Definitions" below. Other capitalized terms are used but not defined in
the following summary, and are defined in the Indenture. For purposes of the
following summary, the term "Company" refers to Anacomp, Inc. and does not
include its subsidiaries except for purposes of financial data determined on a
consolidated basis.
GENERAL
The Notes mature on April 1, 2004, and are in an aggregate principal amount
of $135 million. The Notes bear interest at the rate of 10 7/8% per annum
payable semi-annually on April 1 and October 1 of each year, beginning on
October 1, 1997, to the holders of record in whose name the Note (or any
predecessor Note) is registered at the close of business on the preceding March
1 or September 1, as the case may be. Interest will be computed on the basis of
a 360-day year composed of twelve 30-day months. The interest rate on the Notes
is subject to increase in certain circumstances. See "Exchange Offer;
Registration Rights."
Principal of, and premium, if any, and interest on, the Notes will be
payable, and the Notes are exchangeable and transferable, at an office or agency
of the Trustee at One State Street, New York, New York 10004, or such other
office or agency permitted under the Indenture. The Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 or any
integral multiple thereof.
RANKING
The Notes will be unsecured obligations of the Company and will be
subordinated to all existing and future Senior Indebtedness of the Company and
will be effectively subordinated to all obligations of any subsidiaries of the
Company as may exist from time to time. The Notes will rank PARI PASSU with any
existing and future senior subordinated indebtedness of the Company and will
rank senior to all other Subordinated Obligations of the Company. As of June 30,
1998, on a pro forma basis, the aggregate principal amount of the Company's
outstanding Senior Indebtedness would have been approximately $8.9 million
(excluding unused commitments of $70.7 million under the New Revolving Credit
Facility) and the amount of Senior Subordinated Indebtedness other than the
Notes would have been approximately $196.9 million (net of $3.1 million
unamortized discount).
SUBORDINATION
The Company's payment of the principal of, interest on or any other amounts
due on the Notes is expressly subordinated in the right of payment to the prior
payment in full of Senior Indebtedness. The expressions "prior payment in full,"
"payment in full" and "paid in full" and any other similar term or phrase when
used herein with respect to Senior Indebtedness means the payment in full of
such Senior Indebtedness in cash or provision for such payment in cash or
otherwise in a manner satisfactory to the holders of the Senior Indebtedness.
Upon (i) the maturity of Senior Indebtedness, whether by lapse of time, upon
redemption or by acceleration or otherwise, or (ii) any default in the payment
of any amount due in respect of principal or interest in respect of Senior
Indebtedness, or (iii) any distribution or payment of assets or securities of
the Company upon any dissolution, winding up, liquidation or reorganization of
the Company of any kind or character, the holders of Senior Indebtedness will be
entitled to receive payment in full (or to have such payment duly provided for)
of the principal thereof and interest due
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thereon before the holders of the Notes are entitled to receive any payment on
account of the principal of or interest on the Notes. During the continuance of
any Default or Event of Default (other than a Default or Event of Default
relating to payment of principal or interest, either at maturity, upon
redemption, by declaration or otherwise) under any agreement governing Senior
Indebtedness permitting acceleration of the maturity thereof (whether or note
such acceleration has occurred) and upon giving of notice thereof, no payment
may be made on the Notes for a period of 179 days after the notice is given, but
payments may thereafter be resumed unless such payments are then prohibited by
Article 9 of the Indenture. Only one notice may be given effect within any
period of 360 consecutive days and no more than one notice may be given with
respect to any continuing default or event of default. If in any of the
situations referred to above, a payment is made to the Trustee or to any holder
of Notes before all Senior Indebtedness has been paid in full or provision has
been made for such payment, the payment to the Trustee or such holder of the
Notes must be paid over to the holders of Notes or their representative. The
failure to make payment on account of principal of or other interest on the
Notes by reason of such subordination will not prevent the occurrence of any
Event of Default.
"Senior Indebtedness" means the principal of, interest (including, without
limitation, interest at the contract rate relating to such Senior Indebtedness
accruing after any proceeding or event referred to in clauses (viii) and (ix)
under "Events of Default" on, or any other amounts due with respect to, (i) the
Credit Facility, (ii) any Refinancing Indebtedness Incurred in respect of the
Credit Facility or in respect of any previous Refinancing Indebtedness Incurred
in respect of such Credit Facility and (iii) any Indebtedness Incurred pursuant
to clause (a) (ii) of the first paragraph of the "Limitation on Indebtedness"
covenant. For purposes of the "Limitation on Sales of Assets and Restricted
Subsidiary Stock" covenant, the amount of consideration received by the Company
or any Restricted Subsidiary for the assumption of Senior Indebtedness by any
purchaser of the Company's property, assets or shares shall be equal to the face
value of such Senior Indebtedness.
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to April 1, 2000. On and after such date, the Notes will be
redeemable at the option of the Company, in whole or in part at any time and
from time to time, on not less than 45 days' nor more than 60 days' prior notice
mailed by first-class mail to each holder's registered address, at the
redemption prices set forth below (expressed as percentage of the principal
amount), plus accrued and unpaid interest (if any) to the date of redemption
(subject to the right of the Holders of record on the relevant date to receive
interest due on the related interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
2000........................................................................................ 108.156%
2001........................................................................................ 105.438%
2002........................................................................................ 102.719%
2003 and thereafter......................................................................... 100.000%
</TABLE>
At any time, or from time to time, on or prior to April 1, 2000 the Company
may, at its option, use the net cash proceeds of one or more Public Equity
Offerings (as defined) to redeem up to 35% of the aggregate principal amount of
Notes originally issued at a redemption price equal to 110.875% of the principal
amount thereof, plus, in each case, accrued and unpaid interest to the date of
redemption; provided that at least 65% of the aggregate principal amount of
Notes originally issued remains outstanding after any such redemption. In order
to effect the foregoing redemption with the proceeds of any Public Equity
Offering, the Company shall make such redemption not more than 60 days after the
consummation of any such Public Equity Offering.
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<PAGE>
As used in the preceding paragraph, "Public Equity Offering" means a public
offering of Qualified Capital Stock of the Company pursuant to a registration
statement filed with the Commission in accordance with the Securities Act.
If less than all of the Notes are to be redeemed, the Trustee shall select
by such methods as the Trustee shall deem to be fair and appropriate the
particular Notes to be redeemed or any portion thereof that is an integral
multiple of $1,000.
Notwithstanding the foregoing, the Company may not make any optional
redemption of the Notes unless contemporaneously with such optional redemption
it redeems Existing Notes the aggregate principal amount of which bears the same
relationship to the aggregate principal amount of the Existing Notes outstanding
immediately prior to such optional redemption as the aggregate principal amount
of the Notes being redeemed bears to the aggregate principal amount of the Notes
outstanding immediately prior to such optional redemption.
The Notes will not have the benefit of a sinking fund.
CHANGE OF CONTROL
Pursuant to the Indenture, a "Change of Control" means the occurrence of any
of the following events: (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than an underwriter engaged in a
firm commitment underwriting in connection with a public offering of the Voting
Stock of the Company or a Restricted Subsidiary, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of the Voting Stock of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election by
the shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board then in office; or (iii) the Company, either individually or in
conjunction with one or more of its Subsidiaries, sells, conveys, leases or
otherwise transfers, or one or more of such Subsidiaries sell, convey, lease or
otherwise transfer, all or substantially all the assets of the Company and the
Restricted Subsidiaries, taken as a whole, to any Person (other than a
Restricted Subsidiary).
In the event of a Change of Control, the Company will (i) upon such Change
of Control, notify the Trustee, who will in turn notify the holders of the
Notes, in writing of the occurrence of and the circumstances and relevant facts
regarding such Change of Control and (ii) make an offer to purchase (the "Change
of Control Offer") the Notes for cash at a purchase price equal to 101% of the
principal amount thereof, plus any accrued and unpaid interest thereon to the
Change of Control Purchase Date (as defined below) (such price, together with
such interest, the "Change of Control Purchase Price") on or before the date
specified in such notice, which date must be no earlier than 30 days nor later
than 60 business days after the occurrence of the Change of Control (the "Change
of Control Purchase Date"). The Change of Control Offer will remain open from
the time such offer is made until the Change of Control Purchase Date. The
Company will purchase all Notes properly tendered in the Change of Control Offer
and not withdrawn in accordance with the procedures set forth in such notice of
withdrawal delivered to the Trustee by the holder prior to or on the Change of
Control Purchase Date. The Change of Control Offer will state, among other
things, the procedures that holders of the Notes must follow to accept the
Change of Control Offer.
The occurrence of certain of the events which would constitute a Change of
Control could constitute a default under the Company's existing and future
indebtedness. In addition, the exercise by the holders of the Notes of their
right to require the Company to repurchase Notes could cause a default under
such indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase
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<PAGE>
on the Company. Finally, if a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds or other resources to pay
the Change of Control Purchase Price for all the Notes that might be delivered
by holders thereof seeking to accept the Change of Control Offer. Moreover, as
of the date of this Prospectus, after giving effect to the sale of the Notes and
the application of the estimated net proceeds therefrom as described herein, the
Company would not have sufficient funds available to purchase all of the
outstanding Notes pursuant to a Change of Control Offer. In the event that the
Company were required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would need to seek third-party
financing to the extent it does not have available funds to meet its purchase
obligations. However, there can be no assurance that the Company would be able
to obtain such financing on favorable terms, if at all. In addition, the
Company's ability to purchase the Notes may be limited by other then-existing
borrowing agreements (including, without limitation, the Credit Facility), and
the existence of the Change of Control (or the financial effect of the required
repurchases by the Company) could cause a default under the Credit Facility or
other indebtedness of the Company and its Subsidiaries.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Company and, thus, the
removal of incumbent management. The Change of Control provisions will not
prevent a change in a majority of the members of the Board of Directors of the
Company which is approved by a majority of the then-present Board of Directors
of the Company. One of the events that constitutes a Change of Control under the
Indenture is a sale, conveyance, transfer or lease of all or substantially all
the property of the Company and its Subsidiaries, taken as a whole, to any
Person (other than a Restricted Subsidiary). The phrase "all or substantially
all" is subject to judicial interpretation depending on the facts and
circumstances of the subject transaction. The Indenture is governed by New York
law, and there is no established quantitative definition under New York law of
"substantially all" the assets of a corporation. Accordingly in certain
circumstances it may be unclear whether a Change of Control has occurred and
whether the Company may therefore be required to make a Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to any Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with provisions relating to the Change of Control Offer, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Change of Control covenant by
virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS
(a) The Company will not be permitted to, directly or indirectly, Incur any
Indebtedness; provided, however, that: (i) the Company may Incur Indebtedness
ranking on a parity with the Notes or which is subordinated in right to payment
to the Notes pursuant to the terms of such Indebtedness or pursuant to a written
agreement, if no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and after giving pro forma effect to such Incurrence, the
Consolidated Coverage Ratio would be equal to at least 1.75 to 1; and (ii) the
Company may Incur Senior Indebtedness if no Default or Event of Default shall
have occurred and be continuing at the time of such Incurrence or would occur as
a consequence of such Incurrence and (A) after giving pro forma effect to such
Incurrence, the Consolidated Coverage Ratio would be at least equal to 2.5 to 1
or (B) after such Incurrence the total principal amount of Senior Indebtedness
would not exceed $80 million.
(b) Notwithstanding the foregoing, the Company may Incur the following
Indebtedness if no Default or Event of Default shall have occurred and be
continuing at the time of such Incurrence or would occur as
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a consequence of such Incurrence (collectively, "Permitted Indebtedness"): (i)
Indebtedness to be outstanding on the Issue Date and listed on Schedule I of the
Indenture; (ii) Indebtedness represented by the Notes; (iii) Indebtedness (A)
under Interest Rate Protection Agreements relating to Indebtedness permitted
hereunder entered into in the ordinary course of the Company's financial
management and not for speculative purposes; provided, however, that the
notional amount of each such Interest Rate Protection Agreement does not exceed
the principal amount of the Indebtedness to which such Interest Rate Protection
Agreement relates; or (B) under Currency Exchange Protection Agreements entered
into in the ordinary course of the Company's financial management and not for
speculative purposes; provided, however, in the case of either clause (A) or
(B), any such Interest Rate Protection Agreement or Currency Exchange Protection
Agreement, as the case may be, does not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations in the interest
rates or exchange rates, as the case may be, or by reason of customary fees,
indemnities and compensation payable thereunder; (iv) Indebtedness owing to and
held by any Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to the Company or another Wholly Owned Subsidiary)
will be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof; (v) Indebtedness Incurred in connection with a prepayment
of the Notes pursuant to a Change of Control Offer; provided, however, that the
aggregate principal amount of such Indebtedness does not exceed 101% of the
aggregate principal amount of the Notes prepaid; provided, further, however,
that such Indebtedness (A) has an Average Life equal to or greater than the
remaining Average Life of the Notes and (B) does not mature prior to the Stated
Maturity of the Notes; (vi) Indebtedness in respect of Purchase Money
Indebtedness or Capital Lease Obligations directly Incurred by the Company;
provided, however, that the sum of (A) the aggregate principal amount of such
Purchase Money Indebtedness incurred by the Company or by Restricted
Subsidiaries as permitted under clause (ii) of the definition of "Permitted
Restricted Subsidiary Indebtedness" and (B) the aggregate amount of Capital
Lease Obligations Incurred by the Company or Incurred by Restricted Subsidiaries
as permitted under clause (ii) of the definition of "Permitted Restricted
Subsidiary Indebtedness" does not at any one time outstanding exceed $30 million
(such maximum permitted amount to increase by $10 million on each March 24,
commencing on March 24, 1999); (vii) Indebtedness Incurred (A) in the ordinary
course of business of the Company with respect to trade credit made available to
the Company in connection with the obtaining of goods or services by the Company
(including commercial letters of credit, bankers' acceptances or accommodation
Guarantees for the benefit of trade creditors or suppliers), in each case for a
period not to exceed 180 days, in an amount not to exceed the purchase price for
the goods or services for which such credit is made available and which do not
constitute obligations for borrowed money, and (B) with respect to standby
letters of credit, performance bonds and surety bonds that do not constitute
obligations for borrowed money Incurred by the Company in the ordinary course of
business relating to services to be performed by or on behalf of the Company;
(viii) Indebtedness in respect of Guarantees by the Company of Indebtedness of
any Restricted Subsidiary permitted to be Incurred under "Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock"; (ix) Indebtedness under
the Credit Facility in an aggregate principal amount not to exceed $80 million
less, at any specified date, an amount equal to actual repayments of such
Indebtedness prior to such date, regardless of any subsequent increase in the
aggregate principal amount of such Indebtedness pursuant to any amendment or
modification of, or supplement to, the Credit Agreement (x) Refinancing
Indebtedness Incurred in respect of Indebtedness Incurred pursuant to clause
(i), (ii) or (v) above; and (xi) in addition to any Indebtedness permitted by
clauses (i) through (x) above, up to an aggregate of (A) $25 million in
principal amount of Indebtedness at any one time outstanding minus (B) the
principal amount of Indebtedness at such time outstanding of any Restricted
Subsidiaries permitted pursuant to clause (vi) under "Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock."
The Company will not directly or indirectly Incur any Indebtedness if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated
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Obligations unless such Indebtedness is subordinated to the Notes to at least
the same extent as such Subordinated Obligations.
LIMITATION ON RESTRICTED SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK
The Company will not permit any Restricted Subsidiary directly or indirectly
to Incur any Indebtedness or issue any Preferred Stock unless (i) no Default or
Event of Default has occurred and is continuing at the time of such Incurrence
or would occur as a consequence of such Incurrence and (ii) such Indebtedness or
Preferred Stock is Permitted Restricted Subsidiary Indebtedness.
"Permitted Restricted Subsidiary Indebtedness" is defined as: (i)
Indebtedness or Preferred Stock to be outstanding on the Issue Date and listed
on Schedule I to the Indenture; (ii) Indebtedness in respect of Purchase Money
Indebtedness or Capital Lease Obligations directly Incurred by any Restricted
Subsidiary; provided, however, that the sum of (A) the aggregate amount of
Capital Lease Obligations Incurred by Restricted Subsidiaries or Incurred by the
Company pursuant to clause (vi) under "Limitation on Indebtedness" and (B) the
aggregate principal amount of Purchase Money Indebtedness Incurred by Restricted
Subsidiaries or Incurred by the Company pursuant to clause (vi) under
"Limitation on Indebtedness" does not at any one time outstanding exceed $30
million (such maximum permitted amount to increase by $10 million on each March
24, commencing March 24, 1999); (iii) Indebtedness Incurred (A) in the ordinary
course of business of any Restricted Subsidiary with respect to trade credit
made available to such Restricted Subsidiary in connection with the obtaining of
goods or services by such Restricted Subsidiary (including commercial letters of
credit, bankers' acceptances or accommodation Guarantees for the benefit of
trade creditors or suppliers), in each case for a period not to exceed 180 days,
in an amount not to exceed the purchase price for the goods or services for
which such credit is made available and which do not constitute obligations for
borrowed money and (B) standby letters of credit, performance bonds and surety
bonds that do not constitute obligations for borrowed money Incurred by any
Restricted Subsidiary in the ordinary course of business relating to services to
be performed by or on behalf of such Restricted Subsidiary; (iv) Indebtedness
(A) under Interest Rate Protection Agreements relating to Indebtedness permitted
hereunder entered into in the ordinary course of any Restricted Subsidiary's
financial management and not for speculative purposes; provided, however, that
the notional amount of each such Interest Rate Protection Agreement does not
exceed the principal amount of the Indebtedness to which such Interest Rate
Protection Agreement relates; or (B) under Currency Exchange Protection
Agreements entered into in the ordinary course of any Foreign Subsidiary's
financial management and not for speculative purposes; provided, however, in the
case of either clause (A) or (B), any such Interest Rate Protection Agreement or
Currency Exchange Protection Agreement, as the case may be, does not increase
the Indebtedness of such Subsidiary outstanding at any time other than as a
result of fluctuations in the interest rates or exchange rates, as the case may
be, or by reason of customary fees, indemnities and compensation payable
thereunder; (v) Indebtedness or Preferred Stock owing to and held by the Company
or any Wholly Owned Subsidiary; provided, however, that any subsequent issuance
or transfer of any Capital Stock that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
any such Indebtedness or Preferred Stock (except to the Company or a Wholly
Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of
such Indebtedness or Preferred Stock by the issuer thereof; (vi) Refinancing
Indebtedness Incurred in respect of Indebtedness Incurred pursuant to clause (i)
above; and (vii) in addition to any Indebtedness permitted by clauses (i)
through (vi) above, up to an aggregate of $10 million in principal amount of
Indebtedness of Foreign Restricted Subsidiaries at any one time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
(a) Neither the Company nor any Restricted Subsidiary will be permitted to
(i) declare or pay any dividend on, or make any distribution on or in respect
of, its Capital Stock (including any payment in connection with any merger or
consolidation involving the Company), except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock and except dividends or
distributions payable solely to the Company or any
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Restricted Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for
value any Capital Stock of the Company or any Restricted Subsidiary held by
Persons other than the Company or any Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled repayment,
scheduled sinking fund payment or other scheduled maturity, any Subordinated
Obligation or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
as a "Restricted Payment"), if at the time of and after giving effect to the
proposed Restricted Payment: (1) a Default or Event of Default has occurred and
is continuing (or would result therefrom); (2) the Company could not Incur at
least $1.00 of additional Indebtedness pursuant to clause (i) of paragraph (a)
under "Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the Board of Directors of
the Company to be evidenced by a Board Resolution furnished to the Trustee)
declared or made since the Existing Notes Issue Date, would exceed, without
duplication, the sum of: (A) an amount equal to 50% of the Consolidated Net
Income accrued during the period (treated as one accounting period) beginning on
the first day of the fiscal quarter of the Company immediately following the
fiscal quarter in which the Existing Notes Issue Date occurs and ending on the
last day of the Company's last fiscal quarter ended at least 45 days prior to
the date of such proposed Restricted Payment (or, if such Consolidated Net
Income is a deficit, minus 100% of such deficit) and minus 100% of the amount of
any write-downs, write-offs, other negative revaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period; (B) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock, including Capital Stock of the Company
issued upon conversion of convertible debt or the exercise of options, warrants
or rights to purchase Capital Stock of the Company, but excluding Disqualified
Stock, subsequent to the Existing Notes Issue Date (other than an issuance or
sale to (i) a Subsidiary of the Company, (ii) an employee stock ownership plan
or other trust established by the Company or any of its Subsidiaries or (iii)
management employees); (C) the amount by which the Indebtedness of the Company
or its Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Existing Notes Issue Date of any Indebtedness of the Company
or its Restricted Subsidiaries convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any cash or
other property distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange) and (D) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (x) payments of
dividends, repayments of loans or advances or other transfers of assets to the
Company or any Restricted Subsidiary from Unrestricted Subsidiaries or (y) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The foregoing provisions do not prohibit: (i) any purchase or redemption
of Capital Stock of the Company or Subordinated Obligations made in exchange
for, or out of the proceeds of a substantially concurrent sale of, Capital Stock
of the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee stock ownership
plan or other trust established by the Company or any of its Subsidiaries) or
out of proceeds of an equity contribution made substantially concurrently with
such purchase or redemption; provided, however, that (A) such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale will be excluded from
subclause (2) of the above paragraph; (ii) any purchase or redemption of
Subordinated Obligations made in exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company which is permitted
to be Incurred pursuant to "Limitation on Indebtedness"; provided, however, that
(A) such Indebtedness is Incurred in an aggregate principal amount (or if issued
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate sum of (1) the aggregate principal amount (or if issued with
original issue discount, the
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aggregate accreted value) then outstanding of such Subordinated Obligations
being so purchased or redeemed and (2) any premiums, fees and other expenses
paid by the Company or any Restricted Subsidiary in connection with such
purchase or redemption, (B) such Indebtedness is at least as subordinated to the
Notes as such Subordinated Obligations so purchased or redeemed and the
covenants relating to such Indebtedness are no more restrictive in the aggregate
than those of such Subordinated Obligations, (C) such Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of such Subordinated Obligations,
(D) such Indebtedness has an Average Life at the time such Indebtedness is
Incurred equal to or greater than the Average Life of such Subordinated
Obligations and (E) such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments; (iii) any payment in cash in
lieu of the issuance of fractional shares of Capital Stock to any holder of
Capital Stock warrants of the Company outstanding on the Existing Notes Issue
Date pursuant to the exchange of such warrants for other Capital Stock of the
Company upon the exercise of such warrants pursuant to the terms thereof;
provided, however, that such payment will be excluded in the calculation of the
amount of Restricted Payments; (iv) dividends paid within 60 days after the date
of declaration thereof if at such date of declaration such dividend would have
complied with the above first paragraph of this section; provided, however, that
(A) at the time of payment of such dividend, no other Default has occurred and
is continuing (or would result therefrom) and (B) such dividend will be included
in the calculation of the amount of Restricted Payments from and after the date
of declaration of such dividend; or (v) so long as no Default or Event of
Default has occurred and is continuing or would occur as a consequence thereof,
the redemption or repurchase of Capital Stock of the Company, options in respect
thereof or related rights pursuant to and in accordance with the repurchase
provisions of any employee stock option or any stock purchase or other agreement
between the Company and any of its management employees; provided, however, that
such redemptions or repurchases pursuant to this clause (v) from and after the
Existing Notes Issue Date will not in the aggregate exceed $1 million, plus the
amount of any net cash proceeds to the Company from sales of Capital Stock of
the Company to management employees subsequent to the Existing Notes Issue Date.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
Neither the Company nor any Restricted Subsidiary will be permitted to
create or otherwise cause or permit to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distributions on or in respect to its Capital Stock to the
Company or any Restricted Subsidiary or pay any Indebtedness owed to the Company
or any Restricted Subsidiary, (ii) make loans or advances to the Company or
(iii) transfer any of its property or assets to the Company or any Restricted
Subsidiary, except for (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, (b) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary became a Subsidiary of, or was
acquired by, the Company (other than Indebtedness Incurred as consideration in,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary of, or was acquired by, the
Company) and outstanding on such date, (c) any encumbrance or restriction
pursuant to an agreement relating to an acquisition of property, so long as the
encumbrances or restrictions in such agreement relate solely to the property so
acquired, (d) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (a), (b) or (c) hereof or contained in any amendment to any such
agreement; provided, however, that any encumbrance and any restriction contained
in any such refinancing agreement or amendment is no less favorable to the
Holders of the Notes than any encumbrance or restriction contained in such
agreement, and (e) in the case of clause (iii), certain encumbrances or
restrictions that do not, individually or in the aggregate, detract from the
value of property or assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any such Restricted Subsidiary.
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LIMITATION ON SALES OF ASSETS AND RESTRICTED SUBSIDIARY STOCK
The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Disposition (other than the Dispositions) unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Disposition at least equal to the Fair Market Value of the
shares, property and assets subject to such Asset Disposition, (ii) at least 75%
of such consideration (or, in the event of any Asset Disposition of all or any
portion of the Company's Magnetics Division or a Foreign Restricted Subsidiary,
at least 50% of such consideration) consists of cash, Temporary Cash Investments
or the assumption of Senior Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability under such Senior Indebtedness, (iii) in connection with any Asset
Disposition with an aggregate consideration greater than $10 million, the
Company delivers an Officer's Certificate to the Trustee certifying that such
Asset Disposition complies with clauses (i) and (ii) and that such Asset
Disposition was approved by a majority of the disinterested members of the Board
of Directors of Company, as evidenced by a resolution of the Board delivered to
the Trustee and (iv) 100% of the Net Cash Proceeds of such Asset Disposition are
applied as follows: (A) within 365 days after the receipt of any Net Cash
Proceeds (the last day of such period, an "Application Date"), the Company or
Restricted Subsidiary, as the case may be, may apply all or a portion of such
Net Cash Proceeds to prepay, repay, redeem or purchase Indebtedness of the
Company under the Existing Credit Facility or the Credit Facility the
reinvestment (whether by acquisition of an existing business or expansion,
including, without limitation, capital expenditures) in one or more Permitted
Lines of Business, or any combination thereof, (B) to the extent any or all of
such Net Cash Proceeds are not applied as set forth above in clause (A), to
purchase Existing Notes tendered to the Company in connection with an offer made
to purchase such Existing Notes following an Asset Disposition, and (C) to the
extent any or all of such Net Cash Proceeds are not applied as set forth above
in clause (A) and clause (B), the Company will apply all remaining Net Cash
Proceeds of such Asset Disposition (the "Asset Disposition Purchase Amount") to
an offer to purchase (an "Asset Disposition Purchase Offer") Notes, on the first
business day occurring 60 business days after the Application Date (the "Asset
Disposition Purchase Date") for cash at a purchase price (such price, the "Asset
Disposition Purchase Price") equal to 100% of the principal amount of the Notes
so purchased plus accrued and unpaid interest thereon to the Asset Disposition
Purchase Date, in accordance with the procedures set forth in the Indenture. Any
such Net Cash Proceeds which remain after the acquisition by the Company of
Notes tendered (and not withdrawn) by holders of Notes pursuant to such Asset
Disposition Purchase Offer in accordance with the procedures (including
proration in the event of oversubscription) set forth in the Indenture cease to
be Net Cash Proceeds. Notwithstanding the foregoing, the Company will not be
required to make an Asset Disposition Purchase Offer until such time as the
aggregate amount of Net Cash Proceeds from Asset Dispositions required to be so
applied to the purchase of Notes exceeds $10 million (the "Asset Disposition
Trigger"), and then the total amount of such Net Cash Proceeds is required to be
applied to an Asset Disposition Offer.
Within 30 business days of the occurrence of an Asset Disposition Trigger,
(i) the Company will notify the Trustee in writing of the occurrence of the
Asset Disposition Trigger and will make the Asset Disposition Purchase Offer to
purchase Notes in an aggregate principal amount equal to the Asset Disposition
Purchase Amount at the Asset Disposition Purchase Price on or before Asset
Disposition Purchase Date, (ii) the Company will mail a copy of the Asset
Disposition Purchase Offer to each Holder of the Notes and (iii) the Company
will cause a notice of the Asset Disposition Purchase Offer to be sent to the
Dow Jones News Service or similar business news service in the United States.
The Asset Disposition Purchase Offer will remain open from the time such offer
is made until the Asset Disposition Purchase Date. The Company will purchase all
Notes properly tendered pursuant to the Asset Disposition Purchase Offer and not
withdrawn in accordance with the procedures set forth in the Asset Disposition
Purchase Notice (as defined in the Indenture). The Asset Disposition Purchase
Offer will state, among other things, the procedures that Holders of the Notes
must follow to accept the Asset Disposition Purchase Offer.
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LIMITATION ON LIENS
Neither the Company nor any Restricted Subsidiary will be permitted to
create or permit to exist any lien directly or indirectly (other than Permitted
Liens) on any of its property or assets (including Capital Stock), whether owned
on the Issue Date or thereafter acquired, or any right, title or interest
thereto, unless the Company or such Restricted Subsidiary will secure all
payments hereunder and under the Notes on an equal and ratable basis with the
obligation so secured until such time as such obligation is no longer secured by
a Lien.
PROHIBITION ON LAYERING
Neither the Company nor any Restricted Subsidiary will Incur or suffer to
exist any Indebtedness that is expressly subordinate in right of payment to any
Senior Indebtedness and senior in right of payment to the Notes.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
Neither the Company nor any Restricted Subsidiary will be permitted to
conduct any business, enter into or permit to exist any transaction (including,
without limitation, the sale, conveyance, disposition, purchase, exchange or
lease of any property, the lending, borrowing or advancing of any money or the
rendering of any services) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless (i) the terms of such Affiliate
Transaction are in writing, (ii) such Affiliate Transaction is in the best
interest of the Company or such Restricted Subsidiary, as the case may be, (iii)
such Affiliate Transaction is on terms as favorable to the Company or such
Restricted Subsidiary, as the case may be, as those that could be obtained at
the time of such Affiliate Transaction for a similar transaction in arm's-length
dealings with a Person who is not such an Affiliate and (iv) with respect to
each Affiliate Transaction involving aggregate payments or value in excess of
$500,000, such Affiliate Transaction was approved by a majority of the Board of
Directors of the Company, including a majority of the disinterested members of
such Board, provided, however, that the foregoing does not prohibit (A) any
Restricted Payment permitted to be paid as described above under "Limitation on
Restricted Payments", (B) any issuance of securities or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directories of the Company, (C) loans or advances permitted under the
Indenture to employees in the ordinary course of business in accordance with
past practices of the Company, (D) the payment of reasonable fees to directors
of the Company and its Restricted Subsidiaries who are not employees of the
Company or any Restricted Subsidiary, (E) any transaction between the Company
and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries or (F)
reasonable and customary indemnification arrangements between the Company or any
Restricted Subsidiary and their respective directors and officers (to the extent
that such indemnification arrangements are permitted under applicable law).
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit (i) any Restricted Subsidiary to issue any
Capital Stock other than to the Company or a Wholly Owned Subsidiary; or (ii)
any Person (other than the Company or a Wholly Owned Subsidiary) to, directly or
indirectly, own or control any Capital Stock of any Restricted Subsidiary (other
than directors' qualifying shares); provided, however, that clauses (i) and (ii)
will not prohibit (a) any sale of 100% of the shares of the Capital Stock of any
Restricted Subsidiary owned by the Company or any Wholly Owned Subsidiary
effected in accordance with "Limitation on Sales of Assets and Restricted
Subsidiary Stock" or (b) any issuance of Preferred Stock of a Restricted
Subsidiary to any Person permitted under "Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock."
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LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, Guarantee or otherwise become liable with
respect to any Sale/Leaseback Transaction with respect to any property or assets
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be entitled to pursuant to the Indenture to Incur Indebtedness secured by a
Permitted Lien on such property or assets in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, (ii) the Net Cash
Proceeds from such Sale/Leaseback Transaction are at least equal to the Fair
Market Value of the property or assets subject to such Sale/Leaseback
Transaction (such Fair Market Value determined, in the event such property or
assets have a Fair Market Value in excess of $2 million, no more than 30 days
prior to the effective date of such Sale/Leaseback Transaction, by the Board of
Directors of the Company, including a majority of the disinterested members of
such Board, as evidenced by a resolution of such Board) and (iii) the net cash
proceeds of such Sale/Leaseback Transaction are applied in accordance with the
provisions described under "Limitation on Sales of Assets and Restricted
Subsidiary Stock."
LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not, and the Company will not permit any Restricted
Subsidiary to, enter into any transaction or series of transactions to
consolidate, amalgamate or merge with or into any other Person (other than the
merger of a Wholly Owned Subsidiary (i) with another Wholly Owned Subsidiary or
(ii) into the Company), or directly or indirectly through its Subsidiaries sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
its property and assets to any Person (other than to one or more Wholly Owned
Subsidiaries or to the Company) unless (i) if the Company is a party to such
transaction and is not the surviving entity (the "Surviving Entity"), the Person
formed by such consolidation or amalgamation or into which the Company is merged
or that acquires, by sale, conveyance, assignment, transfer, lease or other
disposition, all or substantially all the properties and assets of the Company
as an entirety, shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
shall expressly assume (a) by a supplemental indenture executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of the
Company pursuant to the Notes and the Indenture and (b) by written instruments
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under any agreements entered into by the Company
pursuant to the Limitation on Liens covenant; (ii) the Surviving Entity, if any
Restricted Subsidiary is a party to such transaction and is not the Surviving
Entity, shall by written instruments executed and delivered to the Trustee, in
form satisfactory to the Trustee, expressly assume all the obligations of such
Restricted Subsidiary under any agreements entered into by such Restricted
Subsidiary pursuant to the Limitation on Liens covenant; (iii) immediately
before and after giving effect to such transaction or series of transactions on
a pro forma basis (and treating any Indebtedness which becomes an obligation of
the Company, the Surviving Entity or any Restricted Subsidiary as a result of
such transaction or series of transactions as having been Incurred by the
Company, such Surviving Entity or such Restricted Subsidiary at the time of such
transaction or series of transactions) no Default or Event of Default shall have
occurred and be continuing; (iv) immediately after giving effect to such
transaction or series or transactions on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the Company, the Surviving Entity or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been incurred by the Company, such Surviving Entity or
such Restricted Subsidiary at the time of such transaction or series of
transactions), the Company or the Surviving Entity, as the case may be, could
Incur at least $1.00 of additional Indebtedness pursuant to clause (ii)(A) of
paragraph (a) under "--Certain Covenants--Limitation on Indebtedness"; (v)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (and treating any Indebtedness which becomes an obligation of
the Company, the Surviving Entity or any Restricted Subsidiary as a result of
such transaction or series of transactions as having been Incurred by the
Company, such Surviving Entity or such Restricted Subsidiary at the time of such
transaction or series of
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transactions), the Company or the Surviving Entity, as the case may be, shall
have a Consolidated Tangible Net Worth which is not less than the Consolidated
Tangible Net Worth of the Company immediately prior to such transaction or
transactions; and (vi) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating (A) that such
consolidation, amalgamation, merger or transfer and such supplemental indenture
(if any) and written instrument (if any) comply with this Indenture and (B) that
upon execution and delivery of such supplemental indenture or written instrument
the Company or such Surviving Entity shall be bound by the terms of the
Indenture as thereby amended and the Indenture as thereby amended shall be
enforceable against the Company or such Surviving Entity in accordance with its
terms.
Upon any transaction involving the Company in which the Company is not the
Surviving Entity, such Surviving Entity shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture, but the Company in the case of a transfer or lease shall not be
released from the obligation to pay the principal of, and premium, if any, or
interest on, the Notes.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Subsidiary of the Company or any
Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary to
be so designated does not own any Capital Stock, Redeemable Stock or
Indebtedness of, or own or hold any Lien on any property or assets of, the
Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated by any Indebtedness or Lien that, if in default,
would result (with the passage of time or notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary, and (iii) either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
such designation is effective immediately upon such Person becoming a Subsidiary
of the Company or of a Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
any Restricted Subsidiary will be classified as a Restricted Subsidiary. Except
as provided in the first sentence of this paragraph, no Restricted Subsidiary
may be redesignated as an Unrestricted Subsidiary. Subject to the following
paragraph, an Unrestricted Subsidiary may not be redesignated as a Restricted
Subsidiary.
The Company will not, and will not permit any Restricted Subsidiary to, take
any action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless after giving effect to such action, transaction or series of
transactions, on a pro forma basis, (i) the Company could Incur at least $1.00
of additional Indebtedness pursuant to clause (ii)(A) of paragraph (a) under
"--Certain Covenants--Limitation on Indebtedness", (ii) such Restricted
Subsidiary could then Incur under "--Certain Covenants--Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock" all Indebtedness as to which it is
obligated at such time, (iii) no Default or Event of Default would occur or be
continuing and (iv) there exist no Liens with respect to the property or assets
of such Restricted Subsidiary other than Permitted Liens.
EVENTS OF DEFAULT
An "Event of Default" will occur under the Indenture if (i) the Company
fails to make any payment of interest on any Note when the same is due and
payable, and such failure continues for a period of 30 days; (ii) the Company
(A) fails to make the payment of the principal of, or premium, if any, on, any
Note when the same becomes due and payable at its Stated Maturity, upon
acceleration, redemption or declaration, or otherwise or (B) fails to redeem or
purchase Notes when and to the extent required pursuant to the Indenture or the
Notes; (iii) the Company fails to comply with any of the requirements described
under Limitations on Merger, Consolidation or Sale of Assets in the Indenture;
(iv) the Company fails to comply with any of its covenants or agreements
described under "--Additional Information," "--Change of Control," or "--Certain
Covenants--Limitation on Indebtedness," "--Limitation on Restricted Subsidiary
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Indebtedness and Preferred Stock," "--Limitation on Restricted Payments,"
"--Limitation Transactions with Affiliates," "--Limitation on Liens,"
"--Limitation on Restrictions on Distributions from Restricted Subsidiaries,"
"--Limitation on Sales of Assets and Restricted Subsidiary Stock," "--Limitation
on Sale/ Leaseback Transactions" or "--Limitation on Issuance and Sale of
Capital Stock of Restricted Subsidiaries" and such failure continues for 30 days
after the notice specified below, or the Company fails to give the notice
specified below; (v) the Company fails to comply with any of its agreements in
the Notes or the Indenture (other than those specified in clauses (i), (ii),
(iii) and (iv) above) and such failure continues for a period of 60 days after
the notice specified below or the Company fails to give the notice specified
below; (vi) principal of or interest on any Indebtedness of the Company or any
Restricted Subsidiary is not paid when due within any applicable grace period
after final maturity or is accelerated by the holders thereof, if the total
amount of such Indebtedness unpaid or accelerated or exceeds $7.5 million or its
Dollar Equivalent at the time; (vii) one or more judgments or decrees
aggregating in excess of $7.5 million or its Dollar Equivalent at the time is
rendered against the Company or any Restricted Subsidiary and is not discharged
and either: (A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree; or (B) there is a period of 60 days following the
entry of such judgment or decree during which such judgment or decree is not
discharged, waived or the execution thereof stayed; (viii) the Company or any
Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case; (B) consents to the entry of an order for relief
against it in an involuntary case; (C) consents to the appointment of a
Custodian of it or for any substantial part of its property; or (D) makes a
general assignment for the benefit of its creditors; or takes any comparable
action under any foreign laws relating to insolvency; or (ix) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted Subsidiary in an
involuntary case; (B) appoints a Custodian of the Company or any Restricted
Subsidiary or for any substantial part of its property; or (C) orders the
winding up or liquidation of the Company or any Restricted Subsidiary; or any
similar relief is granted under any foreign laws and the order or decree remains
unstated and in effect for 60 days.
A Default under clause (iv) or (v) above will not be an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
Notes notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default."
The Company will deliver to the Trustee, within 30 days after the occurrence
thereof, written notice in the form of an Officers' Certificate of any event
which, with the giving of notice and the lapse of time, would become an Event of
Default under clause (iv), (v), (vi) or (vii) above, its status and what action
the Company is taking or proposes to take with respect thereto.
If an Event of Default (other than an Event of Default specified in clause
(viii) or (ix) under "--Events of Default") occurs and is continuing, the
Trustee by notice to the Company, or the holders of at least 25% in principal
amount of the Notes by notice to the Trustee, may declare the principal of and
accrued interest on all the Notes to be due and payable. Upon such declaration,
such principal and interest will be due and payable immediately. If an Event of
Default specified in clause (viii) or (ix) under "--Events of Default" occurs,
the principal of and interest on all the Notes will become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of Notes. The holders of a majority in principal amount of the Notes by
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
will affect any subsequent Default or impair any right consequent thereto.
A holder of Notes may not pursue any remedy with respect to the Indenture or
the Notes unless: (i) such holder gives to the Trustee written notice stating
that an Event of Default is continuing; (ii) holders of at least 25% in
principal amount of the Notes make a written request to the Trustee to pursue
the
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remedy; (iii) such holder or holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of security or indemnity; and (v) the holders of a majority in principal
amount of the Notes do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A holder of a Note may not use the Indenture to prejudice the rights of
another holder of the Notes or to obtain preference or priority over another
holder of the Notes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
without notice to any holder with the written consent of the holders of at least
a majority in principal amount of the Notes. However, without the consent of
each holder affected, no amendment may, among other things, (i) reduce the
percentage of principal amount of Notes whose holders must consent to an
amendment or waiver, (ii) reduce the rate of or extend the time for payment of
interest on any Notes, (iii) reduce the principal of or extend the Stated
Maturity of any Notes, (iv) reduce the premium payable upon the redemption of
any Note or change the time or times at which any Notes may be redeemed, (v)
make any Note payable in money other than that stated in the Notes, (vi) impair
the right of any holder of Notes to institute suit for the enforcement of any
payment on or with respect to any Notes, or (vii) make any change in certain
waiver or payment provisions of the Indenture or the second sentence of this
paragraph.
Without notice to or the consent of any holder of the Notes, the Company and
the Trustee may, among other things, amend or supplement the Indenture to cure
any ambiguity, omission, defect or inconsistency; to provide for the assumption
by a successor company to the obligations of the Company under the Indenture; to
provide for uncertificated Notes in addition to or in place of certificated
Notes, provided, however, that the uncertificated Notes are issued in registered
form under the Code; to add Guarantees with respect to the Notes or to secure
the Notes; to add to the covenants of the Company for the benefit of the holders
of the Notes or to surrender any right or power conferred upon the Company; to
make any change that does not adversely affect the rights of any holder of the
Notes or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act or to provide for
the acceptance of appointment hereunder by a successor Trustee.
DEFEASANCE
The Company at any time may terminate all of its obligations under, and with
respect to, the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Company at any time may terminate, among other things, its
obligations under the covenants described under "Certain Covenants" and "Change
of Control" above, and with respect to Restricted Subsidiaries, the operation of
the cross acceleration provision, certain of the bankruptcy provisions, and the
judgment default provision described under "--Events of Default" above and
certain limitations under "Merger, Consolidation or Sale of Assets" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (vi), (vii) or (viii) (except with respect
to the Company) under "Events of Default" above or because of the failure of the
Company to comply with, among other things, the covenants described under
"Certain Covenants" or "Change of Control" or with certain limitations under
"Merger, Consolidation or Sale of Assets" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal,
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and interest on the Notes to redemption or maturity, as the case may be, and
must comply with certain other conditions, including delivering to the Trustee
an Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect (except as otherwise
expressly provided for in the Indenture) when either (i) all outstanding Notes
have been delivered (other than lost, stolen or destroyed Notes which have been
replaced) to the Trustee for cancellation or (ii) all outstanding Notes have
become due and payable, whether at maturity or as a result of the mailing of a
notice of redemption pursuant to the terms of the Indenture and the Company has
irrevocably deposited with the Trustee funds sufficient to pay at maturity or
upon redemption all outstanding Notes, including interest thereon (other than
lost, stolen, mutilated or destroyed Notes which have been replaced), and, in
either case, the Company has paid all other sums payable under the Indenture.
The Trustee is required to acknowledge satisfaction and discharge of the
Indenture on demand of the Company accompanied by an Officer's Certificate and
an Opinion of Counsel at the cost and expense of the Company.
TRANSFER AND EXCHANGE
Upon any transfer of a Note, the registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The registrar
is not required to transfer or exchange any Notes selected for redemption nor is
the registrar required to transfer or exchange any Notes for a period of 15 days
before a selection of Notes to be redeemed. The registered holder of a Note may
be treated as the owner of it for all purposes.
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture. The
Trustee's current address is One State Street, New York, New York 10004.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
ADDITIONAL INFORMATION
So long as any Notes are outstanding, the Company will furnish to the
Trustee and the holders of Notes within 15 days after the Company files them
with the Commission all quarterly and annual reports that the Company is
required to file with the Commission under the Exchange Act. In the event that
the Company is not at the time required to file such reports with the Commission
pursuant to the Exchange Act, the Company shall nevertheless continue to file
such reports with the Commission and furnish them to holders of the Notes as if
the Company were so required. The Company will also comply with the other
provisions of Section314(a) of the Trust Indenture Act.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
The following definitions, among others, are used in the Indenture.
Prospective purchasers of Notes are encouraged to read each of the following
definitions carefully and to consider such definitions in the context in which
they are used in the Senior Secured Indenture.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, each Unrestricted Subsidiary shall be deemed an
Affiliate of the Company and of each other Subsidiary of the Company.
"Asset Disposition" means any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or dispositions) of shares of Capital Stock of any Restricted
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction), other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of the Company's or
any Restricted Subsidiary's accounts receivable, lease receivables or inventory
(other than the disposition of inventory pursuant to a Sale/ Leaseback
Transaction) at Fair Market Value in the Ordinary Course of Business, (iii) a
disposition of property or assets, whether in a single transaction or a series
of related transactions which constitute a single plan of disposition, that have
an aggregate Fair Market Value not in excess of $250,000, (iv) an operating
lease entered into in the ordinary course of business with respect to property,
plant or equipment that in the judgment of the Board of Directors constitutes
excess capacity or (v) a "like-kind exchange" of an asset in exchange for an
asset of a third party, so long as, in the judgment of the Company's Board of
Directors, the asset received by the Company or such Restricted Subsidiary in
such exchange (x) has a Fair Market Value at least equal to the Fair Market
Value of the asset transferred by the Company or such Restricted Subsidiary and
(y) is usable in a Permitted Line of Business to at least the same extent as the
asset transferred by the Company or such Restricted Subsidiary. An Asset
Disposition will include the requisition of title to, seizure of or forfeiture
of any property or assets, or any actual or constructive total loss or an agreed
or compromised total loss of any property or assets. The term "Asset
Disposition" when used with respect to the Company will not include any
disposition pursuant to provisions in the Indenture which constitutes a
disposition of all or substantially all the assets of the Company.
"Attributable Indebtedness", in respect of a Sale/Leaseback Transaction,
means, as at the time of determination, the greater of (i) the Fair Market Value
of the property subject to such Sale/Leaseback Transaction (as determined in
good faith by the Board of Directors) or (ii) the present value (discounted at
the interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
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redemption of similar payment with respect to such Preferred Stock and (b) the
amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" means title 11 of the United States Code, or any similar
Federal or state law for the relief of debtors.
"Board" or "Board of Directors" means the Board of Directors of the Company
or any committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP; the amount of Indebtedness represented by such
obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
(including partnership interests) in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Commodity Price Protection Agreement" means, in respect of a Person, any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Coverage Ratio" means, as of any date of determination, the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period is to be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary has made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, or both, EBITDA for such period will be reduced by an
amount equal to EBITDA (if positive) directly attributable to the property or
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such period will
be reduced by an amount equal to Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and the continuing Restricted Subsidiaries in connection with such Asset
Dispositions for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and the continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) has made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period will be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that
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subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) has
made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period will be calculated after giving pro forma effect thereto
as if such Asset Disposition or Investment occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations will
be determined in good faith by a responsible financial or accounting officer of
the Company and as further contemplated by the definition of pro forma. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness is calculated as if the rate
in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the sum of (i) the
total cash and noncash interest expense of the Company and its consolidated
Subsidiaries, plus, to the extent not included in such interest expense, (A)
interest expense attributable to Capital Lease Obligations, (B) amortization of
debt discount and debt issuance cost, (C) capitalized interest, (D) accrued
interest, (E) commissions, discounts and other fees and charges paid or owed
with respect to letters of credit and bankers' acceptance financing, (F)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (G) net costs
associated with Hedging Obligations (including amortization of discounts and
fees), (H) the interest portion of any deferred obligation, (I) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries of the Company and
Redeemable Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary and (J) cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there will be excluded from this clause (i), (x) any
such interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary and (y) any such interest expense attributable to original issue
discount as a result of Fresh Start Accounting adjustments), less (ii) to the
extent included in clause (i), amortization or write-off of deferred financing
costs of the Company and its consolidated Subsidiaries during such period and
any charge related to any premium or penalty paid in connection with redeeming
or retiring any Indebtedness of the Company and its consolidated Subsidiaries
prior to its Stated Maturity.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries for such period determined in
accordance with GAAP but excluding for such purpose the impact of any Fresh
Start Accounting adjustment; provided, however, that there will be excluded
therefrom (i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
clause (iv) below, the Company's equity in the net income of any such Person for
such period will be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iii) below) and (B) the Company's equity in
a net loss of any such Person (other than an Unrestricted Subsidiary) for such
period will be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition, (iii) any net income (loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any
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such Restricted Subsidiary for such period will be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary for
such period will be included in determining such Consolidated Net Income, (iv)
any gain (but not loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/ Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business, (v) any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person, (vi) any extraordinary gain or loss, (vii) the cumulative effect of any
change in accounting principles and (viii) any non-recurring restructuring
charges for any fiscal quarter in the fiscal year of the Company commencing
October 1, 1995.
"Consolidated Tangible Net Worth" means the amount by which (i) the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (x) the par or stated value of all outstanding Capital Stock of
the Company plus (y) paid-in capital or capital surplus relating to such Capital
Stock plus (z) any retained earnings or earned surplus exceeds (ii) the sum of
(A) any accumulated deficit, (B) any amounts attributable to Disqualified Stock,
(C) the amounts appearing on the assets side of such balance sheet for all
contracts, patents, trademarks, copyrights and other intellectual property
rights, franchises, licenses, goodwill, treasury stock, unamortized debt
discount and expense and similar intangibles, (D) any increase in the amount of
capitalized research and development and capitalized interest subsequent to the
Issue Date, and (E) the amount of any write-up subsequent to the Issue Date in
the book value of any asset owned on the Issue Date resulting from the
revaluation thereof subsequent to such date, or any write-up in excess of the
cost of any asset acquired subsequent to that date.
"Credit Facility" means the Revolving Credit Agreement to be entered into by
the Company and the various financial institutions named therein, as the same
may be amended, restated, supplemented or otherwise modified from time to time,
and includes any agreement renewing, refinancing or replacing all or any portion
of the Indebtedness thereunder.
"Currency Exchange Protection Agreement" means, in respect of any Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in foreign currency exchange rates.
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Dispositions" means the sale of the DPDS Business and the DAS Business as
each such term is defined in this Prospectus.
"Disqualified Stock" of a Person means Redeemable Stock of such Person as to
which the maturity, mandatory redemption, conversion or exchange or redemption
at the option of the holder thereof occurs, or may occur, on or prior to the
first anniversary of the Stated Maturity of the Notes.
"Dollar Equivalent" means, with respect to any monetary amount in a currency
other than U.S. dollars, at any time for the determination thereof, the amount
of U.S. dollars obtained by converting such foreign currency involved in such
computation into U.S. dollars at the spot rate for the purchase of U.S. dollars
with the applicable foreign currency as quoted by Citibank, N.A. in New York
City at approximately 11:00 a.m. (New York time) on the date two business days
prior to such determination.
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"EBITDA" means, for any period, the Consolidated Net Income for such period,
plus, to the extent deducted in calculating such Consolidated Net Income, (i)
income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) any charge related to any premium or
penalty paid in connection with redeeming or retiring any Indebtedness prior to
its Stated Maturity, in each case for such period.
"Existing Credit Facility" means the Credit and Guarantee Agreement dated as
of February 28, 1997 among the Company and the other parties thereto, as the
same may be amended, restated, supplemented or otherwise modified from time to
time, and includes any agreement renewing, refinancing or replacing all or any
portion of the Indebtedness thereunder.
"Existing Indenture" means the Indenture, dated as of March 24, 1997,
between the Company and IBJ Schroder Bank & Trust, as trustee, as the same may
be amended, restated, supplemented or otherwise modified from time to time, and
includes any agreement renewing, refinancing or replacing all or any portion of
the Indebtedness under such agreement.
"Existing Notes" means the 10 7/8% Senior Subordinated Notes due 2004,
Series B issued by the Company pursuant to the Existing Indenture.
"Existing Notes Issue Date" means the date on which the Existing Notes were
issued which date was March 24, 1997.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction; provided, that the foregoing
does not prohibit sales of inventory at a discount or on terms which are typical
in the industry to which such inventory relates. Fair Market Value is
determined, except as otherwise provided herein, (i) if such property or asset
has a Fair Market Value less than $5 million, by two officers of the Company in
an Officers' Certificate delivered to the Trustee or (ii) if such property or
asset has a Fair Market Value in excess of $5 million, by the Board of Directors
as a whole and evidenced by a resolution, dated within 30 days of the relevant
transaction, of such Board delivered to the Trustee.
"Foreign Restricted Subsidiary" means, any Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America, any
State thereof or the District of Columbia.
"Fresh Start Accounting" means Fresh Start Accounting as described in
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" (Am. Inst. of Certified Public Accountants 1990), as
then in effect, or any comparable statement then in effect.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" does not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
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"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement, Commodity Price Protection
Agreement or Currency Exchange Protection Agreement or other similar agreement
or arrangement.
"Incur" means to, directly or indirectly, create, issue, assume, Guarantee,
incur (by conversion, exchange or otherwise), extend, assume, or otherwise
become liable for, contingently or otherwise; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) will be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary. The terms "Incurrence," "Incurred" and "Incurring" each
have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all Capital Lease
Obligations and all Attributable Indebtedness of such Person; (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (A) Trade Payables and (B) any obligation to pay
any portion of such purchase price that becomes due only if the earnings
attributable to such property or services satisfy predetermined minimum amounts
subsequent to the purchase of such property or services and the amount of such
obligation cannot be determined on the date of such purchase); (v) all
obligations of such Person in respect of letters of credit, banker's acceptances
or other similar instruments or credit transactions (including reimbursement
obligations with respect thereto), other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iv) above) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on any such letter of credit; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided,
however, that the amount of such Indebtedness is the lesser of (A) the Fair
Market Value of such asset at such date of determination and (B) the amount of
such Indebtedness of such other Persons; (viii) all Indebtedness of other
Persons to the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in the definition, obligations of such Person in respect of
Hedging Obligations. For purposes of this definition, the maximum fixed
redemption, repayment or repurchase price of any Disqualified Stock or Preferred
Stock that does not have a fixed redemption, repayment or repurchase price is
calculated in accordance with the terms of such stock as if such stock were
redeemed, repaid or repurchased on any date on which Indebtedness is required to
be determined pursuant to the Indenture; provided, however, that if such stock
is not then permitted to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price is the book value of such stock as reflected in
the most recent financial statements of such Person. The amount of Indebtedness
of any Person at any date is the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Interest Rate Protection Agreement" means, in respect of any Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or
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capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of others)
such Person, or any purchase or acquisition of all or substantially all the
business or assets of, Capital Stock, Indebtedness, any other evidence of
beneficial ownership or other similar instruments issued by, such Person. For
purposes of "--Certain Covenants-- Limitation on Restricted Payments" and
"--Certain Covenants--Restricted and Unrestricted Subsidiaries", (i) the term
"Investment" includes the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the Fair Market Value of the net assets
of such Subsidiary at the time that such Subsidiary is so redesignated as a
Restricted Subsidiary; and (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at its Fair Market Value at the time of
such transfer. In determining the amount of any Investment in respect of any
property or asset other than cash, such property or asset will be valued at its
Fair Market Value at the time of such Investment (unless otherwise specified in
this definition).
"Issue Date" means the first date on which the Notes will be issued pursuant
to the Indenture.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, preference, priority, security interest, encumbrance,
easement, restriction, covenant, right-of-way, servitude, lien (statutory or
otherwise), charge, other security or similar agreement or preferential
arrangement of any kind or nature whatsoever or other adverse claim of any kind
or nature (including, without limitation, any conditional sale or other title
retention agreement or lease having substantially the same economic effect of
any of the foregoing).
"Magnetics Division" means the property and assets of the Company or any
Restricted Subsidiary used in connection with the manufacture, marketing and
sale of magnetic tape, computer tape or other magnetic products.
"Net Cash Proceeds" from an Asset Disposition means the sum of (i) cash
payments and Temporary Cash Investments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom and (ii)
the Fair Market Value of all securities issued to the Company or a Subsidiary of
the Company in connection therewith, in each case net of (A) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP as a consequence of such Asset Disposition,
(B) all payments made on any Indebtedness which is secured by any property or
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such property or assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (C) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition and (D) the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition; provided, that, in the event
that any consideration for such Asset Disposition (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) will become Net Cash Proceeds only at
such time as it is released to the Company or any Restricted Subsidiary from
escrow; provided, further, that any non-cash consideration received in
connection with such Asset Disposition, which is subsequently converted to
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cash, is deemed to be Net Cash Proceeds at such time and is thereafter be
applied in accordance with " -- Certain Covenants--Limitation on Sales of Assets
and Restricted Subsidiary Stock." The term "Net Cash Proceeds" from an issuance
or sale of Capital Stock means the cash proceeds of such issuance or sale, net
of attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Administrative Officer, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers at least
one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company.
"Opinion of Counsel" means a written opinion, in form acceptable to the
Trustee, from legal counsel who is acceptable to the Trustee. The counsel may be
an employee of or counsel to the Company or the Trustee.
"Ordinary Course of Business" means sales or assignments of inventory or
accounts receivable or the performance of services at Fair Market Value or the
collection of accounts receivable in the ordinary course of business and does
not include any sale, assignment or collection after the voluntary or
involuntary bankruptcy of the Company, including, without limitation, those
events of the type described in "--Events of Default." The ordinary course of
business includes (i) sales of inventory to customers, (ii) returns of
merchandise to manufacturers or distributors for refunds of merchandise to
manufacturers or distributors for refunds or credit and (iii) exchanges of
inventory with manufacturers or distributors for other inventory.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary (including any Person which will
become a Wholly Owned Subsidiary as a result of such Investment) or any Person
that is merged or consolidated with or into, or transfers or conveys all or
substantially all of its business or assets to, the Company or any Wholly Owned
Subsidiary at the time such Investment is made; (ii) Temporary Cash Investments;
(iii) receivables owing to the Company or such Restricted Subsidiary, if created
or acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that nothing in this
paragraph limits in any way the ability of the Company or such Restricted
Subsidiary to settle, compromise or otherwise deal with such receivables in the
ordinary course of business; (iv) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (v) loans or advances, in an aggregate principal amount of $6 million
outstanding from time to time, to employees of the Company or such Restricted
Subsidiary made in the ordinary course of business consistent with past
practices of the Company or such Restricted Subsidiary, as the case may be; (vi)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or such Restricted
Subsidiary or in satisfaction of judgments; (vii) joint ventures, whether in the
form of cash or through a contribution of assets (the nature of which, if other
than cash, to be determined in good faith by the Board of Directors of the
Company, whose determination will be evidenced by a Board Resolution delivered
to the Trustee) in an amount not to exceed $10 million at any one time; (viii)
any other property, asset or Person if made pursuant to any written agreement of
the Company or such Restricted Subsidiary in effect on the Issue Date; and (ix)
Investments made as a result of the receipt of non-cash consideration from an
Asset Disposition that was made pursuant to and in compliance with "--Certain
Covenants-- Limitation on Sales of Assets and Restricted Subsidiary Stock" or a
disposition of assets pursuant to and in compliance with Limitations on Merger,
Consolidation or Sale of Assets provisions in the Indenture.
"Permitted Liens" means: (i) pledges or deposits by the Company or any
Restricted Subsidiary under workmen's compensation laws, unemployment insurance
laws, other types of social security benefits or
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similar legislation, or good faith deposits in connection with bids, tenders or
contracts (other than for the payment of Indebtedness ) or leases to which the
Company or any Restricted Subsidiary is a party, or deposits to secure public or
statutory obligations or deposits of cash or United States government bonds to
secure surety or appeal bonds to which the Company or any Restricted Subsidiary
is a party, or deposits as security for contested taxes or import duties or for
the payment of rent, in each case incurred by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past practice;
(ii) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due from the Company or any Restricted
Subsidiary or being contested in good faith by appropriate proceedings by the
Company or any Restricted Subsidiary, as the case may be, or other Liens arising
out of judgments or awards against the Company or any Restricted Subsidiary with
respect to which the Company or such Restricted Subsidiary, as the case may be,
will then be prosecuting an appeal or other proceedings for review; (iii) Liens
for property taxes or other taxes, assessments or governmental charges of the
Company or any Restricted Subsidiary not yet due or payable or subject to
penalties for nonpayment or which are being contested by the Company or such
Restricted Subsidiary, as the case may be, in good faith by appropriate
proceedings; (iv) Liens in favor of issuers of standby letters of credit,
performance bonds and surety bonds issued pursuant to clause (vii) of paragraph
(b) under "--Certain Covenants-- Limitation on Indebtedness" or clause (iii)
under the definition of "Permitted Restricted Subsidiary Indebtedness"; (v)
survey exceptions, encumbrances, easements or, reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes or zoning or other restrictions as to
the use of real property of the Company or any Restricted Subsidiary incidental
to the ordinary course of conduct of the business of the Company or such
Restricted Subsidiary or as to the ownership of properties of the Company or any
Restricted Subsidiary, which, in either case, were not incurred in connection
with Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the operation of
the business of the Company or any Restricted Subsidiary; (vi) Liens to secure
Indebtedness permitted under clauses (a)(ii) and (b)(i) under "--Certain
Covenants--Limitation on Indebtedness" or clauses (vi) and (vii) of the
definition of "Permitted Restricted Subsidiary Indebtedness"; (vii) Liens
outstanding immediately after the Issue Date as set forth on Schedule II to the
Indenture (and not otherwise permitted by clause (vi)); (viii) Liens on
property, assets or shares of stock of any Restricted Subsidiary at the time
such Restricted Subsidiary became a Subsidiary of the Company; provided,
however, that (A) if any such Lien has been Incurred in anticipation of such
transaction, such property, assets or shares of stock subject to such Lien will
have a Fair Market Value at the date of the acquisition thereof not in excess of
the lesser of (1) the aggregate purchase price paid or owed by the Company in
connection with the acquisition of such Restricted Subsidiary and (2) the Fair
Market Value of all property and assets of such Restricted Subsidiary and (B)
any such Lien will not extend to any other assets owned by the Company or any
Restricted Subsidiary; (ix) Liens on property or assets at the time the Company
or any Restricted Subsidiary acquired such assets, including any acquisition by
means of a merger or consolidation with or into the Company or such Restricted
Subsidiary; provided, however, that (A) if any such Lien is Incurred in
anticipation of such transaction, such property or assets subject to such Lien
will have a Fair Market Value at the date of the acquisition thereof not in
excess of the lesser of (1) the aggregate purchase price paid or owed by the
Company or such Restricted Subsidiary in connection with the acquisition thereof
and of any other property and assets acquired simultaneously therewith and (2)
the Fair Market Value of all such property and assets acquired by the Company or
such Restricted Subsidiary and (B) any such Lien will not extend to any other
property or assets owned by the Company or any Restricted Subsidiary; (x) Liens
securing Indebtedness or other obligations of a Restricted Subsidiary owing to
the Company or a Wholly Owned Subsidiary; (xi) Liens to secure any extension,
renewal, refinancing, replacement or refunding (or successive extensions,
renewals, refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (vii), (viii) and
(ix); provided, however, that any such Lien will be limited to all or part of
the same property or assets that secured the original Lien (plus improvements on
such property) and the aggregate principal amount of Indebtedness that is
secured by such Lien will not be increased to an amount greater than the sum of
(A) the outstanding principal
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amount, or, if greater, the committed amount, of the Indebtedness described
under clauses (vii), (viii) and (ix) at the time the original Lien became a
Permitted Lien under the Indenture and (B) an amount necessary to pay any
premiums, fees and other expenses Incurred by the Company in connection with
such refinancing, refunding, extension, renewal or replacement; (xii) Liens on
property or assets of the Company securing Hedging Obligations so long as the
related Indebtedness is, and is permitted under
"--Certain Covenants--Limitation on Indebtedness", secured by a Lien on the same
property securing the relevant Hedging Obligation; (xiii) Liens securing
Indebtedness incurred under (A) in the case of the Company, any revolving credit
facility, provided, that such Indebtedness constitutes permitted Senior
Indebtedness hereunder and such Liens relate only to accounts receivable,
inventory and proceeds thereof (other than proceeds from the disposition of
inventory pursuant to any Sale/Leaseback Transaction); and (B) in the case of
any Foreign Restricted Subsidiary, any foreign currency revolving credit
facility; provided, that such Indebtedness was incurred in compliance with
clause (vii) of the definition of "Permitted Restricted Subsidiary Indebtedness"
and such Liens relate only to the accounts receivable, inventory and proceeds
thereof of such Foreign Restricted Subsidiary (other than proceeds from the
disposition of inventory pursuant to any Sale/Leaseback Transaction); and (xiv)
Liens on property or assets of the Company or any Restricted Subsidiary securing
Indebtedness (1) under Purchase Money Indebtedness or Capital Lease Obligations
permitted under, in the case of the Company, clause (vi) under "-- Certain
Covenants----Limitation on Indebtedness" and, in the case of such Restricted
Subsidiary, clause (ii) under the definition of "Permitted Restricted Subsidiary
Indebtedness" or (2) under Sale/Leaseback Transactions permitted under
"--Certain Covenants--Limitation on Sale/Leaseback Transactions"; provided, that
(A) the amount of Indebtedness Incurred in any specific case does not, at the
time such Indebtedness is Incurred, exceed the lesser of the cost or Fair Market
Value of the property or asset acquired or constructed in connection with such
Purchase Money Indebtedness or Capital Lease Obligation or subject to such
Sale/Leaseback Transaction, as the case may be, (B) such Lien will attach to
such property or asset upon acquisition of such property or asset and or upon
commencement of such Sale/ Leaseback Transaction, as the case may be, and (C) no
property or asset of the Company or any Restricted Subsidiary (other than the
property or asset acquired or contracted in connection with such Purchase Money
Indebtedness or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be) are subject to any Lien securing such
Indebtedness.
"Permitted Line of Business" means (i) the line or lines of business in
which the Company or any of its Subsidiaries is engaged on the Issue Date and
(ii) a line or lines of business similar or related to the line or lines of
business described in the foregoing clause (i).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act (to the extent
applicable) as interpreted in good faith by the Board of Directors after
consultation with the independent certified public accountants of the Company,
or otherwise a calculation made in good faith by such Board after consultation
with such independent certified public accountants, as the case may be.
"Purchase Money Indebtedness" means, with respect to any Person, all
obligations of such Person (i) consisting of the deferred purchase price of any
property or assets, conditional sale obligations, obligations under any title
retention agreement (but excluding trade accounts payable arising in the
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ordinary course of business) and other purchase money obligations, in each case
where the maturity of such obligation does not exceed the anticipated useful
life of the property or asset being financed, (ii) Incurred to finance the
acquisition or construction of such property or asset and (iii) Incurred to
finance the acquisition of 100% of the Capital Stock (other than directors'
qualifying shares) of any other Person.
"Qualified Capital Stock" of any Person shall mean any Capital Stock of such
Person which is not Disqualified Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including, without limitation,
upon the happening of any event) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness (other than Preferred Stock) or Disqualified Stock
or (iii) is redeemable at the option of the holder thereof, in whole or in part.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," "refinancing" and "refinanced"
has a correlative meaning) any Indebtedness (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of (A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced and (B) any premiums, fees and other expenses paid by the
Company or the Restricted Subsidiary, as the case may be, in connection with
such refinancing; provided, further, that Refinancing Indebtedness does not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; provided,
further, that the covenants relating to the Refinancing Indebtedness are no more
restrictive in the aggregate then those of the Indebtedness being refinanced
and, if the Indebtedness being refinanced is subordinated to the Notes, the
Refinancing Indebtedness is at least as subordinated to the Notes as the
Indebtedness being refinanced.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter by the Company whereby pursuant to a direct or indirect
arrangement the Company or any Restricted Subsidiary of the Company transfers
such property to a Person and the Company or such Restricted Subsidiary leases
it from such Person.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to the terms of such
Indebtedness or pursuant to a written agreement.
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"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) investments in
U.S. Government Obligations maturing within 90 days of the date of acquisition
thereof; (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America or any State thereof having capital, surplus and
undivided profits aggregating in excess of $250 million (or the Dollar
Equivalent thereof) and whose long-term debt is rated "A" or higher according to
Moody's Investors Service, Inc. (or such equivalent rating by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act)); (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
entered into with a bank meeting the qualifications described in clause (ii);
and (iv) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America with a rating at the time as of which any investment therein is made of
"P-2" (or higher) according to Moody's Investors Service, Inc. or "A-2" (or
higher) according to Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc..
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business of such
Person in connection with the acquisition of goods or services, including under
the SKC Agreement as such Agreement is in effect on the Issue Date.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated, or is deemed to have designated, pursuant to the
provisions described under "--Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and that has not been redesignated a Restricted
Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.
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DESCRIPTION OF THE NEW REVOLVING CREDIT FACILITY
The following description of the New Revolving Credit Facility does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the agreements related to the New
Revolving Credit Facility. The following description of the New Revolving Credit
Facility sets forth the expected terms of the Credit Agreement (as defined)
anticipated to be entered into prior to consummation of the Offering.
GENERAL
The New Revolving Credit Facility is evidenced by, among other things, a
revolving credit agreement (the "Credit Agreement"), among the Company, several
banks and other financial institutions (the "Senior Secured Lenders"), and
BankBoston, N.A., as agent for the Senior Secured Lenders (in such capacity, the
"Agent" and in its individual capacity, "BankBoston"). The Credit Agreement
provides for a revolving credit facility of $80 million, PROVIDED that such
amount may be increased up to $120 million upon the request of the Company, the
approval of the Senior Secured Lenders and the Agent and the satisfaction of
certain financial covenants. As of June 30, 1998, the Company had $53.9 million
outstanding under the New Revolving Credit Facility. Up to $15 million of the
New Revolving Credit Facility is available for letters of credit.
INTEREST
The Company may elect to have loans under the New Revolving Credit Facility
bear interest at (a) the Base Rate (as defined) plus a sliding margin determined
according to certain financial criteria of the Company or (b) the Eurocurrency
Rate (as defined) plus a sliding margin determined according to certain
financial criteria of the Company. Interest is payable quarterly and at the end
of the Interest Period (as defined in the Credit Agreement). The " Base Rate"
for any day means the higher of (i) the corporate base rate of interest
announced by BankBoston and (ii) the federal funds rate published by the Federal
Reserve Bank of New York on the next business day plus 0.5%. The "Eurocurrency
Rate" for any Interest Period means, with respect to any Eurocurrency Rate loan
denominated in U.S. dollars, (A) the rate per annum at which BankBoston's
Eurocurrency Lending Office is offered U.S. dollar deposits two business days
prior to the beginning of such Interest Period in the interbank eurodollar
market where such Eurocurrency Lending Office customarily conducts business
divided by (B) one minus the "Eurocurrency Liabilities" under Regulation D of
the Board of Governors of the Federal Reserve System, and, with respect to any
Eurocurrency Rate loan denominated in certain other currencies, (x) the rate per
annum at which BankBoston is offered deposits in U.S. dollars or the relevant
optional currency two business days prior to the beginning of such Interest
Period in the Eurocurrency Interbank Market where BankBoston's customarily
conducts business divided by (y) one minus the "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the Federal Reserve System.
SECURITY AND GUARANTORS
As security for the indebtedness of the Company to the Senior Secured
Lenders, the Company has granted to them a first priority security interest in
substantially all of its tangible and intangible assets (including intellectual
property, real property and 65% of the capital stock of each of the Company's
material direct foreign subsidiaries).
TERM
The New Revolving Credit Facility terminates on June 15, 2003, at which time
all amounts outstanding thereunder are due and payable.
104
<PAGE>
CERTAIN COVENANTS
In addition to customary covenants, the New Revolving Credit Facility
requires that the Company: (a) maintain certain ratios of Consolidated EBITDA
(as defined in the Credit Agreement) to Consolidated Interest Expense (as
defined in the Credit Agreement), (b) not incur any indebtedness other than the
Notes, indebtedness under the New Revolving Credit Facility and certain other
indebtedness, (c) not permit any lien to exist on any of its property, assets or
revenues, except the liens in favor of the Senior Secured Lenders, existing
liens and certain other liens and (d) not to incur any guarantee obligations,
except the guarantee obligations related to the New Revolving Credit Facility
and certain other guarantee obligations. The Company is in compliance with all
covenants under terms of the New Revolving Credit Facility.
EVENTS OF DEFAULT
The Credit Agreement contains certain events of default, including, without
limitation, the following: (i) any failure by the Company or its subsidiary to
pay principal, interest or other obligations under the Credit Agreement, (ii)
any representation or warranty made by the Company or its subsidiaries in the
Credit Agreement or related agreements proves to have been incorrect in any
material respect when made, (iii) any default by the Company or its subsidiaries
in the observance or performance of covenants or other agreements contained in
the Credit Agreement or related agreements, (iv) certain events of bankruptcy or
insolvency of the Company or its subsidiaries, (v) the entering of a judgment or
decree against the Company or its subsidiaries involving an aggregate liability
of $2.5 million or more, which is not vacated, discharged, stayed or bonded
pending appeal within 30 days and (vi) the occurrence of certain change of
control events.
105
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary is based on the tax laws of the United States in
effect on the date of this Prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. The foregoing laws and interpretations thereof are subject to change,
which could apply retroactively.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax purposes. A holder's holding
period for Exchange Notes will include the holding period for Old Notes. HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Old Notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from the Company or any
affiliate of the Company) may exchange such Old Notes for Exchange Notes
pursuant to the Exchange Offer; provided, that each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of 90 days
after consummation of the Exchange Offer, it will make this Prospectus, as it
may be amended or supplemented from time to time, available to any broker-dealer
for use in connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other holder of Exchange Notes. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after consummation of the Exchange Offer, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer and to the Company's performance of, or
compliance with, the Registration Rights Agreement (other than commissions or
concessions of any brokers or dealers) and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
106
<PAGE>
LEGAL MATTERS
Certain legal matters related to the Exchange Notes being offered hereby are
being 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, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended September 30,
1995, the eight months ended May 31, 1996, the four months ended September 30,
1996 and the year ended September 30, 1997, included in this Prospectus, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto appearing herein.
The financial statements of First Image Management Company (a division of
First Data Corporation) at December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, included in Anacomp, Inc.'s Current
Report on Form 8-K dated June 18, 1998 (as amended by Form 8-K/ A dated August
11, 1998), have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
107
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of September 30, 1997 and 1996.............................................. F-3
Consolidated Statements of Operations for the twelve months ended September 30, 1997, the four months ended
September 30, 1996, the eight months ended May 31, 1996 and the twelve months ended September 30, 1995... F-4
Consolidated Statements of Cash Flows for the twelve months ended September 30, 1997, the four months ended
September 30, 1996, the eight months ended May 31, 1996 and the twelve months ended September 30, 1995... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the twelve months ended September 30, 1997,
the four months ended September 30, 1996, the eight months ended May 31, 1996 and the twelve months ended
September 30, 1995....................................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<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, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the twelve months ended September 30, 1997,
the four months ended September 30, 1996, the eight months ended May 31, 1996
and the twelve months ended September 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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.
As more fully described in Note 2 to the consolidated financial statements,
effective June 4, 1996, the Company emerged from protection under Chapter 11 of
the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed
by the Bankruptcy Court on May 20, 1996. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of May 31, 1996. As a result, the consolidated financial statements
for the periods subsequent to May 31, 1996 reflect the Successor Company's new
basis of accounting and are not comparable to the Predecessor Company's pre-
reorganization consolidated financial statements.
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, 1997 and 1996, and the results of
their operations and their cash flows for the twelve months ended September 30,
1997, the four months ended September 30, 1996, the eight months ended May 31,
1996 and the twelve months ended September 30, 1995 in conformity with generally
accepted accounting principles.
As explained in Note 1 to the consolidated 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 14, 1997 (except
with respect to the matters
discussed in Note 24 as to
which the date is August 13, 1998)
F-2
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
REORGANIZED COMPANY
----------------------
AS OF SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 58,060 $ 38,198
Restricted cash...................................................................... 7,433 9,597
Accounts and notes receivable, less allowances for doubtful accounts of $5,501 and
$6,768, respectively............................................................... 58,628 58,806
Current portion of long-term receivables............................................. 3,647 4,690
Inventories.......................................................................... 25,261 31,856
Prepaid expenses and other........................................................... 6,853 4,383
---------- ----------
Total current assets................................................................... 159,882 147,530
Property and equipment, at cost less accumulated depreciation and amortization of
$7,257 and $3,696, respectively...................................................... 29,063 27,102
Long-term receivables, net of current portion.......................................... 6,587 10,632
Excess of purchase price over net assets of businesses acquired and other intangibles,
net.................................................................................. 17,800 2,285
Reorganization value in excess of identifiable assets, net............................. 163,856 240,344
Other assets........................................................................... 14,763 7,528
---------- ----------
$ 391,951 $ 435,421
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................... $ 9,595 $ 31,848
Accounts payable..................................................................... 39,270 48,090
Accrued compensation, benefits and withholdings...................................... 16,481 13,728
Accrued income taxes................................................................. 13,471 11,930
Accrued interest..................................................................... 14,738 10,586
Other accrued liabilities.............................................................. 34,529 36,814
---------- ----------
Total current liabilities.............................................................. 128,084 152,996
---------- ----------
Non current liabilities:
Long-term debt, net of current portion............................................... 247,889 217,044
Other noncurrent liabilities......................................................... 1,458 6,812
---------- ----------
Total noncurrent liabilities........................................................... 249,347 223,856
---------- ----------
Commitments and contingencies (See Note 17)
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized, none issued............................ -- --
Common stock, $.01 par value; 20,000,000 shares authorized; 13,789,764 and 10,099,050
issued and outstanding, respectively............................................... 138 101
Capital in excess of par value....................................................... 105,329 80,318
Cumulative translation adjustment (from May 31, 1996)................................ (1,128) 159
Accumulated deficit (from May 31, 1996).............................................. (89,819) (22,009)
---------- ----------
Total stockholders' equity............................................................. 14,520 58,569
---------- ----------
$ 391,951 $ 435,421
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
--------------------------------------------------
<S> <C> <C> <C> <C>
<CAPTION>
TWELVE FOUR TWELVE
MONTHS MONTHS EIGHT MONTHS
ENDED ENDED MONTHS ENDED
SEPTEMBER SEPTEMBER ENDED SEPTEMBER
30, 30, MAY 31, 30,
1997 1996 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C>
REVENUES:
Services provided.......................... $ 186,590 $ 59,055 $ 130,202 $ 219,881
Equipment and supply sales................. 275,920 92,487 204,396 371,308
----------- ----------- ----------- -----------
462,510 151,542 334,598 591,189
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Costs of services provided................. 97,932 31,858 72,641 126,493
Costs of equipment and supplies sold....... 206,582 70,097 156,526 290,842
Selling, general and administrative
expenses................................. 90,731 29,688 63,826 132,459
Amortization of reorganization asset....... 75,780 25,663 -- --
Special charges............................ -- -- -- 136,889
Restructuring charges...................... -- -- -- 32,695
----------- ----------- ----------- -----------
471,025 157,306 292,993 719,378
----------- ----------- ----------- -----------
Income (loss) from operations before
interest, other income, reorganization
items, income taxes and extraordinary
items...................................... (8,515) (5,764) 41,605 (128,189)
----------- ----------- ----------- -----------
Interest income.............................. 4,346 997 1,576 2,000
Interest expense and fee amortization........ (35,896) (12,869) (26,760) (70,938)
Financial restructuring costs................ -- -- -- (5,987)
Other income (loss).......................... (1,285) 27 6,968 (212)
----------- ----------- ----------- -----------
(32,835) (11,845) (18,216) (75,137)
----------- ----------- ----------- -----------
Income (loss) before reorganization items,
income taxes and extraordinary items....... (41,350) (17,609) 23,389 (203,326)
Reorganization items......................... -- -- 92,839 --
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary items........................ (41,350) (17,609) 116,228 (203,326)
Provision for income taxes................... 15,500 4,400 3,700 35,000
----------- ----------- ----------- -----------
Income (loss) before extraordinary items..... (56,850) (22,009) 112,528 (238,326)
Extraordinary items:
Gain on discharge of indebtedness, net of
income taxes............................. -- -- 52,442 --
Loss on extinguishment of debt, net of
income tax benefits...................... (10,961) -- -- --
----------- ----------- ----------- -----------
Net income (loss)............................ (67,811) (22,009) 164,970 (238,326)
Preferred stock dividends and discount
accretion.................................. -- -- 540 2,158
----------- ----------- ----------- -----------
Net income (loss) available to common
stockholders............................... $ (67,811) $ (22,009) $ 164,430 $(240,484)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LOSS PER COMMON AND
COMMON EQUIVALENT SHARE:
Loss available to common stockholders before
extraordinary loss......................... $ (4.23) $ (2.19)
Extraordinary loss on extinguishment of
debt....................................... (0.82) --
----------- -----------
Loss available to common stockholders........ $ (5.05) $ (2.19)
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
--------------------------------------------------------------
<CAPTION>
TWELVE FOUR EIGHT TWELVE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, MAY 31, SEPTEMBER 30,
1997 1996 1996 1995
-------------- --------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (67,811) $ (22,009) $ 164,970 $ (238,326)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary items....................... 10,961 -- (52,442) --
Non-cash reorganization items............. -- -- (107,352) --
Depreciation and amortization............. 93,552 30,635 18,788 43,375
Non-cash compensation..................... 1,012 975 -- --
Provision (benefit) for losses on accounts
receivable.............................. (341) 482 110 2,742
Provision for inventory valuation......... -- -- -- 10,956
Non-cash charge in lieu of taxes.......... 700 1,300 -- --
Deferred taxes............................ -- -- -- 29,000
Special charges (See Note 1).............. -- -- -- 136,889
Gain on sale of ICS Division.............. -- -- (6,202) --
Other..................................... 6,278 (175) 997 6,308
Restricted cash requirements.................. 2,164 (2,755) (6,842) --
Change in assets and liabilities net of
effects from acquisitions:
Decrease in accounts and long-term
receivables............................. 6,687 5,637 24,624 30,948
Decrease (increase) in inventories and
prepaid expenses........................ 7,118 10,416 11,174 (1,612)
Decrease (increase) in other assets....... (953) 1 1,094 (8,207)
Increase (decrease) in accounts payable
and accrued expenses.................... 4,970 (17,283) (5,077) 11,465
Increase (decrease) in other noncurrent
liabilities............................. (6,495) 4,671 (5,899) (3,626)
-------------- --------------- ------------- --------------
Net cash provided by operating
activities.............................. 57,842 11,895 37,943 19,912
-------------- --------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of other assets............ -- -- -- 18,777
Proceeds from sale of ICS Division............ -- -- 13,554 --
Purchases of property and equipment........... (10,399) (2,224) (3,599) (14,372)
Payments to acquire companies and customer
rights...................................... (22,443) (3,844) -- (1,262)
-------------- --------------- ------------- --------------
Net cash provided by (used in) investing
activities.............................. (32,842) (6,068) 9,955 3,143
-------------- --------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and
warrants.................................... -- (139) -- 743
Proceeds from revolving line of credit and
long-term borrowing......................... 253,853 -- 2,656 22,529
Proceeds from exercise of common stock
rights...................................... 24,548 -- -- --
Proceeds from exercise of stock options....... 412 -- -- --
Principal payments on long-term debt.......... (271,288) (22,646) (15,332) (45,859)
Payments related to the issuance and
extinguishment of debt...................... (12,647) --
Preferred dividends paid...................... -- -- -- (1,031)
-------------- --------------- ------------- --------------
Net cash used in financing activities..... (5,122) (22,785) (12,676) (23,618)
-------------- --------------- ------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......... (16) (172) 691 107
-------------- --------------- ------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 19,862 (17,130) 35,913 (456)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 38,198 55,328 19,415 19,871
-------------- --------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 58,060 $ 38,198 $ 55,328 $ 19,415
-------------- --------------- ------------- --------------
-------------- --------------- ------------- --------------
</TABLE>
F-5
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
--------------------------------------------------------------
<CAPTION>
TWELVE FOUR EIGHT TWELVE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, MAY 31, SEPTEMBER 30,
1997 1996 1996 1995
-------------- --------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest....................................... $ 15,016 $ 5,581 $ 11,613 $ 39,426
Income taxes................................... $ 6,612 $ 2,942 $ 3,045 $ 4,128
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
See Note 3 for discussion of non-cash activity related to Fresh Start Reporting
and the Reorganization.
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
----------------------------------------------------------------
<CAPTION>
TWELVE FOUR EIGHT TWELVE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, MAY 31, SEPTEMBER 30,
1997 1996 1996 1995
-------------- ----------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes payable issued............................. $ -- $ 500 $ -- $ --
Assets acquired by assuming liabilities.......... $ 1,553 $ -- $ -- $ --
Interest on subordinated notes satisfied with
additional notes............................... $ 11,960 $ -- $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF CUMULATIVE
COMMON PAR TRANSLATION ACCUMULATED
STOCK VALUE ADJUSTMENT DEFICIT TOTAL
----------- ------------ ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994--PREDECESSOR COMPANY........... $ 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 adjustment for twelve months..................... -- -- 1,598 -- 1,598
Graham stock issuance........................................ 1 143 -- -- 144
Net loss for the twelve months............................... -- -- -- (238,326) (238,326)
----- ------------ ----------- ------------ -----------
BALANCE AT SEPTEMBER 30, 1995--PREDECESSOR COMPANY........... 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 eight months...................... -- -- (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 eight months.................................. -- -- -- 164,970 164,970
----- ------------ ----------- ------------ -----------
BALANCE AT MAY 31, 1996--REORGANIZED COMPANY................. 100 79,666 -- -- 79,766
Common stock issued for restricted stock award............... 1 791 -- -- 792
Fees associated with rights offering......................... -- (139) -- -- (139)
Translation adjustment for four months....................... -- -- 159 -- 159
Net loss for four months..................................... -- -- -- (22,009) (22,009)
----- ------------ ----------- ------------ -----------
BALANCE AT SEPTEMBER 30, 1996--REORGANIZED COMPANY........... 101 80,318 159 (22,009) 58,569
Common stock issued for exercise of rights................... 36 24,511 -- -- 24,547
Common stock issued for exercise of stock options............ 1 500 -- -- 501
Translation adjustment for twelve months..................... -- -- (1,287) -- (1,287)
Other........................................................ -- -- -- 1 1
Net loss for twelve months................................... -- -- -- (67,811) (67,811)
----- ------------ ----------- ------------ -----------
BALANCE AT SEPTEMBER 30, 1997--REORGANIZED COMPANY........... $ 138 $ 105,329 $ (1,128) $ (89,819) $ 14,520
----- ------------ ----------- ------------ -----------
----- ------------ ----------- ------------ -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<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.
Due to the Reorganization and implementation of Fresh Start Reporting, the
consolidated financial statements for the 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 emergence from
bankruptcy is considered to be the close of business on May 31, 1996.
A black line has been drawn on the accompanying consolidated financial
statements to distinguish between the Reorganized Company and the Predecessor
Company.
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 document 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 value of all
payments due under the lease contracts is recorded as revenue, cost of sales is
charged with the book value of the equipment plus installation costs, and future
interest income is deferred and recognized over the lease term. Operating lease
revenues are recognized during the applicable period of customer usage. 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, with cost being
determined by methods approximating the first-in, first-out basis.
F-8
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The cost of the inventories is distributed as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------
<S> <C> <C>
SEPTEMBER 30,
--------------------
<CAPTION>
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C> <C>
Finished goods.......................................................................... $ 14,887 $ 22,557
Work in process......................................................................... 3,299 2,748
Raw materials and supplies.............................................................. 7,075 6,551
--------- ---------
$ 25,261 $ 31,856
--------- ---------
--------- ---------
</TABLE>
RESTRICTED CASH
Restricted cash represents cash reserved as collateral for letters of credit
issued by the Company or cash held in escrow 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
(See Note 3).
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. Unamortized Debt issuance costs were $6.6 million at
September 30, 1997 and are included in "Other assets" in the accompanying
Consolidated Balance Sheets. During the twelve months ended September 30, 1997,
the eight months ended May 31, 1996 and the twelve months ended September 30,
1995, the Company amortized $.9 million, $1 million and $5.7 million,
respectively, of debt issuance costs which are included in "Interest expense and
fee amortization" in the accompanying Consolidated Statements of Operations.
Also, in accordance with AICPA Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7), the Company
wrote off deferred debt issuance costs of $11.1 million upon the date of the
bankruptcy filing. These costs are included in "Reorganization Items" in the
accompanying Consolidated Statements of Operations for the eight months ended
May 31, 1996.
GOODWILL
Excess of purchase price over net assets of businesses acquired ("goodwill")
is amortized on the straight-line method over the estimated periods of future
demand for the related products acquired. Goodwill at September 30, 1997 is
being amortized over periods of three to five years. Effective with Fresh Start
Reporting, the Company now measures impairment based on future cash flows of the
related products.
F-9
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
For the Predecessor Company, effective June 30, 1995, Anacomp elected to
modify its method of measuring goodwill impairment to a fair value approach. If
it was determined that impairment had occurred, the excess of the unamortized
goodwill over the fair value of the goodwill applicable to the business unit was
charged to operations. For purposes of determining fair value, the Company
valued the goodwill using a multiple of cash flow from operations based on
consultation with its investment advisors. Anacomp concluded that fair value was
a better measurement of goodwill considering the Company's highly leveraged
financial condition. Anacomp revised its projected operating results in fiscal
1995 which, along with applying Anacomp's revised goodwill accounting policy,
resulted in a write-off of $108 million of goodwill for the year ended September
30, 1995. This write-off is reflected in "Special charges" in the accompanying
Consolidated Statement of Operations.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED TO IDENTIFIABLE ASSETS
As more fully discussed in Note 3, the Company has "reorganization value in
excess of amounts allocated to identifiable assets" of $163.9 million net of
accumulated amortization of $101.4 million at September 30, 1997. This asset is
being amortized over a 3.5 year period beginning May 31, 1996. The carrying
value of the Reorganization Asset will be periodically reviewed if the facts and
circumstances suggest that it may be impaired. The Company will measure the
impairment based upon future cash flows of the Company over the remaining
amortization period.
RESEARCH AND DEVELOPMENT
The engineering costs associated specifically with research and development
programs are expensed as incurred, and amounted to $4.8 for the twelve months
ended September 30, 1997, $1.3 million for the four months ended September 30,
1996, $2.4 million for the eight months ended May 31, 1996 and $2.2 million for
the twelve months ended September 30, 1995. The Company supports several
engineering processes, including basic technological research, product
development and sustaining engineering support for existing customer
installations. The majority of the operating costs for engineering programs in
fiscal year 1995 related to continued software development for the XFP 2000 COM
recorder, which were recorded as deferred software costs.
Deferred software costs are the capitalized costs of software products to be
sold in future periods with COM systems or as stand alone products for current
COM system users. 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, Anacomp 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 for future payments to IBM Pennant Systems for software royalty and
system support obligations which were not recoverable based on these revised
projections (See Note 17). These charges are reflected in "Special charges" in
the accompanying Consolidated Statement of Operations for the fiscal year ended
September 30, 1995. Unamortized deferred software costs remaining as of
September 30, 1997 total $2.5 million and are included in "Other assets" on the
accompanying Consolidated Balance Sheets.
F-10
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SALE-LEASEBACK TRANSACTIONS
Anacomp entered into sale-leaseback transactions of $19.3 million in 1995
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 were recorded for the year ended September
30, 1995. All profits were deferred and were being recognized over the
applicable leaseback periods. In connection with Fresh Start Reporting as
discussed in Note 3, the deferred profit amount was reduced to zero.
Concurrently, the Company established an unfavorable lease reserve related to
these leases which is being amortized over the applicable lease periods. At
September 30, 1997 $4.4 million of this reserve remained to be amortized.
ACCRUED LEASE RESERVES
Other noncurrent liabilities include reserves established for unfavorable
facility and equipment 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 $6.2 and
$11.4 million at September 30, 1997 and 1996, respectively. The current portion
of these obligations was $4.9 and $6.8 million as of September 30, 1997 and
1996, respectively, and is included in "Other accrued liabilities" and "Accounts
payable" in the accompanying Consolidated Balance Sheets.
INCOME TAXES
Anacomp accounts for income taxes based on the liability method for
computing deferred income taxes. The benefit of certain loss carryforwards are
estimated and recorded as an asset unless it is "more likely than not" that the
benefit will not be realized.
During 1995, the valuation allowance was increased to reduce the Company's
net deferred tax asset to zero as a result of the Company's deteriorating
financial condition.
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. In 1995, Anacomp changed its practice whereby
the Company now repatriates these earnings. As a result, Anacomp recorded
deferred taxes of $8.8 million on all undistributed foreign earnings in 1995.
CASH AND CASH EQUIVALENTS
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 REORGANIZATION:
On May 20, 1996 (the "Confirmation Date"), 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
F-11
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FINANCIAL REORGANIZATION: (CONTINUED)
Directors of the Company were designated. The Company simultaneously distributed
to creditors approximately $22 million in cash, $112.2 million principal amount
of its 11-5/8% Senior Secured Notes due 1999 (the "Senior Secured Notes") and
$160 million principal amount of its 13% Senior Subordinated Notes due 2002 (the
"Senior Subordinated Notes"), equity securities consisting of 10 million shares
of new common stock and 362,694 warrants, each of which is convertible into
1.0566 shares of new common stock during the five year period ending June 3,
2001 at an exercise price of $11.57 per share.
The process began January 5, 1996, when Anacomp filed a Prenegotiated Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S. Bankruptcy Code. The Company was in default under substantially all of
its debt agreements as a result of its failure to make $89.7 million of
principal payments scheduled for April 26, 1995 and October 26, 1995 on the
senior secured credit facilities (including $60 million relating to the
revolving loan agreement which expired on October 26, 1995), $11.4 million of
principal and interest payments on the 9% Convertible Subordinated Debentures
which were due January 15, 1996, $34.1 million of interest payments scheduled
for May 1, 1995 and November 1, 1995 on its Senior Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the 13.875% Subordinated Debentures, as well as certain financial covenant
violations, and the cross-default provisions of the other debt agreements.
NOTE 3. FRESH START REPORTING AND BANKRUPTCY REORGANIZATION:
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 in Notes 13 and 15.
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 net result of the valuation of identifiable assets, the
recognition of liabilities at fair market value and the valuation of equity was
the Reorganized Company recognizing an asset "Reorganization Value in excess of
identifiable assets" totaling $267.5 million as of May 31, 1996.
F-12
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. FRESH START REPORTING AND BANKRUPTCY REORGANIZATION: (CONTINUED)
As a result of the Bankruptcy Reorganization, the Predecessor Company
recorded an extraordinary gain resulting from the discharge of indebtedness of
$52.4 million calculated as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
MAY 31, 1996
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Historical carrying value of old debt securities............................... $ 379,256
Historical carrying value of related accrued interest.......................... 48,500
Unamortized portion of old deferred financing costs............................ (600)
Market value of consideration exchanged for the old debt:
Plan securities (face value $279,692)........................................ (265,948)
New common stock (10.0 million new shares issued)............................ (79,766)
-------------
81,442
Tax provision.............................................................. (29,000)
-------------
Extraordinary gain......................................................... $ 52,442
-------------
-------------
</TABLE>
In accordance with SOP 90-7, expenses of the Predecessor Company resulting
from the Chapter 11 Reorganization are reported separately as reorganization
items in the accompanying Consolidated Statements of Operations, and are
summarized below:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
MAY 31, 1996
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Write-off of deferred debt issue costs and discounts........................... $ (17,551)
Adjustment of assets and liabilities to fair market value...................... 124,903
Legal and professional fees associated with bankruptcy......................... (14,944)
Interest earned on accumulated cash............................................ 431
-------------
$ 92,839
-------------
-------------
</TABLE>
The following Pro Forma Condensed Financial Information for the twelve
months ended September 30, 1996 and 1995, have been prepared giving effect to
the sale of the Image Conversion Services ("ICS") Division and the adjustments
related to the consummation of the Reorganization for 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.
F-13
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. FRESH START REPORTING AND BANKRUPTCY REORGANIZATION: (CONTINUED)
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTHS
ENDED
SEPTEMBER 30,
------------------------------
1996 1995
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Revenues.................................................................... $ 484,637 $ 569,668
Operating costs and expenses...................................................... 493,291 763,514
Loss before interest, other income, reorganization items, income taxes and
extraordinary credit............................................................ (8,654) (193,846)
Interest expense and fee amortization............................................. (41,327) (44,301)
Net loss available to common stockholders......................................... (53,713) (277,346)
</TABLE>
NOTE 4. SALE OF ICS DIVISION:
Effective November 1, 1995, Anacomp sold its ICS Division for approximately
$13.5 million, which resulted in a net gain to the Company of $6.2 million that
is reflected in "other income (expense)" in the accompanying Consolidated
Statement of Operations. 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 million of revenues per year.
NOTE 5. RESTRUCTURING CHARGES:
Included in the operating results for 1995 are restructuring charges of
$32.7 million. These charges were 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. The restructuring charges included severance
costs of $5.9 million, which included personnel related to magnetics media
manufacturing, 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 were inventory write downs of $9.1 million, excess facility reserves of
$7.7 million and other reserves of $10 million. The Company completed these
restructuring activities during fiscal 1996. The actual costs associated with
the restructuring did not vary significantly from the previously reported
amounts.
NOTE 6. FINANCIAL RESTRUCTURING COSTS:
On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225 million Senior Secured Notes and a related offer to purchase up
to $50 million of the Company's outstanding 15% Senior Subordinated Notes. Costs
directly related to these activities of $6 million are included as "Financial
restructuring costs" in the accompanying Consolidated Statements of Operations
for fiscal year 1995.
F-14
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EXCESS OF PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED (GOODWILL):
Goodwill as of September 30 is summarized as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C> <C>
Goodwill............................................................. $ 20,673 $ 2,419
Less accumulated amortization........................................ (2,873) (134)
--------- ---------
$ 17,800 $ 2,285
--------- ---------
--------- ---------
</TABLE>
NOTE 8. 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, 1997,
and 1996, are as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
----------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-Term Debt:
11 5/8% Senior Secured Notes................................... $ -- $ -- $ 97,902 $ 97,902
Multicurrency Revolving Loan................................... 2,439 2,439 -- --
Senior Secured Term Loan....................................... 55,000 55,000 -- --
10 7/8% Senior Subordinated Notes.............................. 196,611 210,160 -- --
13% Senior Subordinated Notes.................................. -- -- 147,058 163,829
</TABLE>
The September 30, 1997 and 1996 estimated fair value of Long-Term Debt was
based on quoted market values or discounted cash flow.
NOTE 9. ACQUISITIONS:
During the three years ended September 30, 1997, 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 1997
During fiscal 1997, Anacomp acquired either the customer bases and other
assets or the stock of nine businesses. Total consideration was $25.5 million,
of which approximately $18.3 million was assigned to excess of purchase price
over net assets acquired. The aggregate purchase prices consisted of $22.4
million
F-15
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. ACQUISITIONS: (CONTINUED)
cash, $1.6 million in assumed liabilities and contingent cash and/or stock
payments of up to $10.0 million based upon future operating results over the
next two to five years.
FISCAL 1996
During fiscal 1996, Anacomp acquired certain assets of one business. Total
consideration was $4.3 million, of which approximately $2.4 million was assigned
to excess of purchase price over net assets acquired. The purchase price
consisted of $3.8 million in cash and a one-year note payable of $500,000 which
accrues interest at prime.
FISCAL 1995
During fiscal 1995, Anacomp made no significant acquisitions.
NOTE 10. SKC AGREEMENT:
Anacomp has entered into a 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". The Supply
Agreement expires in December 2003. Pursuant to the Supply Agreement, Anacomp
purchases substantially all of its requirements for coated duplicate microfilm
from SKC. Pursuant to the Supply Agreement, SKC also provides the Company with a
substantial portion of its polyester requirements for its magnetic media
products.
In connection with the Supply Agreement, SKC also provided the Company with
a $25 million trade credit facility which was reduced to $15 million in fiscal
1997 (secured by up to $10 million of products sold to the Company by SKC), all
of which is outstanding at September 30, 1997. The trade credit arrangement
bears interest at 1.75% over the prime rate of The First National Bank of Boston
(10.25% as of September 30, 1997).
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 related to the retroactive price increases to SKC (which were accrued
in "Other accrued liabilities" in the accompanying Consolidated Balance Sheets):
(a) $400,000 paid in 1997: (b) $600,000 due in 1998; (c) $800,000 due in 1999;
(d) $800,000 due in 2000; and (e) 1,000,000 due in 2001.
F-16
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------
SEPTEMBER 30,
ESTIMATED USEFUL --------------------
LIFE IN YEARS 1997 1996
---------------- --------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Land and buildings.................................................... 10-40 $ 3,286 $ 3,148
Office furniture...................................................... 3-12 2,765 2,499
Manufacturing equipment and tooling................................... 2-10 4,442 4,161
Field support spare parts............................................. 4-7 5,875 5,852
Leasehold improvements................................................ Term of Lease 645 852
Equipment leased to others............................................ 2-4 2,185 467
Processing equipment.................................................. 3-12 17,122 13,819
--------- ---------
36,320 30,798
Less accumulated depreciation and amortization........................ (7,257) (3,696)
--------- ---------
$ 29,063 $ 27,102
--------- ---------
--------- ---------
</TABLE>
NOTE 12. LONG-TERM RECEIVABLES:
Long-term receivables consist of the following:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------
<S> <C> <C>
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Lease contracts receivable............................................................... $ 8,785 $ 12,546
Notes receivable from asset sales........................................................ 1,279 2,260
Other.................................................................................... 170 516
--------- ---------
10,234 15,322
Less current portion..................................................................... (3,647) (4,690)
--------- ---------
$ 6,587 $ 10,632
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. LONG-TERM RECEIVABLES: (CONTINUED)
Lease contracts receivable result from customer leases of products under
agreements which qualify as sales-type leases. Annual future lease payments to
be received under sales-type leases are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
YEAR ENDED SEPTEMBER 30, THOUSANDS)
- ------------------------------------------------------------------------
<S> <C>
1998.................................................................... $ 4,512
1999.................................................................... 3,014
2000.................................................................... 1,667
2001.................................................................... 738
2002.................................................................... 214
-------
10,145
Less deferred interest.................................................. (1,360)
-------
$ 8,785
-------
-------
</TABLE>
NOTE 13. LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
----------------------
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
11 5/8% Senior Secured Notes........................................................... -- $ 97,902
13% Senior Subordinated Notes (net of unamortized discount of $12,942)................. -- 147,058
Multicurrency Revolving Loan at 6.6%................................................... 2,439 --
Senior Secured Term Loan at 8.7%....................................................... 55,000 --
10 7/8% Senior Subordinated Notes (net of unamortized discount of $3,389).............. 196,611 --
Non-interest bearing installment note payable due October 30, 1996..................... -- 400
Other.................................................................................. 3,434 3,532
---------- ----------
257,484 248,892
Less current portion................................................................... (9,595) (31,848)
---------- ----------
$ 247,889 $ 217,044
---------- ----------
---------- ----------
</TABLE>
SENIOR SECURED CREDIT FACILITY
On February 28, 1997, the Company and certain foreign subsidiaries entered
into a Credit and Guarantee Agreement (the "Credit Facility") with a syndicate
of banks and other financial institutions (collectively, the "Senior Secured
Lenders"), Lehman Commerical Paper Inc., as arranger and syndication agent, and
The First National Bank of Chicago (in its individual capacity, "First
Chicago"), as administrative agent. The Credit Facility provides for a $55
million term loan facility ("the Term Facility") and a $25 million revolving
credit facility (the "Revolving Facility"). The proceeds of the Term Facility
and available cash were used to repay the existing 11 5/8% Senior Secured Notes
due 1999 (the "Old Senior Secured Notes"). The balance of the Old Senior Secured
Notes at February 28, 1997, was $83.6 million, reflecting the prepayment of the
March 31, 1997 installment of $14.3 million made on February 20, 1997.
F-18
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. LONG-TERM DEBT: (CONTINUED)
As of September 30, 1997, $55 million was outstanding under the Term
Facility, and $2.4 million was outstanding under the Revolving Facility. The
entire Revolving Facility is available for loans denominated in U.S. dollars and
certain foreign currencies ("Multicurrency Loans"), and up to $10 million of the
Revolving Facility is available for letters of credit of which $2.7 million was
outstanding at September 30, 1997. The Term Facility is repayable in thirteen
quarterly installments commencing March 31, 1998, with the final installment due
on March 31, 2001. The Revolving Facility terminates on February 28, 2001.
The Company may elect to have loans under the Term Facility or the Revolving
Facility bear interest at (a) the Alternate Base Rate plus 2% or (b) the
Eurodollar Rate, or in the case of Multicurrency Loans, the Eurocurrency Rate,
plus 3%. Interest is payable quarterly and at the end of the Interest Period (as
defined in the Credit Facility). The "Alternate Base Rate" for any day means the
higher of (i) the corporate base rate of interest announced by First Chicago and
(ii) the federal funds rate published by the Federal Reserve Bank of New York on
the next business day plus 1/2%. The "Eurodollar Rate" for any Interest Period
means (A) the applicable London interbank offered rate for deposits in U.S.
dollars two business days prior to the first day of the Interest Period divided
by (B) one minus the "Eurocurrency Liabilities" under Regulation D of the Board
of Governors of the Federal Reserve System. The "Eurocurrency Rate" for any
Interest Period means the rate at which First Chicago offers to place deposits
in the applicable foreign currency with first-class banks in the London
interbank market two business days prior to the first day of the Interest
Period.
The Term Facility and the Revolving Facility are secured by all of the
Company's tangible and intangible assets (including intellectual property, real
property and all of the capital stock of each of the Company's direct or
indirect domestic subsidiaries and 65% of the capital stock of each of the
Company's material direct foreign subsidiaries). All of the Company's
obligations under the Credit Facility are unconditionally guaranteed by the
Company's direct or indirect domestic subsidiaries. In addition to customary
covenants, the Credit Facility requires that the Company: (a) maintain certain
ratios of Consolidated EBITDA (as defined in the Credit Facility), (b) not incur
any indebtedness other than the 10 7/8% Senior Subordinated Notes due 2004 (the
"Notes"), indebtedness under the Credit Facility and certain other indebtedness,
(c) not permit any lien to exist on any of its property, assets or revenues,
except the liens in favor of the Senior Secured Lenders, existing liens and
certain other liens (d) not to incur any guarantee obligations, except the
guarantee obligations related to the Credit Facility and certain other guarantee
obligations and (e) prohibits payment of dividends to common shareholders.
The Company must use 25% of Consolidated Excess Cash Flow (as defined in the
Credit Facility) in fiscal 1997 and 50% of Consolidated Excess Cash Flow
thereafter to repay the Term Facility and reduce Revolving Facility commitments.
Additionally, 100% of the Net Proceeds (as defined in the Credit Facility) of
any Asset Sale (as defined in the Credit Facility) and 75% of proceeds from the
sale of Capital Stock (as defined in the Credit Facility) not used for
acquisitions or the repurchase of subordinated debt, must be
F-19
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. LONG-TERM DEBT: (CONTINUED)
applied to repay the Term Facility and reduce the Revolving Facility
commitments. The Term Facility repayment schedule, after considering the terms
of the excess cash flow requirements, is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
YEAR ENDED SEPTEMBER 30, THOUSANDS)
- --------------------------------------------------------------------------------------------
<S> <C>
1998........................................................................................ $ 8,740
1999........................................................................................ 13,780
2000........................................................................................ 20,669
2001........................................................................................ 11,811
-------
$ 55,000
-------
-------
</TABLE>
10 7/8% SENIOR SUBORDINATED NOTES
On March 24, 1997, the Company issued $200 million of 10 7/8% Senior
Subordinated Notes ("the Notes"). The Notes were sold at 98.2071% of the face
amount to yield proceeds of $196.4 million. The proceeds of the Notes were used
to repay the existing 13% Senior Subordinated Notes due 2002, including a 3%
call premium and accrued interest, to reduce the SKC trade payable by $10
million and associated accrued interest, and to pay certain fees and expenses.
As a result of the call premium ($5.2 million) and existing discount on the 13%
notes ($11.6 million), the Company recorded an extraordinary loss on the
extinguishment of debt of $11.0 million, net of tax benefits.
The Notes are not redeemable at the option of the Company prior to April 1,
2000. On or after such date until April 1, 2003, the Notes will be redeemable at
the option of the Company in whole or in part at prices ranging from 108.156% to
102.710% plus accrued and unpaid interest. On or after April 1, 2003, the Notes
may be redeemable at 100% plus accrued and unpaid interest. Prior to April 1,
2000, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined in the Indenture), to redeem up to 35% of
the aggregate principal amount at a redemption price equal to 110.875% plus
unpaid interest to the date of redemption, provided that at least $130 million
of the aggregate principal amount of Notes originally issued remains outstanding
after any such redemption.
Also, upon a Change of Control (as defined in the Indenture), the Company is
required to make an offer to purchase the Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest. The Notes have no sinking fund requirements and are due in full on
April 1, 2004.
The Notes are general unsecured obligations of the Company and expressly
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company. The Notes will rank PARI PASSU
with any future Senior Subordinated Indebtedness (as defined in the Indenture)
and senior to all Subordinated Indebtedness (as defined in the Indenture) of the
Company.
The indenture relating to the Notes contains covenants related to
limitations of indebtedness of the Company and restricted subsidiaries,
limitations on restricted payments, limitations on restrictions on distributions
from restricted subsidiaries, limitations on sale of assets and restricted
subsidiary stock, limitations on liens, a prohibition on layering, limitations
on transactions with affiliates, limitations on issuance and sale of capital
stock of restricted subsidiaries, limitations of sale/leaseback transactions and
prohibits payment of dividends to common shareholders.
F-20
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. RIGHTS OFFERING:
On October 30, 1996, the Company completed a rights offering to its existing
shareholders that resulted in the issuance of 3.6 million shares of common
stock. For each share of Anacomp common stock held as of the close of business
on September 18, 1996, the Company distributed 0.36 rights to purchase an
additional share of common stock at a subscription price of $6.875 per share.
The Company is using the proceeds of the rights offering, approximately $25
million, for the acquisition of businesses, assets and technologies.
NOTE 15. CAPITAL STOCK:
REORGANIZED COMPANY
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.
STOCK OPTION PLANS
On July 22, 1996, the Company's Board of Directors approved the 1996
Restructure Recognition Incentive Plan. Under this plan, effective August 22,
1996, the Company awarded to employees 947,500 stock options to acquire new
common stock and 99,050 shares of restricted new common stock.
With regard to the stock options, the options were granted at an exercise
price of $4.63 per share of new common stock which will result in approximately
$3.2 million of compensation expense over the vesting period of the options
based on the market value of the stock at August 22, 1996. 75% of the options
vest ratably during the period from June 30, 1997 to June 30, 1999. 25% of the
options vest on September 30, 1999, provided certain performance goals have been
met; otherwise the options vest on June 30, 2003. During 1997 and 1996,
approximately $1 million and $200,000, respectively, was recognized as
compensation expense related to the options and the above noted restricted stock
award. The options expire 10 years after the date of the grant. As of September
30, 1997, 164,950 options were exercisable.
With regard to the restricted shares of new common stock, the shares vest
immediately and thus the Company recognized approximately $0.8 million of
compensation expense immediately upon granting the award based on the market
value of the Company's stock on August 22, 1996. The shares are restricted from
sale or transfer by the recipient employees until after September 30, 1997.
Effective December 6, 1996, 34,650 shares of restricted stock were returned by
employees to the Company.
In addition, on February 3, 1997 the Company's shareholders approved the
1996 Long-Term Incentive Plan, which provides for the future issuance of various
forms of stock related awards including options, stock appreciation rights and
restricted shares. The Company has reserved 1,400,000 shares of new common stock
for issuance under this plan. Awards, including the nature of the awards and
related exercise prices, are to be determined at the discretion of the
Compensation Committee of the Board of Directors in accordance with the plan
provisions.
The Company accounts for its Stock Option Plans in accordance with APB
Opinion No. 25 ("APB 25"), under which compensation expense is recognized only
to the extent the exercise price of the option is less than the fair market
value of a share of stock at the date of grant. During 1995, the Financial
F-21
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. CAPITAL STOCK: (CONTINUED)
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensations (SFAS 123), which considers
the stock options as compensation expense to the Company, based on their fair
value at the date of grant. Under this new standard, the Company has the option
of accounting for employee stock option plans as it currently does or under the
new method. The Company intends to continue to use the APB 25 method for
accounting, but has adopted the disclosure requirements of SFAS 123. Had
compensation costs for these plans been determined consistant with SFAS 123, the
Company's net loss would have been as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED FOUR MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------- ------------------
<S> <C> <C>
Net loss as reported.................................................... $ (67,811) $ (22,009)
Pro forma net loss...................................................... $ (69,940) $ (22,096)
Pro forma loss per share................................................ $ (5.21) $ (2.20)
</TABLE>
Stock Option activity under the plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVE.
EXERCISE
SHARES PRICE
---------- -------------
<S> <C> <C>
OUTSTANDING AT JUNE 1, 1996........................................................... -- --
Granted............................................................................... 947,500 $ 4.63
OUTSTANDING AT SEPTEMBER 30, 1996..................................................... 947,500 $ 4.63
Granted............................................................................... 939,205 $ 10.64
Canceled.............................................................................. (135,650) $ 4.86
Exercised............................................................................. (80,000) $ 5.15
---------- ------
OUTSTANDING AT SEPTEMBER 30, 1997..................................................... 1,671,055 $ 7.96
---------- ------
---------- ------
</TABLE>
The following information is summarized related to options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVE.
WEIGHTED AVE. EXERCISE PRICE OF
NUMBER OF RANGE OF EXERCISE EXERCISE WEIGHTED AVE. OPTIONS OPTIONS
OPTIONS PRICE PER SHARE PRICE REMAINING LIFE EXCERCISABLE EXCERCISABLE
- ---------- ----------------- ------------- -------------- ----------- -------------------
<C> <C> <C> <S> <C> <C>
743,725 $ 4.63 $ 4.63 8.89 Years 137,500 $ 4.63
575,598 $ 7.95-$11.13 $ 9.36 9.22 Years 49,253 $ 9.66
351,732 $ 12.50-$14.63 $ 12.74 9.68 Years 2,000 $ 12.50
- ----------
1,671,055
- ----------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option pricing model. The weighted average fair value of
options granted during 1997 and 1996, as well as the weighted average
assumptions used to determine the fair values are summarized below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fair Value of Options Granted...................................... $ 6.73 $ 6.05
Risk-Free Interest Rate............................................ 6.22% 6.57%
Expected Dividend Yield............................................ 0% 0%
Expected Volatility................................................ 40% 40%
Expected Life...................................................... 10 Years 10 Years
</TABLE>
F-22
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. CAPITAL STOCK: (CONTINUED)
WARRANTS
In connection with the Reorganization discussed in Note 2, Anacomp issued
362,694 new warrants to certain creditors and previous common and preferred
stockholders. Each new warrant was convertible into one share of new common
stock at an exercise price of $12.23 per share. In connection with the rights
offering discussed in Note 14, each new warrant is now convertible into 1.0566
shares of new common stock at an exercise price of $11.57 per share. The new
warrants expire on June 3, 2001.
OTHER ITEMS
On February 3, 1997, the Company's shareholders approved the Anacomp, Inc.
1997 Qualified Employee Stock Purchase Plan (the "Stock Purchase Plan"). The
Stock Purchase Plan allows qualified employees to purchase shares of the
Company's common stock at the lower of 85% of the fair market value at the date
of purchase or 85% of the fair market value on the first day of each quarterly
offering period. A maximum of 500,000 shares of common stock is available for
purchase under the Stock Purchase Plan. No shares are scheduled to be issued
prior to March 31, 1998.
At September 30, 1997, approximately 3.3 million shares of Anacomp new
common stock were reserved for exercise of stock options, exercise of warrants,
employee stock purchases and other corporate purposes.
PREDECESSOR COMPANY
STOCK OPTION PLANS
Anacomp's stock option plans provided 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 could
be exercised subject to such restrictions as the Board may impose at the time
the option was granted. In any event, each option terminated not later than 10
years after the date on which it was granted.
No shares were available for grant at May 31, 1996. Shares available for
grant under the plans were 1,401,328 at September 30, 1995. Options outstanding
were as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
----------- -------------------------------
<S> <C> <C> <C> <C>
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
Excercised.................................................................. (24,863) .563 -- 2.000
----------- --------- ---------
OUTSTANDING AT SEPTEMBER 30, 1995........................................... 3,507,895 .563 -- 9.000
Granted..................................................................... 677,181 .313 -- .313
Canceled.................................................................... (4,182,076) .313 -- 9.000
Expired..................................................................... (3,000) 2.000 -- 3.500
----------- --------- ---------
OUTSTANDING AT MAY 31, 1996................................................. -- $ -- -- $ --
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-23
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. CAPITAL STOCK: (CONTINUED)
All options existing at May 31, 1996 were canceled in connection with the
Company's Reorganization discussed in Note 2.
WARRANTS
In October 1990, Anacomp issued 6,825,940 warrants ("Old Warrants") to
holders of the 15% Senior Subordinated Notes. Each Old Warrant entitled the
holder to purchase one common share at a price of $1.873 and was exercisable
through November 11, 2000, the date of expiration. In connection with the
Reorganization discussed in Note 2, the Old Warrants were canceled.
NOTE 16. INCOME TAXES:
The components of income (loss) before income taxes and extraordinary credit
were:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------
<CAPTION>
TWELVE MONTHS FOUR MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MAY 31, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------- ------------------
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States.......................... $ (53,968) $ (21,602) $ 112,100 $ (209,151)
Foreign................................ 12,618 3,993 4,128 5,825
-------- -------- ------------- ----------
$ (41,350) $ (17,609) $ 116,228 $ (203,326)
-------- -------- ------------- ----------
-------- -------- ------------- ----------
</TABLE>
The components of the consolidated tax provision after utilization of net
operating loss carryforwards and the adjustment of tax reserves are summarized
below:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
<CAPTION>
TWELVE MONTHS FOUR MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MAY 31, 1996 SEPTEMBER 30, 1995
------------------- ------------------- ------------- ------------------
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal.............................. $ 300 $ 600 $ -- $ --
Foreign.............................. 5,400 2,400 3,700 4,800
State................................ 400 100 -- --
------ ------ ------------- -------
$ 6,100 $ 3,100 $ 3,700 $ 4,800
Tax reserve adjustment................. 2,800 -- -- 1,200
Non-cash charge in lieu of taxes....... 700 1,300 29,000 29,000
------ ------ ------------- -------
$ 9,600 $ 4,400 $ 32,700 $ 35,000
------ ------ ------------- -------
------ ------ ------------- -------
</TABLE>
F-24
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. INCOME TAXES: (CONTINUED)
The income tax provision is included in the Consolidated Statements of
Operations as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------
<CAPTION>
TWELVE MONTHS FOUR MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MAY 31, 1996 SEPTEMBER 30, 1995
------------------ ------------------- ------------- ------------------
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes before
extraordinary items.................. $ 15,500 $ 4,400 $ 3,700 $ 35,000
Extraordinary gain on discharge of
indebtedness......................... -- -- 29,000 --
Extraordinary loss extinguishment of
indebtedness......................... (5,900) -- -- --
------- ------ ------------- -------
$ 9,600 $ 4,400 $ 32,700 $ 35,000
------- ------ ------------- -------
------- ------ ------------- -------
</TABLE>
For the reorganized company, the non-cash charge in lieu of taxes represents
the utilization of pre-organization tax benefits which are reflected as
reductions in the reorganization asset. For the predecessor company, the
non-cash charge in lieu of taxes represents the utilization of pre-acquisition
tax benefits which are reflected as reductions to goodwill.
The following is a reconciliation of income taxes calculated at the United
States federal statutory rate to the provision for income taxes:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
------------------------------------------------------------
<CAPTION>
TWELVE MONTHS FOUR MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, MAY 31, SEPTEMBER 30,
1997 1996 1996 1995
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes at U.S. statutory rate... $ (14,203) $ (6,200) $ 40,700 $ (71,200)
Non taxable reorganization income................... -- -- (43,700) --
Increase in deferred tax asset valuation
allowance......................................... -- -- -- 51,400
Nondeductible amortization and write-off of
intangible assets................................. 24,359 8,300 2,500 40,500
State and foreign income taxes...................... 2,677 1,200 2,300 2,800
U.S. tax on distributed and undistributed foreign
earnings.......................................... -- -- -- 12,300
Tax reserve adjustment.............................. 2,800 -- -- 1,200
Tax effect of pre-reorganization loss not available
due to ownership change........................... -- -- 2,100 --
Alternative minimum tax............................. 400 1,000 -- --
Other............................................... (533) 100 (200) (2,000)
-------------- ------------- ------------- --------------
$ 15,500 $ 4,400 $ 3,700 $ 35,000
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
F-25
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. INCOME TAXES: (CONTINUED)
The components of deferred tax assets and liabilities at September 30, 1997
and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
----------------------------
SEPTEMBER 30,
----------------------------
NET DEFERRED TAX ASSET 1997 1996
- ------------------------------------------------------------------------------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tax effects of future differences related to:
Inventory reserves................................................................ $ 9,300 $ 7,000
Depreciation...................................................................... 1,900 1,600
Building reserves................................................................. 1,600 500
EPA reserve....................................................................... 2,700 2,500
Sale/leaseback of assets.......................................................... (900) 700
Restructuring activities.......................................................... (400) 1,200
Asset sale........................................................................ 1,800 2,600
Bad debt reserve.................................................................. 1,700 1,800
Insurance......................................................................... 1,400 --
Other............................................................................. 4,600 7,800
Leases............................................................................ (1,600) (2,100)
Capitalized software.............................................................. (2,300) (2,700)
------------- -------------
Net tax effects of future differences............................................... 19,800 20,900
------------- -------------
Tax effects of carryforward benefits:
Federal net operating loss carryforwards.......................................... 59,900 47,900
Federal general business tax credits.............................................. 3,200 3,600
Foreign tax credits............................................................... 3,000 3,000
------------- -------------
Tax effects of carryforwards........................................................ 66,100 64,500
------------- -------------
Tax effects of future taxable differences and carryforwards......................... 85,900 85,400
Less deferred tax asset valuation allowance......................................... (85,900) (85,400)
------------- -------------
Net deferred tax asset.............................................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
At September 30, 1997, the Reorganized Company has NOLs of approximately
$149.6 million available to offset future taxable income. This amount will
increase to $199.1 million as certain temporary differences reverse in future
periods. 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.
The Reorganized Company has tax credit carryforwards of approximately $16.9
million. These tax credits are principally foreign tax credit carryforwards
resulting from inclusion of the accumulated earnings and profits of the
Reorganized Company's foreign subsidiaries in U.S. taxable income in 1996. The
Reorganized Company expects that these credits will expire unused.
The tax benefits of pre-reorganization net deferred tax assets will be
reported first as a reduction of "Reorganization value in excess of identifiable
assets" and then as a credit to equity. These tax benefits will not reduce
income tax expense.
F-26
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. 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:
<TABLE>
<CAPTION>
(DOLLARS IN
YEAR ENDED SEPTEMBER 30, THOUSANDS)
- ------------------------------------------------------------------------ --------------------
<S> <C>
1998.................................................................... $ 15,351
1999.................................................................... 6,180
2000.................................................................... 2,482
2001.................................................................... 1,456
2002.................................................................... 1,032
2003 and thereafter..................................................... 6,909
-------
33,410
Less liabilities recorded as of September 30, 1997 related to
unfavorable lease commitments and future lease costs for vacant
facilities ($4.9 million reflected in current liabilities)............ (6,197)
-------
$ 27,213
-------
-------
</TABLE>
The total of future minimum rentals to be received under noncancelable
subleases related to the above leases is $752,000. No material losses in excess
of the liabilities recorded are expected in the future.
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 output AFP data streams,
including those containing fonts, logos, signatures and other images, onto
microfiche.
As consideration for the development of the AFP, Anacomp paid Pennant
Systems a development fee of $6.5 million. Anacomp was also required to pay
Pennant Systems minimum annual royalty payments for the licensed system
installations for six years and for ongoing system support which began in
December 1995 and continues for 10 years. During 1995, Anacomp established a
reserve of $8.6 million for future payments to Pennant Systems for software
royalty and systems support obligations which were not recoverable as more fully
discussed in Note 1. In connection with the Company's financial restructuring
during 1996, this contract was renegotiated with Pennant such that the reserve
requirements were greatly reduced. The renegotiated contract requires Anacomp to
make future license fee payments to Pennant Systems of $625,000 annually through
fiscal year 1999, of which $0.6 million is reserved at 9/30/97.
The Company sold $10.5 million of lease receivables in the twelve months
ended September 30, 1995. Under the terms of the sale, the purchasers have
recourse to the Company should the receivables prove to be uncollectable. The
amount of recourse remaining at September 30, 1997 is $1.2 million.
Anacomp also is involved in various claims and lawsuits incidental to its
business and management 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.
F-27
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. SUPPLEMENTARY INCOME STATEMENT INFORMATION:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
<S> <C> <C> <C> <C>
------------------------------------------------------------
<CAPTION>
TWELVE MONTHS FOUR MONTHS EIGHT MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, MAY 31, SEPTEMBER 30,
1997 1996 1996 1995
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maintenance and repairs............................. $ 10,550 $ 3,505 $ 7,243 $ 16,609
Depreciation and amortization:
Property and equipment............................ 10,278 3,696 8,573 19,406
Deferred software costs........................... 1,730 297 1,883 3,449
Intangible assets................................. 79,156 25,853 6,841 13,143
Rent and lease expense............................ 16,641 5,936 13,958 23,755
</TABLE>
NOTE 19. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------
<S> <C> <C>
SEPTEMBER 30,
--------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Unfavorable lease commitment related to sale/leaseback transactions...................... $ 3,755 $ 4,550
EPA reserve.............................................................................. 6,779 6,961
Other.................................................................................... 23,995 25,303
--------- ---------
$ 34,529 $ 36,814
--------- ---------
--------- ---------
</TABLE>
Xidex Corporation, a predecessor company of Anacomp, 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 locations and other sites. No material losses are expected in
excess of the liabilities recorded above.
NOTE 20. EARNINGS (LOSS) 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 and exercise of warrants. 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. For the twelve months ended September 30,
1997, and the four months ended September 30, 1996, earnings per share is
presented based on the weighted average shares outstanding before the effect of
continently issuable shares, stock options or warrants due to the losses
reported for the periods.
F-28
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20. EARNINGS (LOSS) PER SHARE: (CONTINUED)
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 Reorganization and implementation of Fresh Start
Reporting, they are not comparable to subsequent periods. The weighted average
number of common and common equivalent shares used to compute earnings per share
is:
<TABLE>
<CAPTION>
TWELVE MONTHS FOUR MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
<S> <C> <C>
Common and common equivalent shares................................................ 13,432,337 10,033,576
</TABLE>
NOTE 21. 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 twelve
months ended September 30, 1997, the four months ended September 30, 1996, the
eight months ended May 31, 1996 and the twelve months ended September 30, 1995
is as follows:
TWELVE MONTHS ENDED SEPTEMBER 30, 1997--REORGANIZED COMPANY
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Customer sales.............................................. $ 301,377 $ 161,133 $ -- $ 462,510
Inter-geographic............................................ 20,366 -- (20,366) --
---------- ------------ ----------- ------------
Total sales................................................. $ 321,743 $ 161,133 $ (20,366) $ 462,510
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Operating income (loss)..................................... $ (30,067) $ 21,552 $ -- $ (8,515)
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Identifiable assets......................................... $ 346,487 $ 45,464 $ -- $ 391,951
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
FOUR MONTHS ENDED SEPTEMBER 30, 1996--REORGANIZED COMPANY
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Customer sales.............................................. $ 102,733 $ 48,809 $ -- $ 151,542
Inter-geographic............................................ 4,449 -- (4,449) --
---------- ------------ ----------- ------------
Total sales................................................. $ 107,182 $ 48,809 $ (4,449) $ 151,542
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Operating income............................................ $ (12,401) $ 6,637 $ -- $ (5,764)
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Identifiable assets......................................... $ 390,088 $ 45,333 $ -- $ 435,421
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
F-29
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. INTERNATIONAL OPERATIONS: (CONTINUED)
EIGHT MONTHS ENDED MAY 31, 1996--PREDECESSOR COMPANY
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Customer sales.............................................. $ 227,742 $ 106,856 $ -- $ 334,598
Inter-geographic............................................ 12,592 -- (12,592) --
---------- ------------ ----------- ------------
Total sales................................................. $ 240,334 $ 106,856 $ (12,592) $ 334,598
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Operating income............................................ $ 34,990 $ 6,615 $ -- $ 41,605
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
TWELVE MONTHS ENDED SEPTEMBER 30, 1995--PREDECESSOR COMPANY
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATION CONSOLIDATED
----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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 (loss).................................... $ (135,811) $ 7,622 $ -- $ (128,189)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Identifiable assets........................................ $ 350,310 $ 70,719 $ -- $ 421,029
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1997--REORGANIZED COMPANY
Revenues........................................................ $ 116,453 $ 114,520 $ 114,041 $ 117,496
Gross profit.................................................... 41,414 38,801 37,782 39,999
Income (loss) before extraordinary loss......................... (12,914) (14,566) (14,856) (14,514)
Extraordinary loss on extinguishment of debt.................... -- (12,536) 875 700
---------- ---------- ---------- -----------
Net loss to common stockholders................................. $ (12,914) $ (27,102) $ (13,981) $ (13,814)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Loss per common share (primarily and fully diluted):
Loss available to common stockholders before extraordinary gain
(loss)........................................................ $ (1.01) $ (1.06) $ (1.08) $ (1.05)
Extraordinary gain (loss) on the extinguishment of debt, net of
income tax benefit............................................ -- (.92) .06 .05
---------- ---------- ---------- -----------
Loss available to common stockholders........................... $ (1.01) $ (1.98) $ (1.02) $ (1.00)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
F-30
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY REORGANIZED COMPANY
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------
<CAPTION>
TWO ONE
MONTHS MONTH
ENDED ENDED
FIRST SECOND MAY 31, JUNE 30, FOURTH
QUARTER QUARTER 1996 1996 QUARTER
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Revenues.............................................. $ 130,265 $ 125,911 $ 78,422 $ 36,786 $ 114,756
Gross profit.......................................... 40,666 40,411 23,903 11,895 37,692
Income (loss) before extraordinary credit............. 1,053 (10,731) 122,206 (4,372) (17,637)
Extraordinary gain on discharge of indebtedness....... -- -- 52,442 -- --
Net income (loss)..................................... 1,053 (10,731) 174,648 (4,372) (17,637)
Preferred stock dividends and discount accretion...... 540 -- -- -- --
---------- ---------- ---------- --------- ----------
Net income (loss) available to common stockholders.... $ 513 $ (10,731) $ 174,648 $ (4,372) $ (17,637)
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Earnings per common share (primarily and fully
diluted):
Net loss available to common stockholders............. $ (.44) $ (1.75)
--------- ----------
--------- ----------
</TABLE>
NOTE 23. 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 twelve months ended September 30, 1997
for the periods ended September 30, 1996 and May 31, 1996 and for the twelve
months ended September 30, 1995:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ---------------------------------------------------------------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TWELVE MONTHS ENDED SEPTEMBER 30, 1997--REORGANIZED COMPANY
Allowance for doubtful accounts............................... $ 6,768 $ (341) $ 926 $ 5,501
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
FOUR MONTHS ENDED SEPTEMBER 30, 1996--REORGANIZED COMPANY
Allowance for doubtful accounts............................... $ 7,464 $ 388 $ 1,084(1) $ 6,768
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
EIGHT MONTHS ENDED MAY 31, 1996--PREDECESSOR COMPANY
Allowance for doubtful accounts............................... $ 7,367 $ 253 $ 156(1) $ 7,464
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
TWELVE MONTHS ENDED SEPTEMBER 30, 1995--PREDECESSOR COMPANY
Allowance for doubtful accounts............................... $ 3,550 $ 4,670 $ 853(1) $ 7,367
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
F-31
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24. SUBSEQUENT EVENTS
ACQUISITIONS
FIRST IMAGE
On June 18, 1998, the Company completed the acquisition ("Acquisition") of
assets constituting substantially all of the business and operations (the "First
Image Businesses") of First Image Management Company ("First Image"), a division
of First Financial Management Corporation ("FFMC"), a wholly owned subsidiary of
First Data Corporation. The Company also assumed substantially all of the
ongoing liabilities of the First Image Businesses. The purchase price paid by
the Company to FFMC at the closing of the Acquisition was $150.0 million,
although a post-closing adjustment has resulted in FFMC returning to the Company
$4.2 million to reflect a shortfall in the agreed-upon working capital for the
First Image Businesses. The First Image Businesses include (i) image access
services, primarily computer output to microfilm and compact disc services (the
"IAS Business"), (ii) document print and distribution services such as laser
print and mail and demand publishing services (the "DPDS Business") and (iii)
document acquisition services such as health care and insurance claims entry and
data capture services (the "DAS Business"). The Company will retain and continue
to operate the IAS Business. On August 10, 1998, the Company consummated the
sale of the DAS Business to ACS Shared Services, Inc., a wholly owned subsidiary
of Affiliated Computer Services, Inc., effective July 1, 1998. On July 31, 1998,
the Company consummated the sale of the DPDS Business to AccuDocs LLC (formerly
known as Southern Micrographix Company LLC), effective August 1, 1998. The sale
of both businesses generated $45.0 million in cash for the Company. Combined,
the two businesses accounted for 44% of First Image's revenues for the year
ended December 31, 1997.
OTHER
During the nine months ended June 30, 1998, the Company acquired either the
customer bases and other specified assets or the stock of nine businesses. Total
consideration paid at closing was $17.9 million, of which approximately $12.5
million was assigned to excess of purchase price over net assets acquired.
The aggregate purchase prices consisted of $17.0 million cash at closing,
$0.9 million in assumed liabilities and contingent cash payments of up to $10.9
million based upon future operating results of the acquired businesses over the
next 10 years.
SENIOR DEBT REFINANCING
On June 15, 1998, the Company entered into a new $80 million senior secured
revolving credit facility (the "New Facility") to replace its existing $80
million senior secured term loan and revolving credit facility. The New Facility
is secured by substantially all of the Company's assets and 65% of the capital
stock of the Company's foreign subsidiaries. Among other restrictions, the New
Facility contains certain covenants with respect to the Company relating to
limitations on additional debt, limitation on mergers and acquisitions,
limitations on liens, minimum EBITDA, interest coverage and leverage ratios.
10 7/8% SENIOR SUBORDINATED NOTES
On June 18, 1998, the Company issued $135 million of additional 10 7/8%
Senior Subordinated Notes (the "New Notes"). The New Notes were sold at 104% of
the face amount to yield proceeds of $140.4 million which resulted in a $5.4
million premium to be offset against interest expense over the life of the
F-32
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24. SUBSEQUENT EVENTS (CONTINUED)
New Notes. The proceeds of the New Notes, along with available cash, were used
to finance the acquisition of the First Image Businesses.
The New Notes are not redeemable at the option of the Company prior to April
1, 2000. On or after such date and until April 1, 2003, the New Notes will be
redeemable at the option of the Company in whole or in part at prices ranging
from 108.156% to 102.710% plus accrued and unpaid interest. On or after April 1,
2003, the New Notes may be redeemable at 100% plus accrued and unpaid interest.
Prior to April 1, 2000, the Company may, at its option, use the net cash
proceeds of one or more Public Equity Offerings (as defined), to redeem up to
35% of the aggregate principal amount at a redemption price equal to 110.875%
plus unpaid interest to the date of redemption, provided that at least $87.75
million of the aggregate principal amount of New Notes originally issued remains
outstanding after such redemption. Also, upon a Change of Control (as defined),
the Company is required to make an offer to purchase the New Notes then
outstanding at a purchase price equal to 101% plus accrued and unpaid interest.
The New Notes have no sinking fund requirements and are due in full on April 1,
2004.
The New Notes are general unsecured obligations of the Company and expressly
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company. The New Notes rank pari passu with any future
Senior Subordinated Indebtedness (as defined) and senior to all Subordinated
Indebtedness (as defined) of the Company.
The indenture related to the New Notes contains covenants with respect to
the Company related to limitations of indebtedness of the Company and its
restricted subsidiaries, limitations on restricted payments, limitations on
distributions from restricted subsidiaries, limitations on sale of assets and
restricted subsidiary stock, limitations on liens, a prohibition on layering,
limitations on transactions with affiliates, limitations on issuance and sale of
capital stock of restricted subsidiaries, limitations of sale/ leaseback
transactions and limitations on mergers, consolidations or sales of
substantially all of the Company's assets.
F-33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ANACOMP, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
ANACOMP, INC. OR ANY OF ITS SUBSIDIARIES SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Forward Looking Statements..................... 3
Prospectus Summary............................. 4
Risk Factors................................... 18
Use of Proceeds................................ 23
Capitalization................................. 24
The Acquisition and Related Dispositions....... 25
Unaudited Pro Forma Consolidated Financial
Information.................................. 29
Selected Consolidated Financial Data........... 34
The Exchange Offer............................. 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 43
Business....................................... 49
Management..................................... 63
Security Ownership of Certain Beneficial Owners
and Management............................... 75
Certain Relationships and Related
Transactions................................. 76
Description of Notes........................... 77
Description of the New Revolving Credit
Facility..................................... 104
Certain U.S. Federal Income Tax
Considerations............................... 106
Plan of Distribution........................... 106
Legal Matters.................................. 107
Experts........................................ 107
Index to Consolidated Financial Statements..... F-1
</TABLE>
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
OFFER TO EXCHANGE ITS
10 7/8% SERIES D
SENIOR SUBORDINATED NOTES
DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10 7/8% SERIES C
SENIOR SUBORDINATED NOTES
DUE 2004
--------------
PROSPECTUS
--------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company 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
Company. 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 bylaws, 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Third Amended Joint Plan of Reorganization of the Company and certain of its subsidiaries.(1)
2.2 -- Asset Purchase Agreement, dated as of May 5, 1998, among the Company, First Financial Management
Corporation and First Data Corporation.(2)
2.3 -- Amendment No. 1, dated June 18, 1998, to Asset Purchase Agreement, dated as of May 5, 1998, among
Anacomp, Inc., First Financial Management Corporation and First Data Corporation.
3.1 -- Amended and Restated Articles of Incorporation of the Company.(3)
3.2 -- Amended and Restated Bylaws of the Company.(3)
4.1 -- Form of Common Stock Certificate.(3)
4.2 -- Warrant Agreement, dated as of June 4, 1996, between the Company and ChaseMellon Shareholder
Services, L.L.C.(3)
4.3 -- Form of Warrant Certificate.(3)
4.4 -- Indenture, dated as of March 24, 1997, between the Company and IBJ Schroder Bank & Trust Company, as
trustee, relating to the Company's 10 7/8% Senior Subordinated Notes due 2004, Series A and 10 7/8%
Senior Subordinated Notes due 2004, Series B.(4)
4.5 -- First Supplemental Indenture, dated as of June 12, 1998, to the Indenture, dated as of March 24,
1997, between Anacomp, Inc., as issuer, and IBJ Schroder Bank & Trust
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------------
Company, as trustee, relating the 10 7/8% Senior Subordinated Notes due 2004, Series A and the
10 7/8% Senior Subordinated Notes due 2004, Series B (containing, as exhibits, specimens of such
Series A Notes and Series B Notes).(2)
<C> <C> <S>
4.6 -- Indenture, dated as of June 18, 1998, between the Company and IBJ Schroder Bank & Trust Company, as
trustee, relating to the Company's 10 7/8% Series C Senior Subordinated Notes due 2004 and 10 7/8%
Series D Senior Subordinated Notes due 2004.(2)
4.7 -- Purchase Agreement, dated June 12, 1998, between the Company and NatWest Capital Markets Limited,
relating to the Company's 10% Series C Senior Subordinated Notes due 2004.(2)
4.8 -- Exchange and Registration Rights Agreement, dated June 18, 1998, between the Company and NatWest
Capital Markets Limited, relating to the Company's 10 7/8% Series C Senior Subordinated Notes due
2004 and 10 7/8% Series D Senior Subordinated Notes due 2004.(4)
4.9 -- Form Letter of Transmittal, relating to the Company's 10 7/8% Series C Senior Subordinated Notes due
2004 and 10 7/8% Series D Senior Subordinated Notes due 2004.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
10.1 -- Employment Agreement, effective January 6, 1997, between the Company and Ralph W. Koehrer. (5)
10.2 -- Employment Agreement, effective March 1, 1992, between the Company and Thomas R. Simmons.(6)
10.3 -- Employment Agreement, effective February 15, 1996, between the Company and Donald L. Viles.(7)
10.4 -- Employment Agreement, effective February 15, 1996, between the Company and Gary M. Roth.(8)
10.5 -- Employment Agreement, effective February 15, 1996, between the Company and Ray L. Dicasali.(8)
10.6 -- Employment Agreement, effective February 15, 1996, between the Company and Frederick F. Geyer.
10.7 -- Revolving Credit Agreement, dated as of June 15, 1998, among Anacomp, Inc., the various lending
institutions named therein and BankBoston, N.A. as agent.(2)
10.10 -- Common Stock Registration Rights Agreement, dated as of June 4, 1996, by and among the Company and
Holders of Registrable Shares.(3)
10.11 -- Amended and Restated Master Supply Agreement, dated October 8, 1993, by and among the Company, SKC
America, Inc. and SKC Limited.(6)
10.12 -- First Cumulative Amendment to the Amended and Restated Master Supply Agreement, dated May 17, 1996,
by and among the Company, SKC America, Inc. and SKC Limited.(9)
12.1 -- Statement regarding computation of ratio of earnings to fixed charges.
12.2 -- Statement regarding computation of pro forma ratio of earnings to fixed charges.
21.1 -- Subsidiaries.(8)
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Ernst & Young LLP.
24.1 -- Powers of Attorney pursuant to which amendments to this Registration Statement may be filed (included
in the signature page).
25.1 -- Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company.
</TABLE>
- ------------------------
(1) 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)
II-2
<PAGE>
(2) Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on June 24, 1998 (File No. 1-8328).
(3) 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).
(4) Incorporated by reference to the Company's Registration Statement to Form
S-4 filed with the Securities and Exchange Commission on April 16, 1997
(File No. 333-25281).
(5) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended December 31, 1997.
(6) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1993.
(7) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1996.
(8) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1997.
(9) Incorporated by reference to the Company's Pre-Effective Amendment No. 1 to
Form S-1 filed with the Exchange Commission on September 19, 1996 (File No.
333-9395).
(b) Financial Statement Schedules.
Financial Statement Schedules are not filed herewith because the Schedules
are either inapplicable or the required information is represented in the
consolidated financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply be means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Poway, State of
California, on August 17, 1998.
<TABLE>
<S> <C> <C>
ANACOMP, INC.
By: /s/ RALPH W. KOEHRER
-----------------------------------------
RALPH W. KOEHRER
President, Chief Executive Officer and
Director
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph W. Koehrer, Donald L. Viles and George C.
Gaskin, Esq. and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform such and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on August 17, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ RALPH W. KOEHRER Officer and Director
- ------------------------------ (Principal Executive
RALPH W. KOEHRER Officer)
Executive Vice President
/s/ RALPH W. KOEHRER and Chief Financial
- ------------------------------ Officer (Principal
DONALD L. VILES Financial and Accounting
Officer)
/s/ RICHARD D. JACKSON
- ------------------------------ Co-Chairman of the Board
RICHARD D. JACKSON of Directors
/s/ LEWIS SOLOMON
- ------------------------------ Co-Chairman of the Board
LEWIS SOLOMON of Directors
/s/ TALTON R. EMBRY
- ------------------------------ Director
TALTON R. EMBRY
/s/ DARIUS W. GASKINS
- ------------------------------ Director
DARIUS W. GASKINS, JR.
/s/ JAY P. GILBERTSON
- ------------------------------ Director
JAY P. GILBERTSON
/s/ GEORGE A. POOLE, JR.
- ------------------------------ Director
GEORGE A. POOLE, JR.
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
2.1 -- Third Amended Joint Plan of Reorganization of the Company and certain of its
subsidiaries.(1)
2.2 -- Asset Purchase Agreement, dated as of May 5, 1998, among the Company, First Financial
Management Corporation and First Data Corporation.(2)
2.3 -- Amendment No. 1, dated as of June 18, 1998, to Asset Purchase Agreement, dated as of May 5,
1998, among Anacomp, Inc., First Financial Management Corporation and First Data
Corporation.
3.1 -- Amended and Restated Articles of Incorporation of the Company.(3)
3.2 -- Amended and Restated Bylaws of the Company.(3)
4.1 -- Form of Common Stock Certificate.(3)
4.2 -- Warrant Agreement, dated as of June 4, 1996, between the Company and ChaseMellon Shareholder
Services, L.L.C.(2)
4.3 -- Form of Warrant Certificate.(3)
4.4 -- Indenture, dated as of March 24, 1997, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, relating to the Company's 10 7/8% Senior Subordinated Notes due 2004,
Series A and 10 7/8% Senior Subordinated Notes due 2004, Series B.(4)
4.5 -- First Supplemental Indenture, dated as of June 12, 1998, to the Indenture, dated as of March
24, 1997, between Anacomp, Inc., as issuer, and IBJ Schroder Bank & Trust Company, as
trustee, relating the 10 7/8% Senior Subordinated Notes due 2004, Series A and the 10 7/8%
Senior Subordinated Notes due 2004, Series B (containing, as exhibits, specimens of such
Series A Notes and Series B Notes).(2)
4.6 -- Indenture, dated as of June 18, 1998, between the Company and IBJ Schroder Bank & Trust
Company, as trustee, relating to the Company's 10 7/8% Series C Senior Subordinated Notes
due 2004 and 10 7/8% Series D Senior Subordinated Notes due 2004.(2)
4.7 -- Purchase Agreement, dated June 12, 1998, between the Company and NatWest Capital Markets
Limited, relating to the Company's 10% Series C Senior Subordinated Notes due 2004.(2)
4.8 -- Exchange and Registration Rights Agreement, dated June 18, 1998, between the Company and
NatWest Capital Markets Limited, relating to the Company's 10 7/8% Series C Senior
Subordinated Notes due 2004 and 10 7/8% Series D Senior Subordinated Notes due 2004.(2)
4.9 -- Form Letter of Transmittal, relating to the Company's 10 7/8% Series C Senior Subordinated
Notes due 2004 and 10 7/8% Series D Senior Subordinated Notes due 2004.
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
10.1 -- Employment Agreement, effective January 6, 1997, between the Company and Ralph W. Koehrer.
(5)
10.2 -- Employment Agreement, effective March 1, 1992, between the Company and Thomas R. Simmons.(6)
10.3 -- Employment Agreement, effective February 15, 1996, between the Company and Donald L.
Viles.(7)
10.4 -- Employment Agreement, effective February 15, 1996, between the Company and Gary M. Roth.(8)
10.5 -- Employment Agreement, effective February 15, 1996, between the Company and Ray L.
Dicasali.(8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
10.6 -- Employment Agreement, effective February 15, 1996, between the Company and Frederick F.
Geyer.
10.7 -- Revolving Credit Agreement, dated as of June 15, 1998, among Anacomp, Inc., the various
lending institutions named therein and BankBoston, N.A. as agent.(2)
10.10 -- Common Stock Registration Rights Agreement, dated as of June 4, 1996, by and among the
Company and Holders of Registrable Shares.(3)
10.11 -- Amended and Restated Master Supply Agreement, dated October 8, 1993, by and among the
Company, SKC America, Inc. and SKC Limited.(6)
10.12 -- First Cumulative Amendment to the Amended and Restated Master Supply Agreement, dated May
17, 1996, by and among the Company, SKC America, Inc. and SKC Limited.(9)
12.1 -- Statement regarding computation of ratio of earnings to fixed charges.
12.2 -- Statement regarding computation of pro forma ratio of earnings to fixed charges.
21.1 -- Subsidiaries.(8)
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Ernst & Young LLP.
24.1 -- Powers of Attorney pursuant to which amendments to this Registration Statement may be filed
(included in the signature page).
25.1 -- Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company.
</TABLE>
- ------------------------
(1) 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) Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on June 24, 1998 (File No. 1-8328).
(3) 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).
(4) Incorporated by reference to the Company's Registration Statement to Form
S-4 filed with the Securities and Exchange Commission on April 16, 1997
(File No. 333-25281).
(5) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended December 31, 1997.
(6) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1993.
(7) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1996.
(8) Incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1997.
(9) Incorporated by reference to the Company's Pre-Effective Amendment No. 1 to
Form S-1 filed with the Exchange Commission on September 19, 1996 (File No.
333-9395).
<PAGE>
- ------------------------------------------------------------------------------
AMENDMENT NO. 1
to
ASSET PURCHASE AGREEMENT
Dated as of May 5, 1998
among
ANACOMP, INC.,
FIRST FINANCIAL MANAGEMENT CORPORATION
and
FIRST DATA CORPORATION
- ------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1 TO ASSET
PURCHASE AGREEMENT
THIS AMENDMENT NO. 1, dated as of June 18, 1998 (this "Amendment"), to
Asset Purchase Agreement dated as of May 5, 1998 among Anacomp, Inc.
("Buyer"), First Financial Management Corporation ("FFMC") and First Data
Corporation ("FDC" and, together with FFMC, "Sellers").
WITNESSETH:
WHEREAS, Buyer and Sellers have agreed that, notwithstanding the
provisions of the Asset Purchase Agreement, the calculation of Closing Net
Working Capital in the middle of a month is impractical; and
WHEREAS, in order to determine Closing Net Working Capital at the end of a
month and to set forth certain other mutual agreements with respect to the
Asset Purchase Agreement, the parties desire to enter into this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In this Amendment, unless the context shall otherwise
require, a term defined in the Asset Purchase Agreement has the same meaning
when used in this Amendment and a term defined anywhere in this Amendment has
the same meaning throughout.
In addition, Section 1.1 of the Asset Purchase Agreement shall be amended
by deleting the definition of "Closing Net Working Capital" set forth therein
in its entirety and substituting in lieu thereof:
`"Closing Net Working Capital" means the Net Working Capital of the
Division as of the close of business on May 31, 1998, as determined in
accordance with Section 3.2.'
1.2 Interpretation. Each definition in this Amendment includes the
singular and the plural, and reference to the neuter gender includes the
masculine and feminine where appropriate. References to any statute or
regulation means such statute or regulation as amended at the time and
include any successor legislation or regulations. The heading to the
<PAGE>
Articles and Sections are for convenience of reference and shall not affect
the meaning or interpretation of this Amendment. Except as otherwise stated,
reference to Articles, Sections and Schedules mean the Articles, Sections and
Schedules of this Amendment.
ARTICLE II
PURCHASE AND SALE
2.1. Purchased Assets.
(a) Section 2.1(a) of the Asset Purchase Agreement shall be deleted in
its entirety and the following shall be substituted in lieu thereof:
"(a) All of the assets reflected on the Interim Balance
Sheet, except for cash held by the Division prior to June 1,
1998, except for cash held by the Division on or after June 1,
1998 in the amount of $366,781 and except for those assets
disposed of or converted into cash after the Interim Balance
Sheet Date in the ordinary course of Business and in accordance
with this Agreement;"
(b) A new clause (q) shall be added to Section 2.1 of the
Asset Purchase Agreement to read as follows:
"(q) All cash, bank deposits and cash equivalents in the
accounts set forth in Schedule 2.1 to Amendment No. 1 to this
Agreement."
2.2. Excluded Assets. Section 2.2(a) of the Asset Purchase
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"(a) All cash, bank deposits and cash equivalents held by
the Division prior to June 1, 1998 and cash held by the
Division on or after June 1, 1998 in the amount of $366,781;"
2.3. Assumed Liabilities. Section 2.3(a) of the Asset Purchase
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"(a) All liabilities reflected in the calculation of
Closing Net Working Capital and all liabilities of the type
reflected in such calculation which have been incurred on or
after June 1, 1998 (or would have been accrued in such
calculation as of the Closing Date);"
-2-
<PAGE>
2.4. Adjustment Procedure. Section 3.2(c)(i) of the Asset Purchase
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"(i) Within sixty (60) calendar days after the Closing Date,
Sellers Shall cause the Atlanta office of Ernst & Young LLP, on
their behalf, to prepare and deliver to Buyer an unaudited
consolidated balance sheet of the Division, dated as of May 31,
1998 (the "Closing Balance Sheet"), which shall include a
calculation of the Closing Net Working Capital and shall certify
that the Closing Balance Sheet has been prepared in accordance with
the Agreed Accounting Principles and otherwise on a basis
consistent with the Working Capital Model."
2.5. Liability for Taxes. Clause (I) of Section 8.2.1(a) shall be
deleted in its entirety and the following shall be substituted in lieu thereof:
"(I) any Tax liability or reserve taken into account in the
calculation of the Closing Net Working Capital as provided in
Section 3.2 and any Tax liability or reserve of the type reflected
in such calculation which has been incurred on or after June 1,
1998 (or would have been reserved for in such calculation as of the
Closing Date),"
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1. Counterparts. This Amendment may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
3.2. Entire Agreement. With respect to the subject matter hereof, this
Amendment shall supersede anything to the contrary contained in the Asset
Purchase Agreement.
3.3. Partial Invalidity. Wherever possible, each provision hereof shall
be interpreted in such manner as to be effective and valid under applicable
law, but in case any one or more of the provisions contained herein shall,
for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or
3
<PAGE>
unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.
3.4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW YORK.
3.5. Waiver. Any term or provision of this Amendment may be waived, or
the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Amendment if, as to any
party, it is authorized in writing by an authorized representative of such
party. The failure of any party hereto to enforce at any time any provision
of this Amendment shall not be construed to be a waiver of such provision,
nor in any way to affect the validity of this Amendment or any part hereof or
the right of any party thereafter to enforce each and every such provision.
No waiver of any breach of this Amendment shall be held to constitute a
waiver of any other or subsequent breach.
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the
date first above written.
ANACOMP, INC.
By: /s/ George C. Gaskin
--------------------------------
Name: George C. Gaskin
Title: Senior Vice President
FIRST FINANCIAL MANAGEMENT
CORPORATION
By: /s/ Karen Sitzman
--------------------------------
Name: Karen Sitzman
Title: Assistant Secretary
FIRST DATA CORPORATION
By: /s/ Karen Sitzman
--------------------------------
Name: Karen Sitzman
Title: Assistant Secretary
5
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 7/8% SERIES C SENIOR SUBORDINATED NOTES DUE 2004
OF
ANACOMP, INC.
PURSUANT TO
PROSPECTUS DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED. TENDERS OF 10 7/8% SERIES C SENIOR SUBORDINATED NOTES DUE
2004 MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS
AND HEREIN.
The Exchange Agent for the Exchange Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
FACSIMILE TRANSMISSION:
(212) 858-2611
CONFIRM BY TELEPHONE:
(212) 858-2103
<TABLE>
<S> <C>
BY MAIL: BY HAND/OVERNIGHT DELIVERY:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station Securities Processing Window SC-1
New York, New York 10274-0084 New York, New York 10004
Attention: Reorganization Operations
Department
</TABLE>
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
-------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON OLD NOTES) (ATTACH ADDITIONAL SCHEDULE, IF NECESSARY)
------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT
CERTIFICATE NUMBER(S) OF OLD NOTES TENDERED
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
TOTAL
------------------------------------------------------------------------------------------------------------------
</TABLE>
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE PROSPECTUS, DATED ,
1998 (THE "PROSPECTUS"), OF ANACOMP, INC., AN INDIANA CORPORATION (THE
"COMPANY"), RELATING TO THE OFFER (THE "EXCHANGE OFFER") OF THE COMPANY, UPON
THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PROSPECTUS AND HEREIN
AND THE INSTRUCTIONS HERETO, TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 10 7/8%
SERIES D SENIOR SUBORDINATED NOTES DUE 2004 (THE "EXCHANGE NOTES") FOR EACH
$1,000 PRINCIPAL AMOUNT OF THE OUTSTANDING 10 7/8% SERIES C SENIOR SUBORDINATED
NOTES DUE 2004 (THE "OLD NOTES"), OF WHICH $135.0 MILLION AGGREGATE PRINCIPAL
AMOUNT IS OUTSTANDING. THE MINIMUM PERMITTED TENDER IS $1,000 PRINCIPAL AMOUNT
OF OLD NOTES, AND ALL OTHER TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000.
<PAGE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION BY
FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998
(the "Expiration Date"), unless extended.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER THEIR OLD NOTES TO THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal should be used only to exchange the Old Notes,
pursuant to the Exchange Offer as set forth in the Prospectus.
This Letter of Transmittal is to be used (a) if Old Notes are to be
physically delivered to the Exchange Agent or (b) if delivery of Old Notes is to
be made by book-entry transfer to the account maintained by the Exchange Agent
at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in the Prospectus under the caption "The
Exchange Offer-- Procedures for Tendering." Delivery of documents to the
Book-Entry Transfer Facility does not constitute deliver to the Exchange Agent.
Holders whose Old Notes are not available or who cannot deliver their Old
Notes and all other documents required hereby to the Exchange Agent on or prior
to the Expiration Date nevertheless may tender their Old Notes in accordance
with the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF OLD NOTES
FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN
WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE
WITH THE LAWS OF SUCH JURISDICTION.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Prospectus.
HOLDERS WHO WISH TO EXCHANGE THEIR OLD NOTES MUST COMPLETE THE BOX BELOW
ENTITLED "METHOD OF DELIVERY," COMPLETE COLUMNS (1) THROUGH (3) IN THE BOX ON
THE COVER ENTITLED "DESCRIPTION OF OLD NOTES TENDERED" AND SIGN IN THE
APPROPRIATE BOX(ES) BELOW.
2
<PAGE>
METHOD OF DELIVERY
/ / CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ______________________________________________
Name of Book-Entry Transfer Facility:
/ / The Depository Trust Company
Account Number: ____________ Transaction Code Number: ____________
- --------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTIONS 1 AND 4):
Name(s) of Registered Holder(s): ____________________________________________
Window Ticket Number (if any): ______________________________________________
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Eligible Institution which Guaranteed Delivery: _____________________
IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, CHECK BOX OF BOOK-ENTRY
TRANSFER FACILITY:
/ / The Depository Trust Company
Account Number: ____________ Transaction Code Number: ____________
- --------------------------------------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL
COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
_____________________________________________________________________________
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated in the box on the cover entitled "Description of Old Notes Tendered."
Subject to, and effective upon, the acceptance for exchange of the Old Notes
tendered hereby, the undersigned hereby irrevocably sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to such
Old Notes, and hereby irrevocably constitutes and appoints the Exchange Agent
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent also acts as the agent of the Company and as
Trustee under the indenture governing the Old Notes and the Exchange Notes) with
respect to such Old Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates representing such Old Notes, and to deliver all
accompanying evidences of transfer and authenticity to or upon the order of the
Company upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon the acceptance by the
Company of such Old Notes for exchange pursuant to the Exchange Offer, (b)
receive all benefits and otherwise to exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer, and (c) present such Old Notes for transfer on the register for such Old
Notes.
The undersigned acknowledges that prior to this Exchange Offer, there has
been no public market for the Old Notes or the Exchange Notes. If a market for
the Exchange Notes should develop, the Exchange Notes could trade at a discount
from their principal amount. The undersigned is aware that the Company does not
intend to list the Exchange Notes on a national securities exchange and that
there can be no assurance that an active market for the Exchange Notes will
develop.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by any person receiving such Exchange Notes whether or
not such person is the holder thereof, (other than any such holder or other
person which is (i) a broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, or (ii)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of
business of such holder or other person, such holder or other person is not
engaged in or intending to engage in a distribution of the Exchange Notes, and
such holder or other person has no arrangement with any person to participate in
the distribution of such Exchange Notes. See Morgan Stanley & Co. Incorporated,
SEC No-Action Letter (available June 5, 1991) and Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988).
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes, it represents that the Old Notes to be exchanged for Exchange Notes were
acquired as a result of market-making activities or other trading activities and
it acknowledges that it will deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
4
<PAGE>
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF, HOLDERS OF THE OLD NOTES IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION OR WOULD OTHERWISE NOT BE IN COMPLIANCE WITH ANY
PROVISION OF ANY APPLICABLE SECURITY LAW.
The undersigned represents that (a) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
undersigned or other person receiving such Exchange Notes, (b) neither the
undersigned nor any such other person is engaged in or intends to engage in a
distribution of such Exchange Notes, (c) neither the undersigned nor any such
other person has any arrangement or understanding with any person to participate
in a distribution of the Exchange Notes and (d) neither the undersigned nor any
such other person is an "affiliate" as defined under Rule 405 of the Securities
Act, of the Company or if such holder is such an affiliate, that such holder
will comply with the registration and the prospectus delivery requirements of
the Securities Act in connection with the disposition of any Exchange Notes to
the extent applicable.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers will differ from the terms of the Exchange
Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Exchange Offer, has full power and authority to
tender, exchange, assign and transfer the Old Notes tendered hereby, and that
when the same are accepted for exchange by the Company, the Company will acquire
good and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim or right. The
undersigned will, upon request, execute and deliver any additional documents
deeded by the Exchange Agent or the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. The undersigned also agrees that, except as
stated in the Prospectus, the Old Notes tendered hereby cannot be withdrawn.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering" and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Old Notes pursuant to one of
the procedures described in the Prospectus and the instructions thereto, the
tendering holder will be deemed to have waived the right to receive any payment
in respect of interest on the Old Notes accrued up to the date of issuance of
the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company may not be required to accept for exchange any of
the Old Notes tendered. Old Notes not accepted for exchange or withdrawn will be
returned to the undersigned at the address set forth below unless otherwise
indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special Issuance
Instructions" below, Exchange Notes, and Old Notes not validly tendered or
accepted for exchange, will be issued in the name
5
<PAGE>
of the undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, Exchange Notes, and Old Notes not validly
tendered or accepted for exchange, will be delivered to the undersigned at the
address shown below the signature of the undersigned. The undersigned recognizes
that the Company has no obligation pursuant to the "Special Issuance
Instructions" to transfer any Old Notes from the name of the registered holder
thereof if the Company does not accept for exchange any of the principal amount
of such Old Notes so tendered.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the Exchange Agent to the
tendering holders of Old Notes, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
6
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ON THE COVER ENTITLED "DESCRIPTION OF
OLD NOTES TENDERED" AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO
HAVE TENDERED THE OLD NOTES AND MADE CERTAIN REPRESENTATIONS (INCLUDING AS TO
FINANCIAL STATUS) DESCRIBED IN THE PROSPECTUS AND HEREIN.
- --------------------------------------------------------------------------------
SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
X __________________________________________________________________________
X __________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
Must be signed by the registered holder(s) of Old Notes exactly as their
name(s) appear(s) on certificate(s) for the Old Notes or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Letter of Transmittal.If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation, agent or other person acting in a fiduciary or representative
capacity, please provide the following information.See Instruction 3.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE PRINT)
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.: _______________________________________________
SIGNATURE GUARANTEE
(SEE INSTRUCTION 3)
____________________________________________________________________________
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURE(S))
__________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NO., INCLUDING AREA CODE, OF
FIRM)
__________________________________________________________________________
(AUTHORIZED SIGNATURE)
__________________________________________________________________________
(PRINTED NAME)
__________________________________________________________________________
(TITLE)
Date: _________________________
----------------------------------------------------------------------------
7
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not exchanged and/or certificates for Exchange Notes are to be issued in the
name of someone other than the undersigned, or if Old Notes are to be
returned by credit to an account maintained by the Book-Entry Transfer
Facility.
Issue (check appropriate box)
/ / Exchange Notes to:
/ / Old Notes to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
ZIP CODE
__________________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W-9 BELOW.)
Credit unaccepted Old Notes tendered by book-entry transfer to:
/ / The Depository Trust Company
account set forth below
____________________________________________________________________________
(DTC ACCOUNT NUMBER)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVER INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not exchanged and/or certificates for Exchange Notes are to be sent to
someone other than the undersigned at an address other than that shown
above.
Deliver (check appropriate box)
/ / Exchange Notes to:
/ / Old Notes to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
ZIP CODE
__________________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W-9 BELOW.)
- ------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. To be effectively tendered pursuant to the Exchange Offer,
the Old Notes, together with a properly completed Letter of Transmittal (or
facsimile thereof), duly executed by the registered holder thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth on the front page of this
Letter of Transmittal. If the beneficial owner of any Old Notes is not the
registered holder, then such person may validly tender his or her Old Notes only
by obtaining and submitting to the Exchange Agent a properly completed Letter of
Transmittal from the registered holder. OLD NOTES SHOULD BE DELIVERED ONLY TO
THE EXCHANGE AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED OR
CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT OLD NOTES BE DELIVERED BY HAND OR BY COURIER.
IF CERTIFICATES FOR OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
If a holder desires to tender Old Notes and such holder's Old Notes are not
immediately available or time will not permit such holder's Letter of
Transmittal, Old Notes or other required documents to reach the Exchange Agent
on or before the Expiration Date, such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined);
(b) on or prior to the Expiration Date, the Exchange Agent has received
a properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) from such Eligible
Institution setting forth the name and address of the holder of such Old
Notes, the certificate numbers of such Old Notes (if available) and the
principal amount of Old Notes tendered and stating that the tender is being
made thereby and guaranteeing that, within three business days after the
Expiration Date, a duly executed Letter of Transmittal, or facsimile
thereof, together with the Old Notes, and any other documents required by
this Letter of Transmittal and the instructions hereto, will be deposited by
such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal (or facsimile thereof), a Notice of
Guaranteed Delivery and Old Notes, in proper form for transfer, and all
other required documents are received by the Exchange Agent within three
business days after the date of such telegram, facsimile transmission or
letter.
2. WITHDRAWAL OF TENDERS. Tendered Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange.
To be effective, a written or facsimile transmission notice of withdrawal
must (a) be received by the Exchange Agent at one of its addresses set forth on
the first page of this Letter of Transmittal prior to 5:00 p.m., New York City
time, on the Expiration Date, unless previously accepted for exchange, (b)
specify the name of the person who tendered the Old Notes, (c) contain the
description of the Old Notes to be withdrawn, the certificate numbers shown on
the particular certificates evidencing such Old Notes and the aggregate
principal amount represented by such Old Notes and (d) be signed by the holder
of such Old Notes in the same manner as the original signature appears on this
Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the holder
withdrawing the
9
<PAGE>
tender. The signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution unless such Old Notes have been tendered (a) by a
registered holder of Old Notes who has not completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (b) for the account of an
Eligible Institution. All questions as to the validity, form and eligibility
(including time of receipt)of such withdrawal notices shall be determined by the
Company, whose determination shall be final and binding on all parties. If the
Old Notes to be withdrawn have been delivered or otherwise identified to the
Exchange Agent, a signed notice of withdrawal is effective immediately upon
receipt by the Exchange Agent of a written or facsimile transmission notice of
withdrawal even if physical release is not yet effected. In addition, such
notice must specify, in the case of Old Notes tendered by delivery of
certificates for such Old Notes, the name of the registered holder (if different
from that of the tendering holder) to be credited with the withdrawn Old Notes.
Withdrawals may not be rescinded, and any Old Notes withdrawn will thereafter be
deemed not validly tendered for purposes of the Exchange Offer. However,
properly withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer--Procedures for Tendering" in the
Prospectus at any time on or prior to the applicable Expiration Date.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this letter of Transmittal is signed by the
registered holder(s) of the Old Notes tendered hereby, the signature must
correspond exactly with the name(s) as written on the face of the certificates
without any change whatsoever.
If any Old Notes tendered hereby are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any Old Notes tendered hereby are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required unless Exchange Notes are to be issued, or
certificates for any untendered principal amount of Old Notes are to be
reissued, to a person other than the registered holder.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) specified herein such certificates(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s).
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, proper evidence satisfactory to the
Company of their authority so to act must be submitted.
Except as described below, signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by an Eligible
Institution. Signatures on this Letter of Transmittal or a notice of withdrawal,
as the case may be, need not be guaranteed if the Old Notes tendered pursuant
hereto are tendered (a) by a registered holder of Old Notes who has not
completed either the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (b)
for the account of an Eligible Institution. In the event that signatures on this
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Delivers, Inc. or by a commercial bank or trust
company having an office or correspondent in the Untied States (each as
"Eligible Institutions").
10
<PAGE>
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate in the applicable box the name and address to which certificates for
Exchange Notes and/or substitute certificates evidencing Old Notes for the
principal amounts not exchanged are to be issued or sent, if different from the
name and address of the person signing this Letter of Transmittal. In the case
of issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, any Old Notes not exchanged will be returned to the name and address of
the person signing this Letter of Transmittal.
5. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax law
of the United States requires that a holder of Old Notes whose Old Notes are
accepted for exchange provide the Company with his correct taxpayer
identification number, which, in the case of a holder who is an individual, is
his or her social security number, or otherwise establish an exemption from
backup withholding. If the Company is not provided with the correct taxpayer
identification number, the exchanging holder of Old Notes may be subject to a
$50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
interest on the Exchange Notes acquired pursuant to the Exchange Offer may be
subject to backup withholding in an amount equal to 31% of any interest payment.
If withholding occurs and results in an overpayment of taxes, a refund may be
obtained.
To prevent backup withholding, each exchange holder of Old Notes subject to
backup withholding must provide his correct taxpayer identification number by
completing the Substitute Form W-9 provided in this Letter of Transmittal,
certifying that the taxpayer identification number provided is correct (or that
the exchanging holder of Old Notes is awaiting a taxpayer identification number)
and that either (a) the exchanging holder has not yet notified by the IRS that
such holder is subject to backup withholding as a result of failure to report
all interest or dividends or (b) the IRS has notified the exchanging holder that
such holder is no longer subject to backup withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (i.e.
corporations) should certify, in accordance with the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9," to such
exempt status on the Substitute Form W-9 provided in this Letter of Transmittal.
6. TRANSFER TAXES. Holders tendering pursuant to the Exchange Offer will not
be obligated to pay brokerage commissions or fees or to pay transfer taxes with
respect to their exchange under the Exchange Offer unless the box entitled
"Special Issuance Instructions" in this Letter of Transmittal has been
completed, or unless the Exchange Notes are to be issued to any person other
than the holder of the Old Notes tendered for exchange. The Company will pay all
other charges or expenses in connection with the Exchange Offer. If holders
tender Old Notes for exchange and the Exchange Offer is not consummated,
certificates representing the Old Notes will be returned to the holders at the
Company's expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) specified in this Letter
of Transmittal.
7. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the certificate
numbers (if available) should be listed on a separate schedule attached hereto
and separately signed by all parties required to sign this Letter of
Transmittal.
8. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If tenders are to be made with respect to less than the
entire principal amount of any Old Notes, fill in the principal amount of Old
Notes which are tendered in column (3) in the box on the cover entitled
"Description of Old Notes Tendered." In the case of partial tenders, new
certificates representing the Old Notes in fully registered form for the
remainder of the principal amount of the Old Notes will be sent to the person(s)
11
<PAGE>
signing this Letter of Transmittal, unless otherwise indicated in the
appropriate place on this Letter of Transmittal, as promptly as practicable
after the expiration or termination of the Exchange Offer.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or
additional copies of the Prospectus or this Letter of Transmittal may be
obtained from the Exchange Agent at its telephone number set forth on the cover.
12
<PAGE>
PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I--PLEASE PROVIDE ---------------------------------
FORM W-9 YOUR TIN IN THE BOX AT Social Security Number
DEPARTMENT OF THE TREASURY RIGHT AND CERTIFY BY OR --------------------------------
INTERNAL REVENUE SERVICE SIGNING AND DATING Employer Identification Number
PAYER'S REQUEST FOR TAXPAYER BELOW.
IDENTIFICATION NUMBER (TIN)
CERTIFICATION--UNDER PENALTIES 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
(2) I am not subject to backup withholding either because:(a) I am exempt from backup withholding; or (b) I
have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding
as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
PART II--AWAITING TIN / / PART III--EXEMPT / /
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 under-reporting 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 stating that you are no longer subject to backup withholding, do not cross out
item (2). If you are exempt from backup withholding, check the box in Part III.
Signature: ---------------------------------------- Date: --------------------------------
</TABLE>
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
Please fill out your name and address below:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address (Number and street)
- --------------------------------------------------------------------------------
City, State and Zip Code
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART II OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor by the time of
payment, 31% of all reportable payments made to me will be withheld until I
provide a number and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the IRS as backup
withholding.
<TABLE>
<S> <C> <C>
Signature: ---------------------------------------- Date: --------------------------------
</TABLE>
13
<PAGE>
Exhibit 5.1
[Letterhead of Cadwalader, Wickersham & Taft]
August 17, 1998
Anacomp, Inc.
12365 Crosthwaite Circle
Poway , CA 92064
Re: Registration Statement on Form S-4 related to 10-7/8% Series D Senior
Subordinated Notes due 2004
---------------------------------------------------------------------
Gentlemen:
We have acted as special counsel for Anacomp, Inc., an Indiana
corporation (the "Company"), in connection with the preparation of the
Company's Registration Statement on Form S-4 pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), being filed with the Securities
and Exchange Commission (the "Commission") on the date hereof and to which
this opinion letter is an exhibit. The Registration Statement relates to the
Company's offer to exchange its 10-7/8% Series D Senior Subordinated Notes
due 2004 (the "Exchange Notes") for any and all of its outstanding 10-7/8%
Series C Senior Subordinated Notes due 2004 (the "Old Notes"). The Old Notes
were issued, and the Exchange Notes are to be issued, under an indenture,
dated as of June 18, 1998 (the "Indenture"), between the Company and IBJ
Schroder Bank & Trust Company, as trustee.
In rendering the opinions expressed below, we have examined and relied
upon, among other things, (i) the Registration Statement, including the
Prospectus constituting a part thereof, (ii) the Indenture filed as an
exhibit to the Registration Statement and (iii) originals or copies,
certified or otherwise identified to our satisfaction, of such certificates,
corporate, public or other records, and other documents as we have deemed
appropriate for the purpose of rendering this opinion letter. In connection
with such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents and instruments of all documents and instruments submitted
to us as copies or specimens, and the authenticity of the originals of such
documents and instruments submitted to us as copies or specimens. We have
also made such investigations of law as we have deemed appropriate. In
addition, we have assumed that the Exchange Notes will be executed and
delivered in substantially the form in which they are filed as an exhibit to
the Registration Statement.
<PAGE>
Anacomp, Inc. -2- August 17, 1998
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Exchange Notes will be legally and validly issued and
binding obligations of the Company (except to the extent enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws affecting the
enforcement of creditors' rights generally and by the effect of general
principles of equity, regardless of whether enforceability is considered
in a proceeding in equity or at law), when (a) the Registration
Statement, as finally amended, shall have become effective under the
Securities Act and the Indenture shall have been qualified under the
Trust Indenture Act of 1939, as amended, and (b) the Exchange Notes
shall have been duly executed, authenticated and delivered as
contemplated in the Registration Statement and the Indenture.
2. The statements made in the Prospectus constituting a part
of the Registration Statement under the caption "Certain U.S. Federal
Income Tax Considerations," insofar as such statements purport to
summarize certain federal income tax laws of the United States of
America, constitute a fair summary of the principal U.S. federal income
tax consequences of an investment in the Exchange Notes.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and to the reference to this Firm in the
Prospectus constituting a part of the Registration Statement under the
caption "Legal Matters," without admitting that we are "experts" within the
meaning of the Securities Act or the rules and regulations of the Commission
issued thereunder with respect to any part of the Registration Statement,
including this exhibit.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
---------------------------------
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
BETWEEN
ANACOMP, INC.
("ANACOMP")
with offices located at
11550 North Meridian Street
Suite 600
Carmel, Indiana 46032
and
DR. FREDERICK F. GEYER
--------------------------------------
("EMPLOYEE")
Date of Agreement: December 15, 1997
Effective Date of Agreement: January 5, 1998
Date of Expiration of Agreement: January 4, 2000
RECEIVED
DEC 22 1997
HUMAN RESOURCES
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into between ANACOMP, INC. or any of its
subsidiaries or affiliates (herein referred to as "ANACOMP") and EMPLOYEE. The
full identification of each party, date of Agreement, effective date of
Agreement, and date of expiration of Agreement are all included on the cover
sheet immediately preceding this page which is incorporated herein by this
reference. The following conditions and terms shall apply:
SECTION I
Merger of All Prior Agreements
1.1 Merger. This Agreement and the letter agreement dated November 5, 1997
between the parties shall supersede and terminate all prior employment contracts
and agreements between EMPLOYEE and ANACOMP. In the event of any conflict
between this Agreement and such letter agreement, the terms of this Agreement
shall govern.
SECTION II
Scope and Term of Employment, Compensation
2.1 Scope of Employment. ANACOMP and EMPLOYEE mutually agree that Addendum
I, attached hereto and incorporated herein by this reference, is intended to
define the scope of employment, base salary, and incentive compensation.
2.2 Employment Term. Subject always to termination provisions as provided
elsewhere in this Agreement, the term of this Agreement shall begin on the
Effective Date of Agreement and shall terminate on the Date of Expiration of
Agreement, both as shown on the cover sheet. Unless otherwise terminated as
provided elsewhere herein, this Agreement shall automatically renew after
expiration date on an annual basis unless either party gives the other party
thirty (30) days prior written notice requesting that said Agreement not be
renewed. If this Agreement is not renewed and EMPLOYEE continues working beyond
Termination Date at the request of ANACOMP, said employment shall be on a
month-to-month basis. If, at the expiration of the original two-year term or any
renewal term, ANACOMP declines to renew this Agreement and does not request that
EMPLOYEE continue working, of if ANACOMP terminates the month-to-month
employment basis described in the previous sentence, EMPLOYEE shall be entitled
to all benefits due him under this Agreement and not previously paid, a
severance payment equal to EMPLOYEE's prior twelve months' salary, payable in a
lump sum or biweekly at EMPLOYEE's option, health benefits until other
employment is secured or for twelve months, whichever is sooner, and the
immediate vesting of all of EMPLOYEE's existing already awarded options to
acquire ANACOMP common stock. If, on the other hand, EMPLOYEE elects not to
renew the Agreement, EMPLOYEE shall only be entitled to all benefits due him
under the Agreement through the end of the then term of the Agreement.
2.3 Compensation. Compensation is confidential and is to be discussed only
with the officers of ANACOMP, as required.
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<PAGE>
SECTION III
Fringe Benefits
3.1 Benefits. In addition to the regular compensation, EMPLOYEE shall be
entitled to the normally available employee fringe benefits including regular
holidays, vacations and health insurance. ANACOMP, however, reserves the right
to change or alter these fringe benefits from time to time with the
understanding that the EMPLOYEE will be treated on an equal basis with other
employees of similar status.
SECTION IV
Insurance on Employee
4.1 Insurance. EMPLOYEE agrees that ANACOMP may, at its option and
expense, obtain life insurance on the life of the EMPLOYEE and the ownership of
all such policies and the proceeds therefrom shall be the sole property of
ANACOMP. EMPLOYEE agrees to undergo a routine physical examination for insurance
purposes within fifteen (15) days upon the request and at the expense of
ANACOMP.
SECTION V
Relocation
5.1 Relocation. EMPLOYEE agrees that it is a condition of his employment
that he relocate to Poway, California as soon as possible. He further agrees
that such relocation will not trigger a termination of this Agreement nor a
right to receive the Severance Allowance pursuant to Section 6.4.2 hereof. For
the purpose of this Agreement, "relocate to Poway" shall mean that EMPLOYEE
normally lives in the vicinity of Poway such that he can attend ANACOMP's office
located in Poway on a regular daily basis.
SECTION VI
Termination
6.1 Compensation and Benefits Upon Termination. This Agreement may be
terminated prior to the expiration of the initial term or any renewal term by
any of the following events:
(a) mutual written agreement expressed in a single document signed by both
ANACOMP and EMPLOYEE;
(b) voluntary written resignation by EMPLOYEE given to ANACOMP ninety (90)
days prior to the date of resignation;
(c) death of EMPLOYEE;
(d) written notice of termination by ANACOMP without cause as defined in
Section 6.2;
(e) written notice of termination by ANACOMP with cause as defined in
Section 6.3; or
(f) the occurrence of any of the events specified in Section 6.4.1, which
EMPLOYEE elects to treat as a termination.
-3-
<PAGE>
Upon termination for any of the foregoing reasons, EMPLOYEE shall continue
to render his services and shall be paid his regular compensation and benefits
up to the date of termination. If this Agreement is terminated under Sections
6.1(b), 6.1(c) or 6.1(e), no Severance Allowance (as defined below) shall be
paid to EMPLOYEE (except, with respect to any termination pursuant to Section
6.1(e), as otherwise provided in Section 6.3). If this Agreement is terminated
under Sections 6.1(a), 6.1(d) or 6.1(f), then ANACOMP shall pay to EMPLOYEE a
severance allowance equal to the EMPLOYEE's prior twelve months cash
compensation, payable in a lump sum or biweekly at EMPLOYEE's option, health
benefits until other employment is secured or for twelve months, whichever is
sooner, and all of EMPLOYEE's existing already awarded options to acquire
ANACOMP common stock shall immediately vest (collectively, the "Severance
Allowance"). This Severance Allowance is in addition to the regular compensation
and benefits which EMPLOYEE shall receive up to the date of termination. In the
event of such termination, this Agreement shall be deemed terminated for all
purposes except to the extent otherwise herein provided.
6.2 Termination Without Cause. If ANACOMP concludes that EMPLOYEE's
services are no longer required, this Agreement may be terminated without cause
by giving EMPLOYEE written notice thereof. The noninsurability of EMPLOYEE,
either present or future, does not constitute grounds for termination under this
or any other section of the Agreement. If EMPLOYEE is terminated under this
section, ANACOMP shall pay EMPLOYEE the compensation, benefits and Severance
Allowance provided in Section 6.1 above.
6.3 Termination With Cause.
6.3.1 ANACOMP may immediately terminate this Agreement at any time
with cause upon written notice to the EMPLOYEE specifying the cause and
effective date of termination. As used in this section, "cause" shall mean only
the following:
(i) Inability of EMPLOYEE, as determined by ANACOMP, to perform
EMPLOYEE's assigned duties on a fulltime basis for any continuous period of one
hundred twenty (120) days or a total of one hundred eighty (180) days in any
twelve (12) month period, which period shall commence on the initial date of
this Agreement and every anniversary thereafter.
(ii) The willful and continued failure by EMPLOYEE substantially to
perform his duties and obligations, including the continued failure to meet
business goals, or the willful engagement by EMPLOYEE in misconduct which is
materially injurious to ANACOMP, monetarily or otherwise. For purposes of this
subsection, no act or failure to act on EMPLOYEE's part shall be considered
"willful" unless done or omitted to be done by EMPLOYEE in bad faith and without
reasonable belief that his action or omission was in the best interests of
ANACOMP.
(iii) The failure of EMPLOYEE to relocate permanently to Poway,
California.
-4-
<PAGE>
6.3.2 Employee agrees that in the event written notice of
termination is given under this Section 6.3, the EMPLOYEE agrees to treat the
contents of said notice as privileged and EMPLOYEE shall have no action against
ANACOMP or any of its officers, agents or employees due to the contents of said
notice unless the contents are intentionally false and malicious. If EMPLOYEE is
terminated under this Section 6.3, he shall receive no Severance Allowance at
the time of such termination. If EMPLOYEE is given notice of termination under
this Section 6.3 and it is later established that no "cause" existed, EMPLOYEE
shall be entitled to all compensation, benefits and allowances due him for the
period following such alleged termination and through the date of such
determination and shall be entitled to the Severance Allowance, plus legal
interest from the date of termination and all reasonable attorneys' fees
incurred by EMPLOYEE in contesting the notice of termination.
6.4 Demotion, Transfer or Reduction in Compensation, Merger, Transfer of
Assets, Change in Control or Business Discontinuation.
6.4.1 Demotion, Transfer, or Reduction in Compensation. If any of
the following takes place:
(1) EMPLOYEE is demoted, including for these purposes (i) any material
change in the title or duties described in Addendum I hereto, or (ii) any
significant reduction or change by ANACOMP in the functions, duties or
responsibilities of EMPLOYEE under this Agreement,
(2) a transfer of EMPLOYEE to another location, other than Poway or San
Diego, California, or
(3) any reduction in annual base salary (but not including a reduction in
the incentive bonus received by EMPLOYEE resulting from his or ANACOMP's
performance under any of the bonus plans discussed in Addendum II hereof),
EMPLOYEE may, in his sole discretion, elect to treat any such occurrence as a
termination of this Agreement by giving written notice of such election to
ANACOMP, entitling EMPLOYEE to payment of the compensation, benefits and
Severance Allowance provided in Section 6.1 above. In the event ANACOMP disputes
any election made by EMPLOYEE pursuant to this Section 6.4.1, ANACOMP shall
notify EMPLOYEE in writing of such dispute within ten (10) days of receiving
EMPLOYEE's written election and both parties shall proceed to negotiate a
resolution of such dispute in good faith. If ANACOMP does not so notify EMPLOYEE
within the ten (10) day period, ANACOMP shall be deemed to have accepted
EMPLOYEE's election and shall pay all compensation, benefits and Severance
Allowance provided in Section 6.1 above.
6.4.2 Merger, Transfer of Assets, Change in Control or Business
Discontinuation. In the event of any:
(a) merger or consolidation where ANACOMP is not the consolidated or
surviving company and the surviving or resulting company does not expressly
agree to be bound by and have the benefits of the provisions of this Agreement,
or
(b) transfer of all or substantially all of the assets of ANACOMP
and the transferee of ANACOMP's assets does not expressly agree to be bound by
and have the benefits of the provisions of this Agreement, or
-5-
<PAGE>
(c) change in control of ANACOMP of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the day
thereof (the "Exchange Act"), provided that, without limitation, such a change
in control shall be deemed to have occurred if: (i) any person or persons acting
in concert (as such term is used in Section 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial holder directly or indirectly of securities of
ANACOMP representing 25% or more of the combined voting power of ANACOMP's then
outstanding securities; (ii) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute a majority thereof, unless the election or nomination
for election by ANACOMP's shareholders of each new director was approved by a
vote of at least 2/3 of the directors who were directors at the beginning of
such period; or (iii) transfer of all or substantially all of the stock of
ANACOMP and the transferee of ANACOMP's stock does not expressly agree to be
bound by and have the benefits of the provisions of this Agreement, or
(d) discontinuation of the business by ANACOMP,
then, in such event, EMPLOYEE shall remain subject to and have no greater rights
that he would otherwise be entitled to receive under Sections 6.1, 6.2, 6.3 and
6.4.1 hereof.
6.5 Return of Company Property. EMPLOYEE agrees to return all property of
ANACOMP, including but not limited to, details of equipment, prices,
specifications, programs, customer and prospective customer lists and any other
proprietary data or objects acquired through the EMPLOYEE's employment with
ANACOMP, within seven (7) days after termination of employment, regardless of
the reason therefor.
6.6 Waiver of Claims. All Severance Allowance payments made by ANACOMP to
EMPLOYEE pursuant to Section II hereof or this Section VI shall be in full and
complete payment of any and all claims that EMPLOYEE may have against ANACOMP
regarding his employment or the termination thereof, and EMPLOYEE hereby
expressly waives all rights that he may have to any other payments or to bring
any other claims based upon his employment or the termination thereof. Except
for the qualification with respect to employee benefits described in Section II
above, all Severance Allowance payments due from ANACOMP to EMPLOYEE under this
Agreement are absolute, and shall not be diminished or otherwise affected by
virtue of EMPLOYEE's securing alternative employment. At the time he receives
his Severance Allowance, EMPLOYEE agrees that he will execute a release
agreement in favor of ANACOMP.
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<PAGE>
SECTION VII
Restrictive Covenant and Non-Competition
Confidential Information
7.1 Non-Competition. EMPLOYEE and ANACOMP shall enter into the
"Confidentiality, Non-Competition and Non-Disclosure Agreement" attached hereto
as Addendum III. In the event of any conflict between the terms of this
Agreement and such Non-Disclosure Agreement, this Agreement shall govern. If
EMPLOYEE violates such Non-Disclosure Agreement, ANACOMP shall have the right to
stop all termination payments due under Sections II and/or VI hereof, which have
not yet been fully paid to EMPLOYEE. EMPLOYEE agrees that, upon his relocation
to Poway, California, he will, upon request by ANACOMP, execute a revised
Non-Disclosure Agreement that will comply with the laws of the State of
California.
The provisions of this Section shall not prevent EMPLOYEE from complying
with the terms of this Agreement with ANACOMP nor from owning any shares of
stock of any competitor of ANACOMP so long as such shares are regularly traded
on a recognized security exchange or are listed for trade by NASDAQ in the
Over-the-Counter Market.
SECTION VIII
Warranties and Representations
8.1 EMPLOYEE hereby warrants and represents as follows:
(1) That the execution of this Agreement and the discharge of EMPLOYEE's
obligations hereunder will not breach or conflict with any other contract,
agreement or understanding between EMPLOYEE and any other party or parties.
(2) That EMPLOYEE has ideas, information and know-how relating to the type
of business conducted by ANACOMP and EMPLOYEE's disclosure of such ideas,
information and know-how to ANACOMP will not conflict with or violate the rights
of any third party or parties with respect thereto.
SECTION IX
Remedies
9.1 The parties agree that the remedy for breach of this Agreement shall
include actions in equity for injunctive relief as well as money damages. The
remedies given to or reserved by each party hereunder shall be cumulative and
not exclusive of any other remedy available under law.
SECTION X
No Waiver
10.1 The failure of EMPLOYER to terminate this Agreement for the breach of
any condition or covenant herein by the EMPLOYEE shall not affect EMPLOYER's
right to terminate for subsequent breaches of the same or other conditions or
covenants. The failure of either party to enforce at any time or for any period
of time any of the provisions of this Agreement shall not be construed as a
waiver of such provisions or of the right of the party thereafter to enforce
each and every such provision.
-7-
<PAGE>
ARTICLE XI
Benefit
11.1 This Agreement shall bind, benefit, and be enforceable by ANACOMP,
its successors and assigns, and by EMPLOYEE, EMPLOYEE's heirs, executors,
administrators, and legal representatives.
ARTICLE XII
Severability
12.1 Should any provision of this Agreement not be enforceable in any
jurisdiction, the remainder of the Agreement shall not be affected thereby.
ARTICLE XIII
Survival
13.1 The obligations contained in Sections II, VI, and VII shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the day, month and year stated on the cover page
of this Agreement, which Agreement shall be effective only upon approval by
ANACOMP, INC., as evidenced by the authorized signature of an officer of ANACOMP
below.
APPROVED BY:
ANACOMP, INC. EMPLOYEE:
By: /s/ Ralph W. Koehrer /s/ Frederick F. Geyer
------------------------------------- -------------------------------
Ralph W. Koehrer Dr. Frederick F. Geyer
President and Chief Executive Officer
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<PAGE>
ADDENDUM I
TO
EMPLOYMENT AGREEMENT DATED DECEMBER 15, 1997
BETWEEN
ANACOMP, INC. ("ANACOMP")
AND
DR. FREDERICK F. GEYER ("EMPLOYEE")
- --------------------------------------------------------------------------------
Scope of Employment
ANACOMP will employ the EMPLOYEE in the capacity of Executive Vice
President of ANACOMP, effective upon the EMPLOYEE'S agreed upon date of hire.
EMPLOYEE will be responsible for the day-to-day management of ANACOMP's "Product
Clusters" as well as the management of the Manufacturing and Materials division.
EMPLOYEE will report to the Chief Executive Officer.
Location
EMPLOYEE will be based at ANACOMP's Poway, California facility and will be
required to relocate there permanently as soon as possible.
Base Salary
For all services rendered by EMPLOYEE under this Agreement, EMPLOYEE shall
receive a Base Salary of $300,000 per year payable bi-weekly. Base Salary will
be reviewed at the beginning of each fiscal year.
Incentive Compensation
Bonuses
In addition to Base Salary, EMPLOYEE shall receive an annual bonus
opportunity of $200,000, payable quarterly, as more particularly described in
the EMPLOYEE's Compensation Plan attached hereto as Addendum II. This new annual
bonus will take effect on January 5, 1998 or another agreed upon starting date.
The annual bonus shall be established at the beginning of each fiscal year.
Mortgage Subsidy
To help offset the cost-of-living differential between the Dallas, Texas
area and the San Diego, California area, Anacomp will pay you a mortgage subsidy
of $45,000 per year for three years paid on the regular bi-weekly paycheck with
normal taxes withheld.
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<PAGE>
Stock Options
ANACOMP will award the EMPLOYEE with non-qualified stock options to
purchase 100,000 shares of ANACOMP Common Stock at fair market value. After they
are awarded, these options will vest in one-third increments over three years
from the date of grant. EMPLOYEE will also be awarded 35,000 shares of
restricted stock which will vest as follows:
5,000 on June 30, 1998
5,000 on September 30, 1998
5,000 on March 31, 1999
10,000 on June 30, 1999
10,000 on June 30, 2000
In the event that your employment with ANACOMP is terminated at any time
after March 31, 1999, the remaining restricted stock will vest immediately.
ANACOMP, INC. EMPLOYEE
By: /s/ Ralph W. Koehrer /s/ Frederick F. Geyer
----------------------------- ----------------------------------------
Ralph W. Koehrer Dr. Frederick F. Geyer
President and Chief Executive
Officer
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<PAGE>
anacomp MANAGEMENT 1A
ADDENDUM II
----------------- ----------------------
PERIOD 1/5/98 TO 9/30/98 NAME Dr. Frederick F. Geyer
----------------- ----------------------
You are assigned the following compensation related items:
(Percentage Total Compensation)
<TABLE>
<CAPTION>
1QTR 2QTR 3QTR 4QTR YEAR
<S> <C> <C> <C> <C> <C>
------------
1. Base Salary (60%) $ 300,000
------------
-------------------------------------------------------------------------
2. Area Profit Bonus: (10%) $ 12,500 $ 12,500 $ 12,500 $ 37,500
-------------------------------------------------------------------------
Area Profit Goal $ 3,919,000 $ 4,332,000 $ 6,384,000 $ 7,821,000 $ 22,455,000
-------------------------------------------------------------------------
Area Profit Center (s) 0001
------------
-------------------------------------------------------------------------
3. Area Revenue Bonus (16%) $ 20,000 $ 20,000 $ 20,000 $ 60,000
-------------------------------------------------------------------------
Area Revenue Goal $118,675,000 $121,008,000 $127,589,000 $129,628,000 $496,900,000
-------------------------------------------------------------------------
Area Revenue Center(s) 0001
------------
-------------------------------------------------------------------------
4. Asset Management Bonus (6%) $ 7,500 $ 7,500 $ 7,500 $ 22,500
-------------------------------------------------------------------------
Asset Management Target - Inventory $ 3,200,000
-------------------------------------------------------------------------
Asset Management Center(s) See Attached Schedule for A/R Target Information 0001
------------
-------------------------------------------------------------------------
5. Corporate EBITDA Bonus (8%) $ 10,000 $ 10,000 $ 10,000 $ 30,000
-------------------------------------------------------------------------
Corporate EBITDA Goal $ 19,918,000 $ 20,736,000 $ 23,911,000 $ 26,151,000 $ 90,716,000
-------------------------------------------------------------------------
</TABLE>
COMPENSATION COMPUTATIONS:
AREA PROFIT BONUS: Upon the quarterly closing of the corporate books, the
quarter's actual performance as a percentage of the quarter's quota is
calculated and computed for Anacomp Adjusted Net Income. Payment percentage is
calculated per the attached Accelerator and Decelerator Schedule.
AREA REVENUE BONUS: Upon the quarterly closing of the corporate books, the
quarter's actual performance as a percentage of the quarter's quota is
calculated and computed for Anacomp Total Revenue. Payment percentage is
calculated per the attached Accelerator and Decelerator Schedule.
<PAGE>
MGT 1A PAGE 2
ASSET MANAGEMENT BONUS: Paid quarterly on Anacomp's quarterly asset management
targets. Asset Management Targets include $3,200,000 in inventory reductions as
well as an Accounts Receivable DSO and Percentage Past Due calculation). Nothing
paid for performance less than 90% of goal. For performance > =90% and < =l00%
of goal, payment percentage is calculated as follows: Payment % = 50 +
((Performance % - 90) * 5)
Examples Performance Payment
< 90% 0%
90% 50%
100% 100%
> 100% 100%
Maximum payment percentage is 100% of bonus amount
CORPORATE EBITDA BONUS: Paid quarterly based on Anacomp, Inc. EBITDA quarterly
goals. Nothing paid for performance less than 90% of goal. Payment percentage is
calculated as follows: Payment % =50 + ((Performance % - 90) * 5)
Examples Performance Payment
< 90% 0%
90% 50%
100% 100%
120% 200%
SCHEDULE OF ACCELERATORS AND DECELERATORS
% Goal % Paid Scale
---------- ---------- -----------
150 185 1.75
140 167 1.75
130 150 1.75
120 132 1.75
110 115 1.75
==================================================
106 108 1.5
105 106 1.5
104 105 1.5
==================================================
103 103 1
102 102 1
101 101 1
100 100 1
99 99 1
98 98 1
97 97 1
==================================================
96 95 1.625
95 94 1.625
94 92 1.625
==================================================
90 84 2
80 64 2
70 44 2
60 24 2
50 4 2
<PAGE>
MGT 1A PAGE 3
ADMINISTRATIVE PROCEDURES:
1. Achievement numbers for compensation are taken from the Company financial
statements prepared in accordance with Anacomp's policies.
2. There will be no draws against the incentive base.
3. Any Incentive Base payments discussed herein are earned by and payable
only to those managers employed by Anacomp, Inc. on the last day of the
period when such payment would be due.
4. The corporation has the right, at any time, to adjust prospectively a
manager's salary or goals, or to change any other term or condition of
this plan. All elements of the CEO compensation plan, including salary,
incentive base and goals, need the approval of the compensation committee
of the Board of Directors.
5. Goals are assigned annually. All computations and resulting payments are
based on approved quarterly goals. Each quarter stands alone for
compensations purposes.
<PAGE>
ADDENDUM III
TO
EMPLOYMENT AGREEMENT DATED DECEMBER 15, 1997
BETWEEN
ANACOMP, INC. ("ANACOMP")
AND
DR. FREDERICK F. GEYER ("EMPLOYEE")
In consideration of the employment or continued employment of EMPLOYEE by
Anacomp, Inc. and its successors, assigns, subsidiaries, or duly authorized
representatives (hereinafter collectively referred to as "Anacomp") and of the
award of an option for the purchase of 100,000 shares of Anacomp, Inc. Common
Stock, par value $.0l per share, at a price of $13.50 (price as set on the date
of award), EMPLOYEE hereby agrees as follows:
1. Confidentiality and Trade Secrets. The EMPLOYEE recognizes and acknowledges
that during the course of his/her employment, he/she will have access to and
become acquainted with confidential, trade secret and proprietary information
about Anacomp's businesses and customers (hereinafter collectively referred to
as the "Protected Information"). The parties hereto recognize that the Protected
Information available to EMPLOYEE may pertain both to customers and accounts
handled by EMPLOYEE personally as well as accounts with which EMPLOYEE is not
personally involved. The parties agree that all Protected Information
constitutes a trade secret of Anacomp. Protected Information may include, but is
not limited to, the names, addresses, and requirements of any customer or
prospective customer of Anacomp; the terms (including price terms) of
contractual relations with such customers; special requirements of such
customers; the identities of individual contacts at such customers; and any
other information relating to Anacomp's research, operations, business
relationships, engineering data or results, specifications, concepts, methods,
processes, rates or schedules, vendor information, products or services
(including prices, costs, sales or content), financial information or measures,
business methods, future business plans, data bases, computer programs, designs,
models, operating procedures, and knowledge of the organization. The EMPLOYEE
recognizes and acknowledges that all of the Protected Information is valuable,
special and essential to the successful and effective conduct of Anacomp's
business. Therefore, the EMPLOYEE shall not, during his/her employment with
Anacomp or at any time thereafter, regardless of the reasons for leaving that
employment, use, disclose or communicate, directly or indirectly, any Protected
Information to any third party for any reason or purpose whatsoever, except as
required in the course of his/her employment with Anacomp. Further, upon the
termination of his/her employment with Anacomp, for any reason whatsoever,
EMPLOYEE shall promptly return any and all copies of any written material,
documents, computer hardware and software, tools and equipment belonging to
Anacomp or relating to the business of Anacomp in his/her possession.
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<PAGE>
2. Non-Competition.
2.1 Non-Competition While an EMPLOYEE or Consultant. While an employee of
Anacomp, or as a consultant to Anacomp after his termination of employment,
EMPLOYEE agrees not to compete in any manner, either directly or indirectly as
an employee, consultant, investor or owner, whether for compensation or
otherwise, with Anacomp, or to assist any other person or entity to compete with
Anacomp. Further, while an employee of Anacomp, EMPLOYEE agrees not to engage in
any other employment without the prior written permission of Anacomp.
3. Non-Solicitation.
3.1 Non-Solicitation of Employees. During the term of his/her employment
at Anacomp and for two (2) years following the termination for any reason of
such employment, EMPLOYEE agrees, either on his/her own behalf or on behalf of
any other person or entity, directly or indirectly, not to hire, solicit, or
encourage to leave the employ of Anacomp any person who is then an employee of
Anacomp. The foregoing restrictions shall apply to employees located in all
geographical areas where EMPLOYEE performed services for Anacomp during the
two-year period prior to his/her termination, including areas for which EMPLOYEE
had supervisory authority.
3.2 Non-Solicitation of Customers. Because of EMPLOYEE's access to
Protected Information of Anacomp, EMPLOYEE agrees that, during the term of
his/her employment at Anacomp and for two (2) years following the termination
for any reason of such employment, he/she will not, directly or indirectly, in
connection with the products and services offered by Anacomp and those products
and services which are competitive with the products and services of Anacomp:
(a) solicit, attempt to obtain, or in any way transact business with any
customers which were customers of Anacomp during his/her employment or at the
time of his/her termination; (b) aid or assist any other party in the
solicitation of any such customers; or (c) interfere with Anacomp's
relationships with any of its customers by soliciting such customers or inducing
them to discontinue their relationships with Anacomp. Products and services
which are competitive with the products and services of Anacomp include but are
not limited to: Micrographics Products (computer output to
microfilm-COM-equipment and software, cameras and film, processors, duplicators,
retrieval and display equipment and software, computer aided
retrieval-CAR-systems, readers, reader printers, other micrographics equipment,
micrographics equipment maintenance, micrographics consumable supplies and
accessories, records management software); Output Services (computer output to
microfilm-COM, source document microfilming, output of data to compact disk,
laser printing, conversion of paper and film to electronic images, micrographic
or electronic imaging system design, consulting and education, system
implementation and integration); Electronic Image Management Products (hardware,
software, magnetics products including tapes, tape drives and optical media
supplies, maintenance of electronic imaging equipment); Electronic Image
Management Services (conversion of computer generated data to optical or laser
disk, COLD, electronic document imaging and workflow, conversion of paper
documents to electronic images, system design consulting and education, system
implementation and integration, conversion of microfilm to electronic images);
and Archival Services (storage, management and retrieval of all forms of
customer information and business records, including but not limited to paper,
microfiche, magnetic media and digital storage media). The foregoing
restrictions shall apply to all geographical areas where EMPLOYEE performed
services for Anacomp during the two-year period prior to his/her termination,
including areas for which EMPLOYEE had supervisory authority.
-12-
<PAGE>
4. Remedies. EMPLOYEE acknowledges that compliance with Sections 1, 2 and 3 of
this Agreement is necessary to protect the business and good will of Anacomp and
that a breach of those sections will irreparably and continually damage Anacomp
for which money damages may not be adequate. Therefore, EMPLOYEE agrees that, in
the event he/she breaches or threatens to breach any of these Sections, Anacomp
shall be entitled to both a preliminary or permanent injunction in order to
prevent the continuation of such harm and money damages insofar as they can be
determined. Nothing in this Agreement, however, shall be construed to prohibit
Anacomp from also pursuing any other remedy, the parties having agreed that all
remedies shall be cumulative.
5. Inventions. EMPLOYEE agrees that all inventions, improvements, discoveries,
systems, techniques, ideas, processes, programs, and other things of value made
or conceived in whole or in part by EMPLOYEE while an employee of Anacomp shall
be and remain the sole and exclusive property of Anacomp, and he/she will
disclose all such things of value to Anacomp and will cooperate with Anacomp to
insure that the ownership by Anacomp of such things of value is protected.
Nothing in this Section is meant to apply to an invention for which no
equipment, supplies, facility or trade secret information of Anacomp was used,
which was developed entirely on EMPLOYEE's own time, and which does not relate
to Anacomp's business, research, development or from any work performed by
EMPLOYEE for Anacomp.
6. Employment. This Agreement does not confer upon EMPLOYEE any rights to
continue in the employ of Anacomp or affect in any way Anacomp's right to
terminate his/her employment at any time.
7. Severability. If any provision or clause of this Agreement, or portion
thereof, shall be held by any court or other tribunal of competent jurisdiction
to be illegal, void or unenforceable in such jurisdiction, the remainder of such
provisions shall not thereby be affected and shall be given full effect, without
regard to the invalid portion. It is the intention of the parties that, if any
court construes any provision or clause of this Agreement, or any portion
thereof, to be illegal, void or unenforceable because of the duration of such
provision or the area or matter covered thereby, such court shall reduce the
duration, area or matter of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Binding Effect. The rights and obligations of this Agreement shall inure to
and be binding upon the parties and their respective heirs, successors and
assigns.
9. Attorneys' Fees. In the event of any dispute, proceeding or litigation
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the interpretation or breach thereof,
each party shall pay its own expenses, attorneys' fees, expert fees, and costs
incurred therein or in the enforcement or collection of any judgment or award
rendered therein.
10. No Waiver. Anacomp's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, or prevent
Anacomp thereafter from enforcing each and every provision of this Agreement.
11. Entire Agreement. This Agreement represents the entire agreement between
EMPLOYEE and Anacomp, with respect to the subject matter hereof, superseding all
previous oral and written communications, representations, understandings or
agreements.
-13-
<PAGE>
12. EMPLOYEE's Understanding. EMPLOYEE represents and warrants that he/she has
read each and every term of this Agreement and understands the serious duties
and obligations imposed upon EMPLOYEE thereby. EMPLOYEE further represents and
warrants that he/she has had full and ample opportunity to question Anacomp
about this Agreement and each of its terms and to consult an attorney regarding
this Agreement and each of its terms. EMPLOYEE represents that he/she is free to
enter this Agreement and to perform each of its terms and covenants. EMPLOYEE
represents that he/she is not restricted or prohibited, contractually or
otherwise, from entering into and performing this Agreement, and that his or her
execution and performance of this Agreement is not a violation or breach of any
other agreement between EMPLOYEE and any other person or entity.
DATED: December 17, 1987
ANACOMP, INC.
By: /s/ William C. Ater /s/ Frederick F. Geyer
----------------------------- --------------------------------
William C. Ater EMPLOYEE (signature)
Its: Senior Vice President & CAO Dr. Frederick F. Geyer
--------------------------------
EMPLOYEE (printed)
Exec VP
--------------------------------
Current position
Poway, CA
--------------------------------
Current location
###-##-####
--------------------------------
Social Security Number
-14-
<PAGE>
EXHIBIT 12.1
ANACOMP, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PREDECESSOR COMPANY REORGANIZED COMPANY
------------------------------------------- --------------------------------------------
EIGHT FOUR NINE MONTHS
MONTHS MONTHS YEAR ENDED
YEAR ENDED SEPTEMBER 30, ENDED ENDED ENDED JUNE 30,
-------------------------------- MAY 31, SEPT. 30, SEPT. 30, ----------------------
1993 1994 1995 1996 1996 1997 1997 1998
--------- --------- ---------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes,
extraordinary items and
cumulative effect of
accounting change....... 20,491 15,355 (203,326) 116,228 (17,609) (41,350) (30,936) (49,153)
Fixed charges............. 75,397 73,631 78,856 31,413 14,848 41,443 32,204 28,793
--------- --------- ---------- --------- --------- --------- --------- -----------
Earnings (loss)....... 95,888 88,986 (124,470) 147,641 (2,761) 93 1,268 (20,360)
Interest expense and fee
amortization............ 68,960 67,174 70,938 26,760 12,869 35,896 27,974 24,440
Lease expense considered
to be interest.......... 6,437 6,457 7,918 4,653 1,979 5,547 4,230 4,353
--------- --------- ---------- --------- --------- --------- --------- -----------
Fixed Charges......... 75,397 73,631 78,856 31,413 14,848 41,443 32,204 28,793
Ratio of earnings to fixed
charges................. 1.27 1.21 N/A (1) N/A N/A N/A N/A
Amount of insufficiency... -- -- 203,326 -- 17,609 41,350 30,936 49,153
</TABLE>
- ------------------------
(1) Ratio of earnings to fixed charges may not be meaningful for this period due
to the reorganization gains recorded associated with adoption of fresh start
accounting and discharge of indebtedness.
<PAGE>
EXHIBIT 12.2
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPT. 30, --------------------
1997 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT
RATIOS)
Pro forma income (loss) before taxes, extraordinary items..................... (22,644) (14,171) (39,848)
Pro forma fixed charges....................................................... 49,598 37,515 37,104
----------- --------- ---------
Pro Forma Earnings (loss)................................................. 26,954 23,344 (2,744)
Pro forma interest expense and fee amortization............................... 41,789 31,558 31,220
Pro forma lease expense considered to be interest............................. 7,809 5,957 5,884
----------- --------- ---------
Pro Forma Fixed Charges................................................... 49,598 37,515 37,104
Pro forma ratio of earnings to fixed charges.................................. N/A N/A N/A
Amount of insufficiency....................................................... 22,644 14,171 39,848
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated November 14, 1997 (except with
respect to the matters discussed in Note 24 as to which the date is August 13,
1998), included herein and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
August 14, 1998.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Anacomp, Inc. for
the registration of $135,000,000 of 10 7/8% Series D Senior Subordinated Notes
due 2004 and to the incorporation by reference therein of our report dated April
30, 1998, except as to Note 15 as to which the date is June 18, 1998, with
respect to the financial statements of First Image Management Company (a
division of First Data Corporation) included in Anacomp, Inc.'s Current Report
on Form 8-K dated June 18, 1998 (as amended by Form 8-K/A dated August 11,
1998), filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 14, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)
------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Terence Rawlins, Assistant Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
ANACOMP, INC.
(Exact name of obligor as specified in its charter)
Indiana 35-1144230
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12365 Croswaithe Circle
Poway, California 92064
(Address of principal executive office) (Zip code)
-------------------------------
(Title of Indenture Securities)
10 7/8% Series D Senior Subordinated Notes due 2004
-------------------------------
<PAGE>
Item 1. Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of August 17, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Col. A Col. B
Title of class Amount Outstanding
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
<PAGE>
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310 (b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Not Applicable
Item 5. Interlocking directorates and similar relationships with the obligor or
underwriters.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each
director, partner, and executive officer of the obligor:
As of August 17, 1998
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially Percent of voting securities
represented by amount given in
Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of
each such underwriter:
As of August 17, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting securities
beneficially represented by amount given in
Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ---------------------------
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee:
As of August 17, 1998
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following information
as to each class of securities of such underwriter any of
which are so owned or held by the trustee:
As of August 17, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ------------------------------
- --------------------------------------------------------------------------------
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of certain
affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or (2)
is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities
of such person:
As of August 17, 1998
<PAGE>
- --------------------------------------------------------------------------------
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
Item 11. Ownership or holdings by the trustee of any securities of
a person owning 50 percent or more of the voting securities of
the obligor.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or more
of the voting securities of the obligor, furnish the following
information as to each class of securities of such any of
which are so owned or held by the trustee:
As of August 17, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
<S> <C> <C>
-------------- ---------------- --------------------------
</TABLE>
- --------------------------------------------------------------------------------
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
As of August 17, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned beneficially or Percent of voting securities
held as collateral security represented by amount given in
for obligations in default Col. C
<S> <C> <C> <C>
- -------------- ---------------- -------------------------- ------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
Not Applicable
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default
under any such indenture or series, identify the
indenture or series affected, and explain the nature
of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form
T-1, Securities and Exchange Commission File No.
22-18460).
<PAGE>
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No.
22-19146).
5. A copy of each Indenture referred to in Item 4, if
the Obligor is in default. Not Applicable.
6. The consent of the United States institutional
trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any indenture
under which the applicant is trustee.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the trustee, IBJ Schroder Bank & Trust
Company, a corporation organized and existing under the laws
of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 17th day of August, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Terence Rawlins
----------------------------------
Terence Rawlins
Assistant Vice President
<PAGE>
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the
issue by Anacomp, Inc. of its 10 7/8% Series D Senior
Subordinated Notes due 2004, we hereby consent that reports of
examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Terence Rawlins
----------------------------------
Terence Rawlins
Assistant Vice President
Dated: As of August 17, 1998
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of June 30, 1998
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
------------
ASSETS
------
<S> <C>
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin ....................................................$ 36,963
b. Interest-bearing balances.................................................................................$ 13,296
2. Securities:
a. Held-to-maturity securities...............................................................................$ 189,538
b. Available-for-sale securities.............................................................................$ 101,159
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and
in IBFs:
Federal Funds sold and Securities purchased under agreements to resell........................................$ 327,500
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................................$ 1,800,351
b. LESS: Allowance for loan and lease losses...............................................$ 65,836
c. LESS: Allocated transfer risk reserve...................................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,814,515
5. Trading assets held in trading accounts.......................................................................$ 572
6. Premises and fixed assets (including capitalized leases)......................................................$ 2,194
7. Other real estate owned.......................................................................................$ 819
8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0-
9. Customers' liability to this bank on acceptances outstanding..................................................$ 640
10. Intangible assets.............................................................................................$ 11,293
11. Other assets..................................................................................................$ 58,872
12. TOTAL ASSETS..................................................................................................$ 2,557,36
LIABILITIES
13. Deposits:
a. In domestic offices.......................................................................................$ 657,513
(1) Noninterest-bearing ....................................................................$ 178,024
(2) Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 479,489
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 1,362,365
(1) Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,278
(2) Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . $ 1,342,087
14. Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement subsidiaries,
and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase....................................$ 60,000
15. a. Demand notes issued to the U.S. Treasury..................................................................$ 5,000
b. Trading Liabilities.......................................................................................$ 406
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................................$ 49,916
b. With a remaining maturity of more than one year...........................................................$ 1,375
c. With a remaining maturity of more than three years........................................................$ 1,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding......................................................$ 640
19. Subordinated notes and debentures.............................................................................$ 100,000
20. Other liabilities.............................................................................................$ 69,920
21. TOTAL LIABILITIES.............................................................................................$ 2,308,685
22. Limited-life preferred stock and related surplus..............................................................$ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................................$ -0-
24. Common stock..................................................................................................$ 29,649
25. Surplus (exclude all surplus related to preferred stock)......................................................$ 217,008
26. a. Undivided profits and capital reserves....................................................................$ 1,885
b. Net unrealized gains (losses) on available-for-sale securities............................................$ 134
27. Cumulative foreign currency translation adjustments...........................................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................................$ 248,676
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,557,361
</TABLE>
