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During ¬scal 1981, Anacomp initiated and completed development of a new com-
puter software switching system called H-10000 to be marketed to major ¬nancial institu-
tions. Anacomp entered into an agreement with EFT Partners, Ltd. (“EFT”), a limited
partnership formed in the fall of 1980. Several of¬cers and directors of Anacomp pur-
chased limited partnership units in EFT, aggregating approximately 31% of the partner-
ship units, and Kranzley & Co., a wholly-owned subsidiary of Anacomp, was the general
partner. The remaining limited partnership interests were owned by persons not af¬liated
with Anacomp. Anacomp agreed to develop and market the system, and EFT agreed to
pay a development fee of $1,000, of which $910 was paid during 1981 and an addi-
tional $90 during 1982. The contract was reported on the completed contract basis; rev-
enue and pro¬ts were recognized upon completion during the fourth quarter of 1981. In
June 1982, Kranzley & Co. exercised its right under the purchase option to buy the inter-
ests of the limited partners at the appraised fair market value for the H-10000 system of
$2,300.




Anacomp
CEFT

During ¬scal 1981, Anacomp entered into an agreement with CEFT Partners, Ltd.
(“CEFT”), a limited partnership formed in December 1980, and primary development
banks to jointly develop a new computer funds transfer software system to be marketed to
major ¬nancial institutions. Certain of¬cers, directors and employees of Anacomp pur-
chased limited partnership units in CEFT aggregating approximately 9% of the limited
partnership units. The remaining partnership interest and the general partnership interest
are owned by persons not af¬liated with Anacomp.
Under the development agreement, Anacomp agreed to develop the new system on
a best-effort basis. The agreement permits Anacomp to contract with primary develop-
ment banks to provide development fees up to $1,000 in addition to the $2,100 develop-
ment fee to be paid by the partnership. In June 1981, the general partner agreed to
permit Anacomp to increase the bank fees allowable to $2,000 on this project. Contracts
with ¬ve banks aggregating $2,000 have been completed.
Anacomp has acquired rights to a system owned by a major bank at a cost of $500
to assist and expedite the completion of the system. A portion of this cost has been
charged to expense as a system development cost and the remainder is being amortized
over the expected marketing life of the purchased system in its unmodi¬ed form.
The system was certi¬ed as being complete in July 1982, and Anacomp has agreed
to market it for seven years on an exclusive commission basis. Anacomp has the option to
acquire all rights to the system at the greater of (a) fair market value or (b) $3,000 to
$5,000, depending on the date the option is exercised. Revenues earned on this software
development project were $3,150 and $942 during ¬scal 1981 and 1982.

CBS

During ¬scal 1981, Anacomp entered into an agreement with CBS Partners, Ltd.
(“CBS”), a limited partnership formed in April 1981, and primary development banks to
jointly develop a wholesale banking computer software system to be marketed to major
¬nancial institutions. Certain of¬cers, directors and employees of Anacomp purchased
752 Case: Anacomp, Inc.




22 Part 4 Additional Cases




limited partnership units in the partnership aggregating approximately 20% of the limited
partnership units. The remaining limited partnership interest and the general partnership
interest are owned by persons not af¬liated with Anacomp. Under the development
agreement, Anacomp agreed to develop the new system on a best-efforts basis. The
agreement permits Anacomp to contract with primary development banks to provide
development fees up to $3,750 in addition to the $4,500 development fee to be paid by
the partnership. Contracts with three banks aggregating $3,750 have been completed.
Anacomp has acquired rights to a wholesale banking system owned by a major
bank at a cost of $1,350 to assist and expedite the completion of the system. A portion of
this cost is being charged to expense as a system development cost and the remainder is
being amortized over the expected marketing life of the purchased system in its unmodi-
¬ed form.
Upon completion of the system, Anacomp has agreed to market it for seven years on
an exclusive commission basis. Anacomp has the option to acquire all rights to CBS at the
greater of (a) fair market value or (b) $7,000 to $9,000, depending on the date the
Anacomp




option is exercised. Revenues earned on this software development project were $2,620
and $4,319 during 1981 and 1982.

CIBS

Subsequent to June 30, 1982, Anacomp entered into an agreement with CIBS Part-
ners, Limited (“CIBS”), a limited partnership formed in April 1981, to develop new soft-
ware systems for large banks engaged in international business. Certain of¬cers,
directors and employees of Anacomp purchased limited partnership units in CIBS aggre-
gating approximately 6.5% of the limited partnership units. The remaining limited part-
nership interests are owned by persons not af¬liated with Anacomp. Anacomp is the sole
holder of $400 of the non-voting preferred stock of the corporate general partner. The
partnership payments under the development agreements are to be funded with $26,250
of partners™ capital investment.
Under the development agreement, Anacomp has agreed to develop the new sys-
tems on a best-efforts basis. The agreement permits Anacomp to contract with primary
development banks to provide development fees up to $12,000 in addition to the
$23,000 development fee to be paid by the partnership. A contract with one bank for
$500 has been completed.
Upon completion of the systems, Anacomp has agreed to lease the systems for ¬ve
years on an exclusive basis at rental based on a percentage of license fees generated.
Anacomp has the option to acquire all rights to the systems during the three-year period
commencing one year after completion of the systems at total prices ranging from
$46,400 to $59,700, plus a share of licensing fees generated thereafter, depending on
the year in which the option is exercised.
At June 30, 1982, the Company considered the funding for this project to be immi-
nent. Accordingly, costs of $5,647, including $2,750 to acquire rights to certain software
incurred in commencing the development of CIBS, were deferred until such time as
project funding became available in August 1982. Such costs will be charged to opera-
tions in ¬scal 1983.
753
Case: Anacomp, Inc.




23
Part 4 Additional Cases




Other

During ¬scal 1980, a group of of¬cers and directors of Anacomp formed a limited
partnership which purchased a computer system and leased it to Anacomp at a competi-
tive rental rate. In May 1982, the Company purchased the computer equipment from the
partnership for $1,167, which was its appraised value.


Note 5. Cash, Cash Investments and Short-Term Borrowings

Cash balances at June 30, 1982 and 1981, include temporary investments of
$34,380 and $26,550, respectively, at costs which approximate market value. Of the
amounts invested at June 20, 1982, $10,000 is pledged as collateral for the short-term
borrowings from banks of $10,000 and is restricted as to withdrawal.
At June 20, 1982, Anacomp has short-term lines of credit from banks in the amount
of $39,000, of which $35,000 is unused. Anacomp has agreed to maintain compensa-
ting balances, not restricted as to withdrawal, on certain of these lines. The average of




Anacomp
compensating balances on these lines was approximately 5% of the available lines during
¬scal 1982.


Note 7. Other Assets

The following comprise other assets:

June 30
.................................
1982 1981
.........................................................................................................................

Investment in Kalvar Corporation, including $1,028 note
receivable in both years and income bond and preferred
stock in 1982 $ 6,428 $ 3,398
Marketable securities valued at the lower of cost or market 6,068 3,665
Notes receivable, RTS Associates ” 2,095
Notes receivable, other 4,132 400
Employment and non-compete agreements, less accumu-
lated amortization of $1,297 and $848, respectively 491 737
Deferred debenture costs, less accumulated amortization of
$313 and $152, respectively 3,470 2,026
Deferred charges, other 3,906 2,056
$24,495 $14,377
.........................................................................................................................
754 Case: Anacomp, Inc.




24 Part 4 Additional Cases




Note 8. Long-Term Debt

Long-term debt is comprised of the following:

June 30
...................................
1982 1981
.........................................................................................................................

10% Convertible Subordinated Debentures due
November 1, 1988 $ 758 $ 915
9 1„2% Convertible Subordinated Debentures due

September 1, 2000 29,925 29,925
9% Convertible Subordinated Debentures due
January 15, 1996 13,789 12,500
137„8% Convertible Subordinated Debentures due
January 15, 2002 (net of unamortized original
Anacomp




issue discount of $7,440 42,560 ”
Notes payable to banks at an average rate of 15.5%
at June 30, 1982, due in installments to 1985 12,880 1,436
Other 8,203 8,174
108,115 52,950
Less current portion 2,907 2,359
$105,208 $50,591
.........................................................................................................................


Other debt includes equipment purchase notes, debtor to ¬nance acquisitions, mort-
gages and obligations under capitalized ¬nancial leases. These items have effective costs
of 93„4% to 15% and are payable in installments over varying periods extending to 2006.
Shares representing substantially all of the operations of DSI are pledged as collateral for
a note with a discounted balance of $2,793 at June 30, 1982. At June 30, 1982, pro-
cessing equipment with an aggregate book value of approximately $3,600 is pledged as
collateral under certain of the debt agreements.
Anacomp is guarantor of a bank loan to Anacomp™s wholly-owned leasing subsid-
iary. At June 30, 1982, the balance of the debt being guaranteed is $480.
At June 30, 1982, the aggregate maturities of long-term debt through ¬scal year
1987 are: 1983, $2,907; 1984, $12,972; 1985, $3,482; 1986, $347; and 1987,
$219.


Note 9. Capital Stock

Stock Dividends and Stock Splits

The Board of Directors declared the following stock dividends and stock splits during
the three years ended June 30, 1982:
January, 1980”¬ve-for-four stock split
March, 1981”¬ve-for-four stock split
755
Case: Anacomp, Inc.




25
Part 4 Additional Cases




All applicable share and per share amounts have been restated to re¬‚ect the stock
dividends and stock splits. All conversion prices and stock option data have also been
adjusted to give effect to the stock dividends and stock split.


Note 10. Segment Information

Anacomp operates in two business segments”data center services and computer
services. Data center services consist of providing computer output micro¬lm (“COM”)
and computer processing for banks and credit unions through a network of branch
of¬ces, where Anacomp™s equipment and personnel process data for numerous custom-
ers at each branch site. Computer services consist of providing computer software, prima-
rily to large ¬nancial institutions, and managing computer facilities for large customers,
primarily state and local governments.

Year Ended June 30, 1982 Year Ended June 30, 1981




Anacomp
.................................................... .....................................................

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