Loan And Security Agreement

LOAN AND SECURITY AGREEMENT


by and between


ANACOMP, INC.


as Borrower,


and


WELLS FARGO FOOTHILL, INC.


as Lender


Dated as of July 30, 2004


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LOAN AND SECURITY AGREEMENT


THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of July 30, 2004, between WELLS FARGO FOOTHILL, INC., a California corporation, ("Lender"), and, ANACOMP, INC., an Indiana corporation ("Borrower").


The parties agree as follows:


1. DEFINITIONS AND CONSTRUCTION.


1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions:


"Account" means an account (as that term is defined in the Code).


"Account Debtor" means any Person who is obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible.


"Acquisition" means (a) any Stock Acquisition, or (b) any Asset Acquisition.


"Acquisition Funding Conditions" means that Lender shall have completed its audit, appraisal and standard due diligence with respect to the proposed Acquisition and the results thereof are satisfactory to Lender.


"Additional Documents" has the meaning set forth in Section 4.4(c).


"Advances" has the meaning set forth in Section 2.1(a).


"Affiliate" means, as applied to any Person, any other Person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 7.13 hereof: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed an Affiliate of such Person.


"Agreement" has the meaning set forth in the preamble hereto.


"Anacomp Holdings UK" means Anacomp Holdings Limited, a company organized under the laws of the United Kingdom.


"Anacomp UK" means Anacomp Limited, a company organized under the laws of the United Kingdom.


"Anacomp Germany" means Anacomp GmbH & Co., KG, a limited partnership formed under the laws of Germany.


"Annualized Recurring Document Imaging Revenue" means, as of the last day of any fiscal quarter, an amount equal to the product of (a) the Recurring Document Imaging Revenue for such fiscal quarter multiplied by (b) 4.


"Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 3% times the Maximum Revolver Amount, (b) during the period from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, 2% times the Maximum Revolver Amount, (c) during the period from and including the date that is the second anniversary of the Closing Date up to the date that is the third anniversary of the Closing Date, 1% times the Maximum Revolver Amount, and (d) during the period from and including the date that is the third anniversary of the Closing Date and thereafter, zero.


"Asset Acquisition" means any purchase or other acquisition by Borrower, directly or indirectly, of all or substantially all of the assets or a division of any other Person.


"Assignee" has the meaning set forth in Section 14.1(a).


"Assignment and Acceptance" means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1.


"Authorized Person" means any officer or employee of Borrower.


"Availability" means, as of any date of determination, the amount that Borrower is entitled to borrow as Advances hereunder (after giving effect to all then outstanding Obligations and all sublimits and reserves then applicable hereunder).


"Bankruptcy Code" means title 11 of the United States Code; provided that, when the context requires with respect to the Canadian Obligor, "Bankruptcy Code" shall mean the Bankruptcy and Insolvency Act (Canada) or the Companies' Creditors Arrangement Act (Canada), each as in effect from time to time.


"Base LIBOR Rate" means the rate per annum, determined by Lender in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/100%), to be the rate at which Dollar deposits (for delivery on the first day of the requested Interest Period) are offered to major banks in the London interbank market 2 Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR Rate Loan or as a continuation of an extant LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error.


"Base Rate" means, the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its "prime rate," with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.


"Base Rate Loan" means the portion of the Advances that bears interest at a rate determined by reference to the Base Rate.


"Base Rate Margin" means, as of any date of determination, the following margin based upon the TTM EBITDA as set forth in the following paragraph provided, however, that for the period from the Closing Date through the date Lender receives the certified calculation of the TTM EBITDA in respect of the testing period ended with December 31, 2004 delivered by Borrower pursuant to Section 6.3, the applicable Base Rate Margin shall be 0.75 percentage points:


Level TTM EBITDA Base Rate Margin - ----- ---------- ---------------- I Less than $9,000,000 1.00 percentage points II Greater than or equal to $9,000,000 but less than $17,000,000 0.75 percentage points III Greater than or equal to $17,000,000 0.50 percentage points


Except as set forth in the foregoing proviso, the Base Rate Margin shall be based upon the most recent TTM EBITDA, which will be calculated quarterly. Except as set forth in the initial proviso in this definition, the Base Rate Margin shall be re-determined each quarter on the first day of the month following the date Borrower delivers to Lender the certified calculation of the TTM EBITDA pursuant to Section 6.3 hereof; provided, however, that if Borrower fails to provide such certification when such certification is due, the applicable Base Rate Margin shall be set at the margin in the row styled "Level I" as of the first day of the month following the date on which the certification was required to be delivered until the date on which such certification is delivered (on which date (but not retroactively), without constituting a waiver of any Default or Event of Default occasioned by the failure to timely deliver such certification, the Base Rate Margin shall be set at the margin based upon the amount of the TTM EBITDA disclosed by such certification).


"Benefit Plan" means the German Benefit Plan, the UK Benefit Plan and any other Plan that is or is intended to be a "defined benefit plan" (as defined in Section 3(35) of ERISA), or a benefit plan under Canadian Employee Benefit Laws, or a benefit plan under German Employee Benefit Laws, or a benefit plan under an arrangement or agreement for the provision of retirement, death or disability benefits or otherwise for the provision of "relevant benefits" within the meaning of section 612(1) of the Income & Corporation Taxes Act 1988, in both cases other than money purchase benefits (as defined in section 181 of the Pension Schemes Act 1993), or a benefit plan under any other applicable foreign law for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has maintained, contributed to, has an obligation to contribute to, or has been an "employer" (as defined in Section 3(5) of ERISA), or has held equivalent status under Canadian Employee Benefit Laws, German Employee Benefit Laws, or any other applicable foreign law within the past six years.


"Board of Directors" means the board of directors (or comparable managers) of Borrower or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).


"Books" means all of Borrower's and its Subsidiaries' now owned or hereafter acquired books and records (including all of their Records indicating, summarizing, or evidencing their assets (including the Collateral) or liabilities, all of Borrower's or its Subsidiaries' Records relating to their business operations or financial condition, and all of their goods or General Intangibles related to such information).


"Borrower" has the meaning set forth in the preamble to this Agreement.


"Borrower Collateral" means all of Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following:


(a) all of its Accounts,


(b) all of its Books,


(c) all of its commercial tort claims described on Schedule 5.7(d),


(d) all of its Deposit Accounts,


(e) all of its Equipment,


(f) all of its General Intangibles,


(g) all of its Inventory,


(h) all of its Investment Property (including all of its securities and Securities Accounts),


(i) all of its Negotiable Collateral,


(j) all of its Supporting Obligations,


(k) money or other assets of Borrower that now or hereafter come into the possession, custody, or control of Lender, and


(l) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Deposit Accounts, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.


Anything contained in this Agreement to the contrary notwithstanding, the term "Borrower Collateral" shall not include (a) any Investment Property of Borrower constituting Stock of Borrower's Subsidiaries that are CFCs, solely to the extent that such Investment Property is in excess of 65% of the Stock of such CFC and (b) any rights or interest in any contract, lease, permit, license, charter or license agreement covering real or personal property of Borrower if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Lender is prohibited as a matter of law or under the terms of such contract, lease, permit, license, charter or license agreement and such prohibition has not been or is not waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained; provided, that, the foregoing exclusions shall in no way be construed (x) to apply if any described prohibition is unenforceable under Sections 9-406, 9-407, or 9-408 of the Code or other applicable law, or (y) so as to limit, impair, or otherwise affect Lender's continuing security interests in and Liens upon any rights or interests of Borrower in or to monies due or to become due under any described contract, lease, permit, license, charter or license agreement (including any Accounts), or (z) to limit, impair, or otherwise affect Lender's continuing security interests in and Liens upon any rights or interests of Borrower in and to any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, charter, license agreement or Stock.


"Borrowing" means a borrowing hereunder consisting of Advances.


"Borrowing Base" means, as of any date of determination, the result of:


(a) the lesser of


(i) 85% of the amount of Eligible Accounts, less the
amount, if any, of the Dilution Reserve, and


(ii) an amount equal to Borrower's Collections and, so
long as the Canadian Conditions have been satisfied,
Canadian Obligor's Collections, in each case, with respect
to Accounts for the immediately preceding 45 day period,
plus


(b) the least of


(i) $12,500,000,


(ii) 50% of the Value of the Recurring Contract Revenue
Stream,


(iii) 12.5% of the Annualized Recurring Document
Imaging Revenue for the fiscal quarter then most recently
ended, and


(iv) 125% of the credit availability created by the
calculation set forth in clause (a) above minus


(c) the sum of (i) the Landlord Reserve, (ii) the Tax
Reserve and (iii) the aggregate amount of reserves, if any,
established by Lender under Section 2.1(b).


"Business Day" means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of New York, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.


"Canadian Conditions" means that Lender shall have received (a) duly executed originals of the Canadian Security Documents and evidence reasonably satisfactory to Lender that the security interests granted in favor of Lender pursuant thereto have been duly perfected and are senior in priority to all other liens, claims, security interests, or encumbrances, except for Permitted Liens, (b) such opinions of foreign counsel to Canadian Obligor, in form and substance reasonably satisfactory to Lender, as Lender may request, (c) a certificate from an authorized senior official of Canadian Obligor attesting to the incumbency and signatures of authorized officials of Canadian Obligor and to the resolutions of Canadian Obligor's board of directors (or foreign equivalent) (and, if necessary, resolutions of Canadian Obligor's shareholders) authorizing the execution and delivery of the Canadian Security Documents and the performance of the same, and authorizing specific officials of Canadian Obligor to execute and deliver the same, (d) Lender shall have completed a collateral audit with respect to the assets of Canadian Obligor and an examination of Canadian Obligor's Books, the results of which shall be satisfactory to Lender, (e) certified copies of the policies of insurance, together with the endorsements thereto, in respect of assets owned by Canadian Obligor, as are required hereby, the form and substance of which shall be reasonably satisfactory to Lender, and (f) such evidence as Lender may reasonably require demonstrating that all conditions to the effectiveness of the Canadian Security Documents have been satisfied, including any actions required by any applicable Canadian financial assistance legislation.


"Canadian Dollars" or "C$" each means the lawful money of Canada.


"Canadian Employee Benefit Laws" means the Canadian Pension Plan Act (Canada), the Pension Benefit Act (Ontario), the Health Insurance Act (Ontario), the Employment Standard Act (Ontario) and any federal, provincial, or local counterparts or equivalents, in each case, as amended from time to time.


"Canadian Guarantee" means a guarantee executed and delivered by Canadian Obligor in favor of Lender, in form and substance reasonably satisfactory to Lender.


"Canadian Obligor" means Anacomp Canada Inc. a New Brunswick corporation.


"Canadian Security Agreement" means that security agreement executed and delivered by Canadian Obligor in favor of Lender, in form and substance reasonably satisfactory to Lender.


"Canadian Security Documents" means, collectively, such instruments, agreements, and documents governed by the laws of Canada or any political subdivision thereof, as Lender may reasonably require in order to secure the obligations of Canadian Obligor, including the Canadian Security Agreement and the Canadian Guarantee.


"Capital Expenditures" means, with respect to any Person for any period, the sum of (a) the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, and (b) to the extent not covered by clause (a), the aggregate of all expenditures by such Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or capitalized assets of, or the Capital Stock of, any other Person.


"Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.


"Capitalized Lease Obligation" means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.


"Cash Equivalents" means Domestic Cash Equivalents and International Cash Equivalents.


"Cash Management Account" has the meaning set forth in Section 2.7(a).


"Cash Management Agreements" means those certain cash management agreements, in form and substance reasonably satisfactory to Lender, each of which is among Borrower or a Guarantor, Lender, and one of the Cash Management Banks.


"Cash Management Bank" has the meaning set forth in Section 2.7(a).


"CFC" means a controlled foreign corporation (as that term is defined in the IRC).


"Change of Control" means that (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 35%, or more, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (c) Borrower ceases to own, directly or indirectly, and control 100% of the outstanding Stock of each of its Subsidiaries extant as of the Closing Date other than the Stock of its Inactive Subsidiaries.


"Closing Date" means the date of the making of the initial Advance (or other extension of credit) hereunder.


"Closing Date Business Plan" means the set of Projections of Borrower for the 1 year period following the Closing Date (on a quarter by quarter basis), in form and substance (including as to scope and underlying assumptions) satisfactory to Lender.


"Code" means the New York Uniform Commercial Code, as in effect from time to time; provided, however, that in the event by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Lender's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies; and when used to define a category or categories of collateral owned or hereafter acquired by the Canadian Obligor, such reference shall include the equivalent category or categories of collateral set out under the PPSA.


"Collateral" means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Borrower or its Subsidiaries in or upon which a Lien is granted under any of the Loan Documents.


"Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in Borrower's or its Subsidiaries' Books, Equipment, or Inventory, in each case, in form and substance reasonably satisfactory to Lender.


"Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds).


"Commercial Tort Claim Assignment" has the meaning set forth in Section 4.4(b).


"Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Lender.


"Continuing Director" means (a) any member of the Board of Directors who was a director (or comparable manager) of Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Borrower and whose initial assumption of office resulted from such contest or the settlement thereof.


"Control Agreement" means a control agreement, in form and substance reasonably satisfactory to Lender, executed and delivered by Borrower or a Guarantor, Lender, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).


"Copyright Security Agreement" means a copyright security agreement executed and delivered by Borrower and Lender, the form and substance of which is reasonably satisfactory to Lender.


"Daily Balance" means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such day.


"Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.


"Deposit Account" means any deposit account (as that term is defined in the Code).


"Designated Account" means the Deposit Account of Borrower identified on Schedule D-1.


"Designated Account Bank" has the meaning ascribed thereto on Schedule D-1.


"Dilution" means, as of any date of determination, a percentage, based upon the experience of the immediately prior 90 consecutive days, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to Borrower's and each Guarantor's Accounts during such period, by (b) Borrower's and each Guarantor's billings with respect to Accounts during such period.


"Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts by 1 percentage point for each percentage point by which Dilution is in excess of 5%.


"Disbursement Letter" means an instructional letter executed and delivered by Borrower to Lender regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Lender.


"Dollars" or "$" means United States dollars.


"Domestic Cash Equivalents" means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Rating Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other Deposit Accounts maintained with any bank organized under the laws of the United States or any state thereof so long as the amount maintained with any individual bank is less than or equal to $100,000 and is insured by the Federal Deposit Insurance Corporation, and (f) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (e) above.


"Due Diligence Letter" means the due diligence letter sent by Lender's counsel to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the ...