Chief Operating Officer Employment Agreement

EMPLOYMENT AGREEMENT


This Employment Agreement ("Agreement") is made effective as of November 15, 2004 by and between Anacomp, Inc. ("Employer") and William R. Pesch ("Employee").


The parties agree as follows:


1. Duties.


1.1 Position. Employee is employed in the position of President and
Chief Operating Officer. Employee shall faithfully and diligently perform
these duties, as well as any other duties as assigned. Employer reserves
the right to modify Employee's duties consistent with Employee's position
at any time, in its sole and absolute discretion.


1.2 Location of Employment. Employee will be based at Employer's San
Diego headquarters facility, and will be required to live within reasonable
proximity to this facility.


1.3 Best Efforts/Full-time. Employee will expend Employee's best
efforts on behalf of Employer, and will abide by all policies and decisions
made by Employer, as well as all applicable federal, state and local laws,
regulations or ordinances. Employee shall devote Employee's full business
time and efforts to the performance of Employee's duties and will act in
the best interests of Employer at all times. It is anticipated that
Employee shall generally work on average no less than 40 hours per week.
Notwithstanding, Employee may participate in civic, charitable and industry
organizations, which do not interfere with his duties. Employee may serve
on Boards of Directors subject to Employer's conflict of interest policies
and the Company's approval which shall not be unreasonably withheld.


2. Compensation.


2.1 Base Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Employee hereunder, Employee
shall earn a base salary of Two Hundred and Fifty Thousand ($250,000.00).
Such salary shall be payable on a biweekly basis in accordance with the
normal payroll practices of Employer, less required deductions for state
and federal withholding tax, social security and all other employment taxes
and payroll deductions. Employee's base salary will be subject to being
increased in accordance with Employer's annual salary review process.


2.2 Incentive Compensation. Employee shall also be eligible to earn
annual incentive compensation in an amount equal to 50% of the Employee's
Base Salary in accordance with the terms and conditions of the executive
incentive plan approved by the Employer's Compensation Committee. In the
first year of Employee's employment, Employee shall be guaranteed a minimum
cash bonus of Twenty Five Percent (25%) of the Employee's annual base
salary, or Sixty Two Thousand Five Hundred Dollars ($62,500.00) prorated
over the first year.


2.3 Stock Options. The Employer will recommend to the Compensation
Committee of the Employer's Board of Directors that the Employee be granted
an award of 32,500 stock options. This award would be granted effective as
of the date the appropriate stock option documents are executed by the
Company after the conclusion of Project Ocean. The exercise price for such
options would be determined, as provided under the Employer's stock option
plan, as of the date of grant of such options. The stock options would vest
in equal portions of 25% of the entire option grant on each anniversary the
effective date of this Agreement. All of the other terms and conditions of
the stock option award will be subject to such provisions as determined by
the Compensation Committee of the Employer's Board of Directors.


3. Fringe Benefits. Employee shall be eligible for all customary and usual fringe benefits generally available to executive employees of Employer, such as holidays, vacations and health insurance, subject to the terms and conditions of the applicable benefit plans and provided Employee completes the applicable enrollment forms, if any, on a timely basis. Employer reserves the right to change or terminate the fringe benefits on a prospective basis, at any time, upon written notice to Employee. Employee shall also be eligible for payment of relocation expenses in accordance with the Employer's standard relocation policy, provided, however, that with respect to Paragraph III A, the Employer will reimburse Employee for any expenses incurred up to the amount of Thirty Nine Thousand dollars ($39,000). Additionally, Employee shall be entitled to a $3,000/month cost of living (COLA) adjustment for the first twelve (12) months of Employee's employment.


4. Term of Employment. The initial term of this Agreement shall be for a period of one year, from the date that this Agreement is signed by the Employer, unless terminated sooner in accordance with the provisions below. If not terminated at the end of the initial term, the Agreement shall thereafter renew automatically for one year terms. Either party can terminate the Agreement at the end of the initial term or the end of any renewal term by providing the other with written notice of nonrenewal at least 60 days before the expiration date. If this Agreement is terminated by Employer at the end of the initial term or any renewal term, such occurrence will be deemed a termination without cause and Employee will be entitled to receive the severance package set forth in Section 4.2. The Agreement may also be terminated during the initial term or any renewal term, as provided below. In the event employment is extended beyond the initial term, this Agreement shall continue to govern the terms and conditions of employment until termination of the Agreement, or unless the Agreement is modified by mutual agreement, in a writing signed by the parties.


4.1 Termination by Employee. In the event Employee wishes to terminate
the employment relationship, Employee agrees to provide a minimum of 60
days notice so that arrangements for a replacement can be made. Employee
shall be paid through the end of the notice period, provided Employee
continues working and cooperates fully with Employer during the transition
process. Employer may elect to relieve Employee of all duties at any time
during the notice period. In such case, no further payment is required by
Employer after Employee is relieved of all duties.


4.2 Termination by Employer Without Cause. Employer may terminate
Employee's employment at any time without cause or advance notice, provided
Employer provides Employee with a severance package that consists of
Employee's biweekly base pay for a period of one year from the date of
termination, such payments to be made on Employer's regular paydays. The
severance package shall also include continuation of Employee's health
insurance benefits on Employer's plan pursuant to an election of COBRA by
Employee. Employer shall pay the COBRA payments for Employee for the same
timeframe Employee is receiving base salary continuation. Thereafter, it
shall be Employee's obligation to make the COBRA payments to keep the
insurance in effect. Employee shall be entitled to receive the severance
package only if Employee executes a general release, releasing to the
fullest extent permitted by law all claims, known or unknown, that Employee
may have against Employer, including those arising out of or in any way
related to Employee's employment or the termination of Employee's
employment up to the date of execution of the release. For the purpose of
the release, the term "Employer" includes Anacomp, Inc. and all subsidiary
and related entities and their employees, officers, directors, shareholders
and agents. A termination without cause shall include a transfer of the
Employee to another location which is more than 35 miles from the
Employer's San Diego headquarters facility.


4.3 Termination by Employer for Cause. Employer may terminate the
employment relationship immediately upon written notice to Employee for
"cause," without the payment of any severance, unless Employer elects to
offer it. If a severance package is offered, it will be contingent upon the
execution of a general release, as described above. "Cause" for termination
shall be defined as:


4.3.1 Employee's failure to substantially perform the duties of
Employee's employment to the satisfaction of Employer, provided
Employee has first been notified in writing of any specific
deficiencies and been given at least 60 days to correct them. In the
event that Employee has not corrected the specific deficiencies within
60 days, Employee will be notified in writing and be given a final 30
days to correct them.


4.3.2 Employee becomes disabled, mentally or physically, and as a
result is unable to diligently, expeditiously and competently perform
all of the essential functions and duties of his position, with or
without reasonable accommodation, on a substantially full time basis
in accordance with the provisions of this Agreement and after all
applicable leaves of absence required by law and Employer's policies
have been exhausted.


4.3.3 Employee's death.


4.3.4 Employee engages in any conduct which has a substantial
adverse effect on the name or public image of Employer or is otherwise
detrimental to the business interests of Employer.


4.4 Compensation Upon Termination. Upon termination of employment, for
whatever reason, Employee will be entitled to receive Employee's base
salary, Incentive Compensation and all accrued but unused vacation,
prorated to the date of termination.


4.5 Return of Employer's Property. Upon termination of employment for
any reason, Employee agrees to immediately return all property of Employer,
including but not limited to, all computers, telephones and other equipment
that has been issued to Employee, all plans, programs, customer lists,
proprietary data and all other data or objects acquired through Employee's
employment with Employer.


5. Business Expenses. Employer agrees to reimburse Employee for all reasonable, out-of-pocket business expenses incurred in the performance of Employee's duties on behalf of Employer. To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation.


6. Confidential Company Information. Employee shall read, sign and strictly comply with the Confidentiality, Non-Competition and Non-Disclosure Agreement which is attached as Exhibit A and incorporated by reference herein.


7. Employee Innovations and Proprietary Rights Assignment Agreement. Employee shall read, sign and strictly comply with the Employee Innovations and Proprietary Rights Assignment Agreement, which is attached as Exhibit B and incorporated by reference herein.


8. Change of Control Severance Agreement. Employee shall read, sign and strictly comply with the Change of Control Severance Agreement, which is attached as Exhibit C and incorporated by reference herein.


9. Competitive Employment. During the term of Employee's employment with Employer, Employee will not directly or indirectly compete with Employer in any way, and will not directly or indirectly, alone or with others, engage in or have any interest in, any business, firm, partnership or corporation, whether as an employee, officer, director, agent, shareholder (except passive ownership of up to 5% of the securities in a corporation), volunteer, creditor, consultant or otherwise, that engages in any activity that is the same or similar to, or in competition with, any activity engaged in by Employer.


10. Non-Solicitation of Employees. During Employee's employment with Employer and for a period of one year thereafter, Employee will not directly or indirectly solicit any employee of Employer to leave Employer or to accept employment with another company, nor shall Employee otherwise induce or attempt to induce a current employee of Employer to terminate his/her employment with Employer.


11. Agreement to Arbitrate. Employee and Employer agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, their employment relationship, and any disputes upon termination of employment, except as provided in paragraph 11.1 below, to the fullest extent permitted by law. This method of resolving disputes shall be the sole and exclusive remedy of the parties. Accordingly, the parties understand that, except as provided below or as otherwise required by law, they are giving up their rights to have their disputes decided in a court of law and, if applicable, by a jury, and instead agree that their disputes shall be decided by arbitration.


11.1 Scope of the Agreement. The disputes subject to this agreement to
arbitrate include all potential claims between Employee and Employer
relating to employment, such as breach of contract, tort, discrimination,
harassment, wrongful termination, demotion or discipline, failure to
accommodate, family and medical or pregnancy disability leave, compensation
or benefits claims, constitutional claims and claims for violation of any
local, state or federal law or common law to the fullest extent permitted
by law. Claims for workers' compensation or unemployment insurance benefits
are expressly excluded. For the purpose of this provision, references to
"Employer" include Anacomp, Inc. and all subsidiary and related entities
and their employees, supervisors, officers, directors, shareholders,
agents, benefit plans, benefit plan sponsors, fiduciaries, administrators,
affiliates and all successors and assigns of any of them, and this
agreement to arbitrate shall apply to them to the extent Employee's claims
arise out of or relate to their actions on behalf of Employer.


11.2 Initiation of Arbitration. Either party may exercise the right to
arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the
other party of the substance of such claims. In no event shall the request
for arbitration be made after the date when institution of legal or
equitable proceedings based on such claims would be barred by the
applicable statute of limitations.


11.3 Arbitration Procedure. The arbitration will be conducted before a
single neutral arbitrator in San Diego, California. The parties are
entitled to representation by an attorney or other representative of their
choosing. The arbitrator shall have the power to enter any award that could
be entered by a judge of the Superior Court of the State of California, and
only such power. The arbitrator's decision shall be final and binding. The
parties agree to abide by and perform any award rendered by the arbitrator.
Judgment on the award may be entered in any court having jurisdiction
thereof.


11.4 Costs of Arbitration. Employer shall pay the costs of the
arbitration proceeding, such as the cost of the arbitrator. Each party will
bear its own attorneys' fees and the costs incurred in the preparation and
presentation of its case, except that the arbitrator may, in his or her
discretion, award reasonable attorneys' fees and costs to the prevailing
party.


11.5 Knowing and Voluntary Agreement. Employee acknowledges that at
the time of entering this Agreement, Employee was given the option of
entering or not entering this agreement to arbitrate. Employee recognizes
the potential benefits of arbitration, has read the arbitration provisions
of this section, and freely and voluntarily agrees to the same.


12. General Provisions.


12.1 Representations and Warranties by Employee. Employee hereby
warrants and represents that (a) the execution of this Agreement will not
breach or conflict with any other contract, agreement or understanding
between Employee and any other party or parties; and (b) Employee does not
have trade secret, confidential or proprietary information of any third
party the disclosure of which to Employer would conflict with or violate
the rights of any such third party or parties.


12.2 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Employer. Employer shall have the right
to assign its rights and obligations under this Agreement to a third party.
Employee shall not be entitled to assign any of Employee's rights or
obligations under this Agreement.


12.3 Waiver. Either party'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 that party thereafter from enforcing each and every
other provision of this Agreement.


12.4 Severability. In the event any provision of this Agreement, in
whole or in part, shall be found unenforceable by an arbitrator or, if
applicable, a court of competent jurisdiction, such provision shall be
deemed modified to the extent necessary to allow enforceability of the
provision as so limited, it being intended that the parties shall receive
the benefits contemplated herein to the fullest extent permitted by law. If
a deemed modification is not satisfactory in the judgment of such
arbitrator or court, the unenforceable portion of such provision shall be
deemed deleted, and the validity and enforceability of the remainder of
this Agreement shall not be affected thereby.


12.5 Interpretation; Construction. This Agreement has been drafted by
Employer, but Employee has participated in the negotiation of its terms.
Furthermore, Employee has had the opportunity to review and revise the
Agreement and have it reviewed by legal counsel, if desired, and,
therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.


12.6 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of California.


12.7 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be delivered as follows with notice deemed given as
indicated: (a) by personal delivery when delivered personally, (b) by
overnight courier upon written verification of receipt, (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission, or (d) by certified or registered mail, return receipt
requested, upon verification of receipt. Notice shall be sent to Employee
at the address set forth below, or such other address as Employee may
specify in writing. Notice to Employer shall be given to the General
Counsel of Employer.


12.8 Indemnification. Employer will defend and indemnify Employee in
accordance with Anacomp's Corporate Bylaws and the laws of the State of
California. Employer currently maintains insurance for officers and
directors. Insurance and coverages for officers and directors in future
years will be reviewed and approved by the Board of Directors.


13. Entire Agreement. This Agreement, including the exhibits to this Agreement, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only by a written agreement, signed by Employee and the President of Employer. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.


THE PARTIES TO THIS AGREEMENT, HAVING READ THE FOREGOING AGREEMENT IN ITS ENTIRETY, FREELY AND VOLUNTARILY EXECUTE THIS AGREEMENT ON THE DATES SHOWN BELOW.


Dated: 11/8/04
/s/ William R. Pesch
__________________________
William R. Pesch


__________________________
__________________________
Home Address


Dated: 11/8/04 ANACOMP, INC.
___________


By: /s/Jeffrey R. Cramer
______________________
Jeffrey R. Cramer
Chief Executive Officer


EXHIBIT A


ANACOMP, INC. EMPLOYEE CONFIDENTIALITY AGREEMENT ("Agreement")


In consideration of my employment by Anacomp, Inc. ("Anacomp"), and in consideration of the wages and benefits paid to me by Anacomp in connection with my employment, Anacomp and I agree to the following:


1. Confidential Information Defined. The term "Confidential Information" means all information I receive in connection with, or as a result of, my employment with Anacomp or that is or may be used or useful in the conduct of Anacomp's business, or the business of its customers, which confers or tends to confer a competitive advantage upon Anacomp or its customers over one who does not possess the information and/or which has commercial value in the business in which Anacomp and its customers are engaged. "Confidential Information" includes, but is not limited to, information relative to: Anacomp's trade secrets or inventions; plans and results of research and development; marketing strategies; lists of present or prospective customers; Anacomp's employees' unpublished financial information; all confidential or proprietary information of Anacomp's customers; equipment or configuration used by Anacomp; suppliers' lists; copyrighted material; operating and marketing systems; human resources management systems; software programs and source documents; special techniques of any kind peculiar to the operations of Anacomp; and all concepts, proposals, processes or information related to current, future or proposed business, products, services or sales of Anacomp and its customers which has not been previously released to the general public by authorized representatives of Anacomp, or if applicable, Anacomp's customers, whether or not such information would be enforceable as a trade secret enjoined or restrained by a court as constituting unfair competition. "Confidential Information" also includes all proprietary or confidential inf ...