...Anacomp, Inc. 1. The economic entities that are involved in the development of Anacomp’s CIS software systems are: RTS Associates, Partners of RTS Associates, Banks, Anacomp Inc. and advisory banks. 2. - RTS Associates has a limited partnership agreement. RTS Associates pays the development fee of $6 million dollars. Next to this if the development fees exceeds $6 million RTS is required to pay for further development costs. In returm Anacomp will develop the CIS system on order of RTS Asscoiates and market the CIS System for five years on a commission basis. Anacomp also has the option to acquire all rights of the system at the greater of its appraised fair market value or RTS’s investestment plus a fixed profit. RTS Associates can extend the five year marketing agreement if Anacomp does not market the CIS System well. * Partners of RTS Associates does an investment in RTS Associates of $1.444 million. * A Bank loan worth of $3.25 million to RTS secured by bank letters of credit and personal guarantees of the limited partners. * Anacomp Inc. is developing the system and gives a loan to RTS Associates of $2.2 million which is personally guaranteed by the limited partners. If the development fees exceed $6 million they will provide another loan worth of $1.5 million. * Advisory banks participate for a nonrefundable fee of $150.000 each. The advisory banks are permitted to review the project during development and provide input regarding changes...
Words: 1069 - Pages: 5
...Case ANACOMP INC. By Hanyu LIU 6260268 1. Identify all the economic entities involved in the development of Anacomp’s CIS software system. The economic entities include Anacomp itself, a limited partnership RTS Associates, banks as co-developers- four CIS Primary Development Banks, and other banks contracted with Anacomp to provide loans or advisory services in the CIS project. 2. Describe the contractual arrangements between the economic entities involved in the CIS development. Who bears the majority of the risk of failure of the development effort? Who stands to gain most if the development effort succeeds? Are Anacomp’s shareholders better off or worse off with this arrangement, relative to in-house development of the system? For the contractual arrangements between Anacomp and RTS Associates: the two had entered into an agreement in November 1979. Anacomp agreed to develop the CIS system on behalf of the partnership. In return, RTS agreed to pay a development fee of $6 million, of which $2.2 million was paid in 1980. Upon completion of the development of the CIS system, Anacomp agreed to market CIS for five years on a commission basis. In addition, if the CIS development expenses exceeded $6 million and therefore RTS was required to pay further development fees, Anacomp agreed to loan RTS, without recourse to the limited partners, up to $1.5 million to complete the CIS system. Anacomp also had the option to acquire all rights to the CIS system at the greater of...
Words: 1939 - Pages: 8
...1. Evaluate Anacomp’s new product development strategy. What are the risks and benefits of this strategy for Anacomp’s shareholders? Anacomp new product development strategy was to implement a new software product which would help the company to become a leading supplier of software and services to the banking industry. The computer service industry was rapidly growing, but software production line, one of the segments of the industry, had a more prospect of rapid growth with an annual growth rate of 33 percent between 1981 and 1986. Anacomp mostly focused on this segment, believing that investment made in software segment would bring more than other segments. But, Anacomp followed its development strategy in an unusual and unique way. In this new strategy Anacomp tried developing a software system called CIS to financial intuitions. Because they believed CIS is a major upgrade to their existing software, they had an agreement with RTS associates because developing CIS had a weight cost for the firm. Under the agreement, Anacomp were to develop the CIS on behalf of the partnership. RTS would be paying a development fee of $6 million. Anacomp would be marketing the CIS for five years on a commission basis. Also, Anacomp had the option to buy all the rights of the CIS system at predetermined conditions. RTS also had the right to extend the 5-year marketing agreement but also to cancel the compliance. RTA financed the CIS development with their own money, a bank loan, and a personally...
Words: 1128 - Pages: 5
