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Case Study Anacomp

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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 its appraised fair market value or RTS’s investment plus a fixed profit. RTS had the right to extend Anacomp’s five-year marketing agreement an additional five years or to cancel it if Anacomp did not use its best efforts to market CIS.
For the contractual arrangements between Anacomp and banks, thirteen major banks, including the National Bank of North America in New York, the Shawmut…...

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